Dear ISM-New York Members,
One of my credit cards recently expired; one of the options for activation was to call a 1-800 number on the front of the card. I dialed the number on the card, someone answered in a pleasant voice to help me with this request. During the call I inquired about additional card services and was promptly transferred to a second person. During this second conversation I inquired about another card service and was promptly transferred to a third person. During the third conversation I was asked about my experience with the overall service provided and would I be willing to take a survey. I promptly declined; I had already spent several minutes on hold in-between call transfers. This was an interesting experience and one that is not unique to me.
Curious, I asked the caller what time was on the clock, they were 10 hours ahead. This was one of the many off shore experiences we have all had at some point, personally and professionally. This is the world in which we live; connected, operating 24 hours a day and in this case specialized. For back office operations and some related activities, moving off shore continues to be attractive even with rising wages overseas. Most CPO's and CFO's I have talked with feel that almost any job that can replicated in a Standard Operating Procedure (SOP) can be outsourced with the proper oversight. Looking back, outsourcing used to be exception just 10 years ago, now it's the new rule. The work of on-shore office specialists and labor intensive manufacturing are now routinely repackaged for export. Worried about the rapid pace of off shoring? Let's step back and look at new data.
A recent study by the Boston Consulting Group concluded that within the next five years, the total cost of production in many coastal Chinese cities will only be 10% to 15% less than in some parts of the U.S. The same study points to an emerging gulf in commercial real estate costs. China's national average is US $10.22 per square foot of industrial space, while in states like Tennessee and North Carolina it ranges from $1.30 to $4.65. Between 1999 and 2006, average wages in China went up 150%, and they continue to rise at an annual clip of 15% to 20% at the average Chinese factory. Add to that requirements in President Obama's jobs bills that all iron, steel and manufactured goods used in public buildings or public works be supplied by U.S. firms. A similar provision was included in the 2009 U.S. stimulus bill, specifying that U.S.-made steel and other manufactured goods were favored in government-funded building projects. To support these emerging companies many of the related industries will come back to the US as well.
What does all this mean? Well, in my opinion it signals a shift in how globalization affects our jobs in procurement. Change is taking place right in front of us. Some manufacturing and higher end customer service work is coming back to the US. We must dust off our skills in this area. As wages across the world gradually rise, the US now appears more attractive to firms. No, it doesn't mean off shoring is dead, depending on the business and type of product or service, sometimes it makes sense to outsource and sometimes it doesn't. When wages were really low in Asia, it made sense to make and outsource just about everything there, which actually caused wages to go up, and that caused a re-balancing to take place. China is now moving into the middle class phase of economic development; about 310 million Chinese consumers now have more disposable income than a decade ago.
Globalization is actually pushing up
wages faster than most people expected. The rising standard of living
across the world should continue to benefit US firms seeking new markets to
sell goods and services. Of Nike's 2010 earnings, 60% came from emerging
markets, mostly in Asia. Coca-Cola now gets 70% of its revenues from
outside of the U.S. This trend holds true for many financial services
firms as well. In the short term, moving services off shore will continue
to be attractive to CFO's and CPO's seeking to drive down cost. What can
a procurement professional do in this climate of constant change? I suggest
that you diversify your portfolio of knowledge. Diversification is a good
strategy with your investments and it can do the same in your professional
I can't predict the future but acquiring new skills seems to be a good strategy for the foreseeable future. Join us as a member of ISM-New York and let's continue the conversation on the future of the profession and your immediate strategy for development. Last month we listened to the CPO's of Morgan Stanley, Colgate, and The Bank of Tokyo share their thoughts on the Future of Procurement. It was a great session with leaders sharing their thoughts on our profession.
Networking, Thought-leaders, Knowledge Sharing and Conversation, each month with ISM-New York.
President, ISM-New York