Outsourcing and Offshoring

When I think about cola, Coke comes first in my mind. When I think about music, iPod comes first in my mind. When I think about outsourcing, India comes first in my mind and when I think about offshoring, China comes first in my mind.

God knows how I envy both China and India that much because of the opportunities that come their way. It is so amazing how these two countries manage to dominate the flat world and left us with nothing but dust as they chase every single opportunities that comes their way.

Offshoring has been around for decades, is different from outsourcing. Outsourcing means taking some specific, but limited, function that your company was doing in-house-such as research, call centers or accounts receivable and having another company perform the exact function for you and then reintegrating their work back into your overall operation. Offshoring, by contrast, is when a company takes one of its factories that is operating, and moves the whole factory offshore. There, it produces the very same product in the very same way, only with cheaper labor, lower taxes, subsidized energy and lower health care cost.

India

In 1951, India’s first Prime Minister, Jawarlal Nehru, setup the first of India’s seven Indian Institutes of Technology in the eastern city of Kharagpur. In the fifty-five years since then, hundreds of thousand of Indians have completed to gain entry and then graduate from these IIT’s and their private sector equivalents. It’s like a factory, churning out and exporting some of the most gifted engineering, computer science, and software talent on the globe. The IIT’s became island of excellence by not allowing the general debasement of the Indian system to lower their exacting standards. You couldn’t bribe your way to get into IIT. Candidates are accepted only if they pass a grueling entrance exam. The government does not interfere with the curriculum, and the workload is demanding.

They were producing people with quality by quantity. But many of them rotted on the docs of India like vegetables. Only a relative few could get on ships and get out. For decades they had to leave India to be professionals not until, Y2K came along.

It was the Y2K computer crisis-the-so called millennium bug-started gathering the horizon. Remember the six digits clock inside our old computer: 12/31/99. I could still remember this kind of question thrown at me when I was asked by a panel right in front of a thousand people during my college years.

This computer remediation work was a huge, tedious job. Who in the world had enough software engineers to do it all? Answer: India, with all the techies from all, those IIT and private technical colleges and computer schools.

And so with Y2K, it became a huge flattener, because it demonstrated to so many different businesses that the combination of the PC, the internet, and fiber-optic cable had created the possibility of a whole new form of collaboration and horizontal value of creation: outsourcing.

Y2K represent the biggest opportunity for India. Y2K became their engine of growth, their engine of being known around the world. And they never look back after Y2K.

Later, as soon as the United States gets acquainted more and more function have been transferred to India such as mission critical and complex systems-India immediately respond with great quality and lower labor cost-which created an enormous respect for Indian IT providers. This was the falling-in-love process. By the time they were handling mainframe and e-commerce-now their married.

The internet boom laid the cable that connected India to the world, and the burst made the cost of using it virtually free and so vastly increase the number of American companies that would want to use the fiber-optic cable to outsource knowledge work to India.

Being hungry and ready to learn anything was the key factor that separates India to its neighboring country including the Philippines.

China

On December 11, 2001, China formally joined the World Trade Organization, which meant Bejing agreed to follow the same global rules governing imports, exports and foreign investments that most countries in the world were following. Joining the WTO gave a huge boost to another form of collaboration-offshoring. There it produces the very same product in the very same way, only with cheaper-labor, lower taxes, subsidized energy and lower health care cost. WTO took Bejing and the world to a whole new level of offshoring-with more companies shifting production offshore and then integrating it into their global supply chains.

Once the offshoring process began in a range of industries the only ways other companies could compete was by offshoring to China as well.

China is a threat, China is a customer, and China is an opportunity. You simply can’t deny China.

When I was young and until at present, every time I look at every toy, shoes, gadgets you name it, somewhere behind those piece of material has a trademark of “Made in China.” Even 168 stores in Manila have a very dynamic customers ranging from individuals to retail owners.

As we move on, one of the most common observation that I see to companies in the United States and Europe is instead of competing with China as an enemy, they break down their business and think about which part of the business they would like to do in China. Which part they would like to sell to China, and which part they want to buy from China.

In thirty years China will have gone from “Sold to China” to “Made in China” to “Designed in China” to “Dreamed up in China”

China as collaborator with the worldwide manufacturers on nothing to China as a low cost, high quality, hyper-efficient collaborator with world wide manufacturers on everything.

In other words, China is to become the center of everything.

China is developing very rapidly and making the shift from low-grade products to high grade, high tech ones.

The advantages for manufacturing in China, for certain industry, are becoming overwhelming, and not to be ignored. Either you got flat or you’ll be flattered by China. China is in no doubt racing with the United States on top. I think that three United States are better than one and five would be better that three.

Can China dominate everything? Answer: Of course not.

Reflections

As I look back and think of the two emerging super power countries: India and China. I began to internalize some of the important points that made them who they were today. It is very important to know these points in order for me to end my envious desire and to proceed with competition head to head. I would love to see myself experiencing the competition and feel the thrill rather than sitting at the back and watch them fly.

Here are the three key points that I found. That’s it. No big deal.

My first key point is: it was how they mined the brains of its own people, educating a relatively large slice of its elite in the science, engineering and medicine. It reaped what it had sowed through hard work and education and the wisdom of elders.

My second key point is: their ability to collaborate with the western companies was the key to change their life.

My third key point is: think globally. Compete globally.

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