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A grim outlook for global outsourcing
As global wages rise, more business leaders will turn to education and training to maintain productivityBy Edward Gordon
The outsourcing fad that has swept across American business may be running out of steam. The third quarter of 2006 was the outsourcing industry’s worst quarter in four years. What gives?
Reality finally may be dawning on business leaders who have been seduced by low wages in foreign countries, believes Bart van Ark, director of international research for The Conference Board. Although many American workers lack important skills, workers’ skill levels in emerging economies—such as Mexico, India and China—are much lower, he cautions.
From a practical standpoint, that means that Mexico’s wages may be lower than U.S. wages, but that the average Mexican worker also produces much less than the average U.S. employee. You also must account for other factors that reduce productivity—such as physical infrastructure limitations, local government or police corruption, and bureaucratic red tape. After considering all that, you begin to appreciate all the restraints on productivity that occur from doing business overseas.
The bottom line is that countries such as China and India have low wages because of low productivity, according to the World Bank report Global Economic Prospects 2007: Managing the Next Wave of Globalization. Van Ark estimates that the productivity of China’s manufacturing workers is only 14% of their American counterparts. Advanced technologies can address part of the productivity shortfall, but that solution only increases the demand for engineers and other skilled technicians.
And contrary to conventional wisdom, those workers are in short supply. Though China graduates 400,000 engineers a year from its institutions of higher learning, only 100,000 of them are educated at world-class standards. And in India, investment firm Goldman Sachs predicts a shortage of 500,000 qualified IT workers by 2010.
Indeed, a scramble now is on in both China and India to find more welleducated people. As a result, wages for skilled workers are rising rapidly. In general, van Ark finds that wages in emerging economies are rising faster than they are in the United States. In China, for example, real wages rose 110% between 1989 and 2004, according to the World Bank study.
The real solution
As countries introduce advanced technology, they increasingly rely on the quality of their employees to compete. Indeed, education is becoming the "black gold" of 21st-century economics, says the Organization for Economic Co-operation and Development in the 2006 edition of Education at a Glance. The size of each nation’s educated class will matter more with each passing year.
That’s why fund managers at both Goldman Sachs and Merrill Lynch now are advising U.S. organizations to increase investment in both physical and human capital over the next decade.
Between 2010 and 2025, up to 95 million baby boomers will leave the U.S. workforce, but only 40 million members of Generations X and Y will be available to replace them. And unfortunately, as a group, those replacement workers have lower critical competencies. Though proficient in using technology, few have entered the applied science and math technical careers that are the critical drivers of the everyday U.S. and global economies.
Beyond outsourcing
It’s clear that outsourcing will not address that skills shortfall. But greater long-term investment in the workforce will. We need to prepare the next generation of workers now to keep the U.S. economy on top. After all, the nations with the besteducated workforce will be the ones to discover "what comes next."
Edward Gordon is the author of The 2010 Meltdown: Solving the Impending Job Crisis and president of Imperial Consulting Corp. in Chicago and Palm Desert, Calif. He is also a member of the Trend Letter advisory board. Gordon can be reached for questions or comments at imperialcorp@juno.com.
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Read "Workforce Crisis," an Ed Gordon interview on the major culture changes needed to keep the American economy competitive.
A Margaret LeBrun editorial in Marketplace Magazine features Ed Gordon's comments on preparing youth for future careers. Read "Preparing Our Kids for a Global Economy."
"No Meltdown for NAWDP Attendees in Nevada," Workforce Weekly (Missouri Career Center), May 25, 2007.
In this article, Rod Nunn, Director, Division of Workforce Development, State of Missouri, records his very enthusiatic response to Edward Gordon's keynote speech at the 2007 Annual Conference of the National Association for Workforce Development Professionals. Nunn highlights key challenges and solutions from both this speech and The 2010 Meltdown.
Read No Meltdown
"A Changing World," by Kathleen Vail, American School Board Journal, January 2007. In this cover article on how career and technical education are taking center stage in U.S. high-school reform, Ed Gordon is quoted on how today's jobs require better-educated people (with higher math, writing, and reading skills). He also states that career education in high school can be a factor in halting drop outs because it helps students "see the connection between what they study and the real world."
In "Worldwide Demographic Crossroad Nears," appearing in the August issue of Quality Progress, Hank Lindborg quotes The 2010 Meltdown and interviews Ed Gordon on strategies that individuals, organizations and communities can use to cope with emerging technology skills shortages.
In "Is Offshoring the Answer to the 2010 Labor Shortage,"
Ed Gordon answers three questions on this topic. See
IT Business Edge.
Future Speeches
July 16, 2008
Keynote Address: "More & Better:
Preventing a Workforce Meltdown"
Our Community Forum: A Call to Action
Workforce Plus
Ramada Inn
Tallahassee, Florida
August 13, 2008
Address: "More & Better: Preventing a Workforce Meltdown"
Faculty and Staff Workshop
Kaskaskia College
Centralia, Illinois
August 19, 2008
Workshop: "Winning the Global Talent Showdown"
Berrett-Koehler Management Team
San Francisco, California
September 18, 2008
Keynote Address: More & Better: Preventing a Workforce Meltdown"
Upper Great Lakes Economic & Workforce Development Summit
Michigan Works!
Northern Michigan University
Marquette, MI
Current Articles
Retiring Retirement: Mastering the Workforce Generation Gap, Benefits & Compensation Digest, July 2007.
In view of the workforce talent deficit now on the horizon as baby-boomers begin to retire, Ed Gordon explores HR policies for recruiting and retaining skilled workers. Varying strategies are outlined for the different needs and priorities of baby boomers and Generations X and Y.
Reprinted with permission from Benefits & Compensation Digest, Volume 44, Number 7, July 2007 pages 1, 16-20 published by the International Foundation of Employee Benefit Plans (www.ifebp.org), Brookfield, WI. Statements or opinions expressed in this article are those of the authors and do not necessarily represent the views or positions of the International Foundation, its officers, directors, or staff. No further transmission or electronic distribution of this material is permitted. All rights reserved.
The Global Search for Talent, MWorld, Spring 2007.
This article focuses on the pitfalls of relying on China to fill U.S. deficits of workers for high-skill technical jobs. While China's economy is rapidly expanding today, its future development hinges on overcoming serious challenges in education, demographics, banking, and corruption. Current U.S. corporate reliance on outsourcing goods and services for quick profits faces twin perils -- China's uncertain parth toward a free and open marketplace, and the possibility that U.S. companies may lose the ability to produce key goods and services on their own.
How Can America Meet Needs of Business in High-Tech Age? Chicago Sun-Times, December 23, 2006.
A looming shortage of technical workers is a worldwide issue. Ed Gordon draws from his examples in The 2010 Meltdown to illustrate how communities across the United States are addressing this problem.
White Paper: The Incredible Shrinking Book: The Waning of Print Reading and Its Consequences for America, April 2006.
Amplifying his recent keynote speech to the Ohio Association of Adult and Continuing Education (OAACE), Ed Gordon's White Paper provides futher evidence of the consequences of declining American literacy levels.
Read The Incredible Shrinking Book
Solving the Impending Jobs Crisis, Executive Matters (American Management Association), March 2006
Ed Gordon warns that the "great mismatch of too many low-skilled workers and too many high-skill jobs is set to reach stellar heights." Too many Americans are being prepared for the wrong jobs and not enough are being equipped with the technological and scientific skills needed in the workforce. This growing labor-market imbalance threatens the future of the U.S. economy. Health care, manufacturing, IT, and the skilled trades are paticularly critical sectors. Many more companies and communities need to take the lead in worker retraining and student career-education programs.
Outsourcing: Supply Will Not Meet Demand, The Desert Sun, March 20, 2006
A 2005 National Association of Manufacturer's survey reported that many companies are finding it difficult to find skilled production employees and qualified engineers and scientists. Outsourcing and H1-B visas are the favored current strategies to fill such vacancies. However, Ed Gordon warns that Europe, Canada, and Japan, like the United States, are facing demographic meltdowns due to baby-boomer retirements. While India and China have vast populations, the majority live in rural areas and receive an elementary education at best. The United States needs to make profound adjustments to its education and training systems to produce a much higher skilled workforce.
Books
A Korean language edition of The 2010 Meltdown is now available produced by Somdol Publishing. The Korean edition is entitled: The 2010 Meltdown: The People Paradox.
The Tutoring Revolution: Applying Research for Best Practices, Policy Implications, and Student Achievement has just been published by Rowman & Littlefield Education. More information on this new title can be found at:
TutoringLiteracyResources.com
