Globalization has been brutal to midwestern manufacturers like the Paper Converting Machine Co. For decades, PCMC Green Bay (Wis.) factory, its wooden factory floors worn smooth by oiled work boots, by the equipment increasingly complex weaving, folding and packaging printing prospered everything from potato chips to baby wipes.
But PCMC has hard times before. First came the 2001 recession. Then two years ago, said one of the largest customers of the company to reduce its prices by 40% of the machines and the urge to move production to China. Last year bought a stake in St. Louis, Barry-Wehmiller Cos., the manufacturer and promptly cut workers and nonunion pay. Immersed in five years, sales rose 40% to U.S. $ 170 million has reduced its workforce from 2000 to 1100. Employees have been traumatized, says operations manager Craig Compton, a muscular former hockey player. "All I hear is from China and all these businesses are closing or taking their operations overseas."
But now, Compton says he is "probably the most optimistic I've been in five years." Hope comes from an unusual source. As part of its turnaround strategy, the work of Barry-Wehmiller Design is planning to move its engineering center in Chennai 160, India. By having U.S. and Indian designers and 24/7, explains Vasant Bennett, president of Barry-Wehmiller engineering services unit, is expected to reduce development costs and PCMC time, win orders it often missed due to technical limitations - and keep production in Green Bay. Barry-Wehmiller says the strategy already in some of the benefits bought 32 machines from other manufacturers medium in the United States strengthened. "We can gain a competitive advantage and great American jobs," promises CEO Robert Chapman. "But not without offshoring."
Come again? Revived in the passage off the coast of skilled labor and a broad debate a political firestorm three years ago, was portrayed as the killer of good-paying jobs in America. "Benedict Arnold CEOs" hire software engineers, computer support staff and good collectors credit card to take advantage of low wages in poor countries. U.S. workers suddenly face a new threat to seriously compete, even with high technology and professional services that are against the legions of hungry college grads in India, China and the Philippines, twice as difficult to work fifth for wages.
Fears of workers have a basic knowledge of the law. The main motivation of most corporate accountants who jump on the train had jumped the relocation to take advantage of "labor arbitrage" as - the huge wage gap between industrialized and developing countries. And no doubt, big layoffs that often accompany large outsourcing operations.
Slide Show >>Change can be difficult and profound. But first a more enlightened, strategic view of global sourcing, which appears as a manager will receive an update of their potential. The new buzzword is "transformational outsourcing." Many executives of offshoring is really to discover the company's growth, better use of skilled personnel from the United States, and even job creation in the U.S., not just low wages abroad . Despite the labor savings of global sourcing can still be strong. But that's peanuts to huge gains in efficiency, productivity, quality and performance, which can be fully used by the offshore talent can be achieved in comparison.
Way to employers as Chapman see a chance to die for companies with accelerating the pace of development projects of innovation, or funds that would otherwise be inaccessible. Subcontractors seeking more aggressive radical models that create commercial advantage and can play the game in their industries. Old-line multinationals see offshoring as a catalyst for a broader plan to reform the outdated office operations and prepare for new competitive battles. And while some want to downsize, others are ready to release the analysts, engineers and marketers of expensive routine tasks so they can spend more time on innovation and customer service skills. "It's not labor costs," says Daniel Marovitz, chief technology management for global trade of Deutsche Bank. "The problem is that if you do not, will not survive."
The new setting will allow companies in the U.S. and Europe in almost all industries. Ask executives at Penske Truck Leasing why the company outsources dozens of business processes to Mexico and India, and they cite greater efficiency and customer service. To ask the manager of U.S. and Dutch professional publishing giant Wolters Kluwer (WTKWY), why are having to change software development and editorial work to India and the Philippines, and say, you miss the opportunity to pump a large selection of books, magazines and Web content faster. Ask Wachovia Corp. (WB), Charlotte (North Carolina) based in the bank, so the color is only $ 1.1 billion with India's Genpact to outsource finance and the positions accounting work and why it handed the administration of its human resources programs Lincolnshire (Illinois)-based Hewitt Associates (HEW). It is "what we have to do to become a business relationship with major customers need," says Director of Corporate Development, Peter J. Sidebottom. Wachovia wants to reinvest up to 40% of U.S. $ 600 million to 1 billion dollars is intended to supplement the cost of more than three years in the branches, ATM machines and staff to strengthen the heart of business.
Here's what such transformations typically require: Genpact, Accenture (ACN), IBM Services, or other specialized equipment subcontracting great cause at the bottom workflow of a whole human resources, finance, technology department information or to dissect. The team is building a new platform, designed all new processes and administers programs as a virtual office. The contractor then distributed the work among global networks of staff ranging from U.S. to Asia Eastern Europe.
In recent years, Procter & Gamble (PG), DuPont (DD), Cisco Systems (CSCO), ABN Amro (ABN), Unilever, Rockwell Collins (COL) and Marriott (MAR) were among the signatories of these agreements mega, billions.
"Houses of Chiefs of almost all large companies, now in the very articulated outsourcing strategies with" In 2004, for example, Wyeth Pharmaceuticals transferred its operations to Accenture Ltd. clinical trial, said Peter Allen, global director of management services to TPI, a consulting firm that advised on 15 major outsourcing contracts last year worth $ 14 billion €. "Many CEO said:" Do not tell me how I can save. Show me, how can 40% without increasing our ability to grow in the U.S. "said Atul Vashistha, CEO of neoIT consulting outsourcing and co-author of The Nation to the sea
Some observers believe even large corporations turn on the threshold of a new burst of productivity growth, in part due to offshore outsourcing as a catalyst. "Once this transformation takes place," predicts Arthur H. Harper, former CEO of the management teams of General Electric Co. 's, "I think we will end up with companies offering products at lower cost and faster in a better position to compete with anyone in the world. shed "As business leaders, most operations are also promoting a new debate on the future company will look like. Some experts suggest that managing the "Company fully unbundled", where each function is not removed is considered critical.
PROCESS, are now on saleIn theory, you can always buy off the shelf, practically any function you need to run a business. Want to start a budget airline, but will not invest in a large back-office? Accenture's Navitaire unit can manage reservations, plan routes, assign crew, and calculate optimal prices for each seat
Have a cool new telecom or medical device but lack market researchers? For about $ 5,000, clothes such as analysis Evalueserve Inc. New Delhi in a day, a team of patent lawyers in India, engineers and business analysts, database mining around the world and start calling dozens of U.S. experts and wholesalers to provide an independent assessment.
Want to sell quickly a new mutual fund or insurance? Service providers such as Tata Consultancy Services Ltd for building software platforms, the need for the creation of any business process and ensure that all regulatory approvals. A sister company, Tata Technologies has 2,000 engineers in India and has recently purchased 700 employees Novi (Mich.) auto and aerospace engineering firm INCAT International plc. Tata Technologies can now handle any change in the provision of a detailed design specifications for the interior, chassis and electrical systems for the design of tools and plant floor. "If you assign the vehicle development process, we are able to deliver all parts of it," said Chief Operating Officer Jeffrey D. Sage, a veteran of IBM and General Motors Corp. (GM) . Tata is designing the door of a future truck, for example, and the drive train for a U.S. sedan. The company develops 100 engineers with experience in the wages of U.S. $ 100,000 and more.
Some large companies have tried all these options. But some, like Procter & Gamble, show that the ideas are not extravagant. Over the past three years, $ 57000000000 consumer products company has outsourced everything to infrastructure and human resources needed to run their offices from Cincinnati to Moscow. Alan G. Lafley, CEO has announced that half of all new P & G products abroad by 2010, compared to 20% now. Forecasts for the foreseeable future, some analysts, Detroit and European carmakers follow the path of the PC industry, focuses on foreigners to develop new models bearing their brand names for development. BMW did the same with a sport utility vehicle. And Big Pharma will provide the most effective drugs on the market at a fraction of current costs on average $ 1000000000 alliance with partners in India, China and Russia in molecular research and clinical development.
Of course, companies have outsourced the management of computer systems from the likes of Electronic Data Systems (EDS), IBM (IBM) and Accenture for over a decade, while Detroit has given many outside engineering work design companies. Futurists "hollow" and "virtual" the issue in 1980.
It has not happened yet. Reengineering a company may make sense on paper, but it is extremely expensive and involves great risks if executed poorly. Companies can not easily be disassembled and reconfigured like LEGO sets are crazy after all. Are complex living organisms, which are thrown into convulsions if a transplant can be sloppy. Valued employees send their resume, customers are outraged at deteriorating service, a brand can be damaged. In surveys, consultants, what is more, many U.S. managers complain about the quality of outsourced work and unexpected expenses.
But as companies understand how to fold, increasing the offshore option is changing the economics of reengineering. With millions of low-cost engineers, financial analysts, consumer marketing and architects now readily available on the Internet, CEOs see faster ROI. "Before, it was that the company struggled in recent years to show an increase of 5% or 10% of the productivity of outsourcing," said Pramod Bhasin, CEO of Genpact, turn to the processing unit 19,000 people GE back-office last year. "But by offshoring work, you can save from 30% to 40% the first year" in labor costs. Can produce efficiency gains, $ 10000000000 A company might initially only shave a few million dollars in wages after transferring back-office procurement or bill collection overseas. However, better management of these processes could free hundreds of millions of dollars of cash flow per year.
These savings, in turn, will help attract corporate restructuring is much larger and can be truly transformed. DuPont has long wanted to fix its unwieldy system for administering records, payroll and benefits for its 60,000 employees in 70 countries, with data scattered among different software platforms and business units worldwide. By awarding a long term contract to Cincinnati-based Convergys Corp., the world's largest operators of call center to reshape and manage their human resources programs, expected to cost up to 20% in the first year and 30% decline thereafter. For corporate support for the move, "certainly contributes a lot of savings from the beginning," said DuPont Senior Human Resources Vice President James C. Borel.
Creative new companies, outsourcing opportunities faster than established players. Crimson Consulting Group is a good example. Los Altos (Calif.) market research worldwide on everything from routers to software for clients such as Cisco, HP and Microsoft (MSFT) has only 14 full time employees. But the research firm of India Evalueserve and some 5,000 other independent experts from Silicon Valley to China, the Czech Republic and South Africa. "This allows a small company like ours to compete with McKinsey and Bain on a very comprehensive, with a very low cost," says CEO Glenn Gow. Former GE Executive Harper is on the same wavelength. Barry- Wehmiller his new partner of five plans to buy private equity firm that fights and medium enterprises businesses use offshore outsourcing to revive him. Harper NexGen Capital Partners also plans to sell most of their own work in the office. " People who understand this will be from day one and never had a back room, "says Harper." They will outsource everything they can. "
Certain third parties to challenge the aggressive use of its low cost, ultra efficient business models for holders. Pasadena (Calif.)-based IndyMac Bancorp Inc. (NDE), founded in 1985, represents the new generation of financial services companies. In three years, IndyMac has risen from 22 largest U.S. issuer of mortgage No. 9, while the return on equity above 18% in 2004, most competitors. The austerity of the original technology to process, price and approve loan applications in less than a minute.
But IndyMac also writes his own expense aggressive outsourcing strategy, the CEO Ashwin Adarkar says retail banking, which helped, "productive, cost effective and flexible than its competitors with better customer service." IndyMac is using 250 mostly Indian staff from New York, Cognizant Technology Solutions Corp. (PSC) to build a platform for the next generation of software and applications expected efficiency of at least 20% in 2008 to increase. IndyMac has also begun to delegate tasks, ranging from bill collection to "welcome calls" that borrowers in the United States their first mortgage payments on time, to help India and Exlservice Holdings Inc. its staff of 5000. Exlservice overall process and other providers of India in 33 offshore back office. But instead of the loss of American jobs, IndyMac has doubled its workforce in the United States nearly 6,000 in four years - and is still the scene.
Superior ServiceClever use of offshoring juice player performance well established. Five years ago, paid by Penske Truck Leasing, a joint venture between GE and Penske Corp., 768 million for trucker Rollins Truck Leasing Corp. - just in time for the recession. Customer service, among the four call centers in the United States, distributed, was inconsistent. "I realized our business needed a transformation," says CFO Frank Cocuzza. Started with a workstation a few dozen largest call centers in Mexico and India, GE, now called Genpact. Genpact and restructure most of its back office. This list now includes 30.216 million truck leasing process and logistics services for customers concerned.
Now when a Penske truck stops at a weigh station because it lacks a certain permit, for example, the driver calls an 800 number. Genpact staff in India obtains the document over the Web. The weighing is done electronically, notification, and the truck is back on the road within 30 minutes. Penske thought it was good when he reached in two hours. And if a driver has completed its work, the complete file, including mileage records sent, tolls and fuel purchases, Mexico, punched into computers and processed in Hyderabad. Overall, 60% of 1000 workers handling Penske back-office processing in India or Mexico, and Penske started yet. Under a new program, if a manufacturer asks Penske to arrange delivery to a buyer to help indigenous people, schedules and billing invoices. $ 15 million in savings in direct labor costs are low compared to efficiencies and customer service, Cocuzza says.
Big Pharma takes place also dramatically increases the efficiency. Eli Lilly & Co. 's (LLY) are more productive than most, having released eight major drugs in the past five years. But every new drug, Lilly estimates it invests a heavy 1.1 billion. This could reach 1.5 billion in four years. "These costs are generally not sustainable," says Steven M. Paul, Lilly & T executive vice president. Outsourcing is widely used in Lilly's strategy to reduce these costs to $ 800 million. The pharmaceutical company has contributed 20% of its chemicals factory in China for a quarter of U.S. funds, and laboratory costs of implementation, Shanghai Chem-Explorer Co., with 230 pharmacies. Lilly is now seeking the costs of clinical trials in human patients, to reduce the amount of $ 50 million to U.S. $ 300 million drug, and expand these efforts in Brazil, Russia, China and India.
Other manufacturers and high technology companies learn to use in the global talent pools to rush products to market faster and at lower cost. ONStor Inc., Los Gatos (Calif.) developer of storage systems, said his alliance with engineering services, held in Bangalore HCL Technologies Ltd. enables you to get customized products to clients twice as fast as its rivals large . "If we hire a great engineer in Silicon Valley, our timeout is three months," said CEO Bob Miller. "With HCL, we can pick up the phone and someone in two or three days."
These strategies offer a glimpse of productive uses of global outsourcing. But most experts remain cautious. The McKinsey Global Institute estimates $ 18400000000 in the global economy of IT work and $ 11.4 billion in business process management have been transferred abroad so far - only a tenth of the market potential abroad. One reason is that leaders have much to learn about the use of foreign talent to boost productivity. Professor Mohanbir Sawhney Northwestern University Kellogg School of Management, a self-proclaimed "big believer all ventilation," says: "One of our tasks in business schools is to train people to manage virtual organizations, how to manage globally distributed employees you. can not see? "
The management challenges will grow more urgent as global wage growth dissipate the easy cost gains from offshore outsourcing. The winners of the future will be better able to connect global talent to transform themselves and their industries, better jobs for all
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