Competition as well as Cost Drives Job Exports

In the United States in particular, this year being an election year, the migration of jobs overseas, -- blue-collar manufacturing jobs, midlevel service jobs as well as white collar positions -- is a hot button issue, to be sure.

China and India, in particular are threats or promises,

depending on one's perspective. But the widely-held belief that cost cutting is all that’s behind the export of white collar jobs from established economies to low cost regions such as India and China has been turned upside down by a new study.

The report finds other factors such as falling education standards, low per capita productivity and punitive taxation levels are equally to blame.

Although cost is a major contributing factor, many other fundamentals underlie the apparent exodus of white-collar professional jobs from rich, established economies like the United States to low cost regions. These include the availability and general skill level of local workers and a pro-business environment that avoids punishing taxation levels.

Moreover, rather than attacking this job exportation, critics would be better off accepting it for what it is: a very clear and loud warning that unless established economies such as those in the United States and Germany get their own houses into order in terms of educational standards, research investment, business innovation, training and productivity, the trend will only continue.

According to a study entitled the "Offshore Location Attractiveness Index" by global management consultancy firm A.T. Kearney, the top 25 countries in the study’s rankings offer a wide range of attractions above and beyond cost, compared to more established white collar countries..

Large population countries such as India and China, and to a lesser extent, Russia, Brazil and the Philippines, are said to offer vast pools of educated workers. At the other end of the spectrum, small, highly-developed economies like Singapore, New Zealand, Ireland and Australia are said to offer excellent infrastructure, education systems and business-friendly low risk environments that also make them attractive offshoring locations.

India, which is now an established leader in offshore IT and business process outsourcing, tops the study’s index by a wide margin and was ranked first not only for cost advantages but also for the depth and breadth of its offshoring experience and people skills, favorable tax rates and high English language skills.

While trailing India in terms of its language skills and experience, China ranks second, thanks to a similar combination of low-cost, high-volume skills and a large educated labor pool, according to the study. China has been particularly successful at becoming an offshore location for Japanese and Korean companies, as well as for U.S. and multinational companies of various origin.

Of course, this is no secret to the semiconductor industry.

Both China and India score poorly, however, for political and economic risk and poorly developed infrastructures. China also scores particularly poorly in areas of IP piracy and bureaucratic red tape, and needs to improve its English language skills if it wants to better challenge India, the report states.

Malaysia, Singapore and the Philippines also rank in the top 10, confirming the strength of Asia in the global offshore market. Meanwhile, the Czech Republic, Poland and Hungary are said to score highly because of growing interest in offshoring among Western European companies. Brazil and Chile lead the pack in Latin America.

Higher Income Countries Don't Have to Lose Out

Higher income locations like Canada, New Zealand and Australia are further said to perform well and prove that developed countries can be profitable offshore destinations despite their higher cost structure. This is primarily because of higher education levels -- all higher income countries contending as offshore locations score highly on standardized international assessments of mathematical, scientific and reading literacy -- as well as infrastructure quality and pro-business political and taxation environments.

"Countries concerned about exporting jobs should address the factors they can affect on their own shores," summarizes A.T. Kearney's Paul Laudicina, co-author of the report. "There is no silver bullet.

"But by raising educational standards, investing in research, providing more extensive training and reinforcing the culture of innovation, [established rich economy] countries can remain competitive, gaining the productivity benefits of offshoring while minimizing and managing the short-term risks."

The top 12 global offshore locations in 2004, according to A.T. Kearney are as follows:

1. India2. China3. Malaysia4. Czech Republic5. Singapore6. Philippines7. Brazil8. Canada9. Chile10. Poland11. Hungary12. New Zealand

Electronics News http://www.electronicsnews.com.au/default.asp is the Australian sister pub of Electronic News.