Considering Labor Costs in Foreign Expansion

by Guest Blogger Nick Rojas

Ever since the National Science Foundation ended its sponsorship of the “NSFNET Backbone Service” on April 30, 1995 any remaining restrictions on using the Internet for commercial purposes were lifted. This resulted in a revolution for many industries, especially those focused on information and communication.
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All of a sudden, you did not have to go to the local library to look up information on subjects you were researching. You also no longer had to contact newspapers and magazines to issue job postings.

What was happening on a local level would soon cross international borders and connect entire workforces, industries, and populations. Outsourcing labor and expanding export and import infrastructures soon became a trending topic for an increasingly connected, global society of the 21st century.

Why Outsource?

The U.S. and large parts of Europe underwent massive economic growth in the second half of the 20th century. With all the growth, however, came the increase in local labor and energy costs.

This was one of the main reasons why many Western corporations began to invest into production facilities in foreign markets, where labor costs were comparatively low and where they could give local economies a boost.

Made in China

One of the nation’s becoming most popular during this era was China, which made a name for itself by offering high productivity at low wages – as low as 100$ a month for non-skilled labor in Chinese factories. The “Made in China” label, to this day, is synonymous with cheap manufacturing labor, as opposed to, for example, the equally famous “Made in Germany” (representing high quality engineering).

Even though China is a Communist country, it was able to build a capitalist economy integrated into the World market. This, however, combined with the increased exposure to Western standards and philosophies among the Chinese population – due to the Internet – has in recent years led to many demonstrations and a generally more pressing uprising of the Chinese labor force against corporations and the government, echoing what Europe went through during its Industrial Revolution in the 19th century.

So while China is still a cheap manufacturing market, investments into the nation’s cheap labor force are becoming increasingly risky considering the latest political developments, which are only now gaining momentum and will continue to raise awareness as the rest of the world learns more about the situation.

India – a Valuable Tech AllyNick2

If China is known for cheap manufacturing labor and Germany for first class engineering, then India is the nation that offers the highest density in talented software developers and other computer-based services.

There are two main reasons for this, the first one being that not only colleges, but Indian companies also invest into technology-related education of young adults. Secondly, since India’s industrial infrastructure is still catching up to Western standards, the chances of landing a job in the mechanical, electrical, or chemical fields are low. In addition to that, many American and European companies are increasingly outsourcing software-related labor to the Indian market, so this trend is not going to change anytime soon.

While China is struggling with an increasingly difficult political situation, an interesting synergy is starting to develop between Western and Indian people. The latest generation of entrepreneurs of companies like Facebook, Uber, and WhatsApp consists largely of Millennials, the first generation that grew up with access to the Internet.

Their exposure to global information and cultures has turned them into a tolerant, curious, and cosmopolitan generation. For Millennials, globalization is not a new development, but status quo.

As a result, they don’t see their Indian counterparts as just another source for cheap labor, but as potential partners who share the same passion and interest – technology. So while wages in India are still much lower – an experienced programmer in the U.S. makes up to $200 an hour, whereas Indian developers charge closer to $20-30 an hour – this growing “partnership” between generations and nations will have an impact on Indian labor costs, especially in the area of software development.

Other Markets

China and India have certainly become very popular for their outsource-friendly workforce, but South America and Africa are going to be interesting to watch over the next few decades as the United States is making significant investments into their local infrastructure, renewable energy, and banking system.

Conclusion

It might seem like commercial Internet has been around forever, but it has really only been around for two decades. Considering the massive impact on the global marketplace it has already had, it is clear that we will see dynamics shifting between foreign markets over the course of the next century, and labor costs will be one of the most important factors to watch.

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Nick Rojas is a business consultant and writer who lives in Los Angeles and Chicago. He has consulted small and medium-sized enterprises for over twenty years. He has contributed articles to Visual.ly, Entrepreneur, and TechCrunch. You can follow him on Twitter @NickARojas,. or you can reach him at NickAndrewRojas@gmail.com.

Is Kicking Out Illegal Immigrants Worth Looking Like Racists?

The U.K. government has recently declared that it would broaden its unpopular anti-illegal immigration campaign. The campaign has been aggressive in its methods that include putting ads on vans driving around London that cite “In the U.K. illegally? Go home or face arrest,” or sending mobile phone text messages or email to suspected illegal immigrants. Although the government received lots of criticism for the offensiveness of its campaign, the government will not stop taking its aggressive stance, as it believes illegal immigration has exacerbated the recent recession by taking away jobs for its innocent citizens. Prime Minister David Cameron’s Conservative party said its objective is to reduce annual net immigration to the tens of thousands from more than 200,000 in recent years.

Although the government’s intention behind the campaign is understandable, it is doubtful that its aggressive stance against illegal immigrants will be highly beneficial. Even if the campaign succeeds, there will be a negative consequence against the nation. Generally speaking, many of the illegal immigrants in the U.K. are blue-collar workers; manufacturing industries have been benefited with them as their labors cost cheaper. Therefore, if working illegal immigrants are caught and sent back to their home countries, the companies in such industries will take a hit in its business operations due to their labor losses and costs involving replacing them. Similarly, the home countries of the illegal immigrants will be indirectly affected by the campaign as well. In fact, the very unwanted illegal immigrants in the U.K. had been the benefactors to their economy in a sense that they acquired and sent foreign currencies to their families in home. Now, however, the immigrants who got kicked out from the U.K. will not only be able to bring them free money but also turn into their own problems that worsen the economy by increasing competitions in job markets.

This text was written and presented by Mr. Kyoung Ho Lee, Student at the McDonough School of Business of Georgetown University in the course on International Business (STRT-261-01) on October 21th, 2013. You can contact the author here.

 

Challenges Faced By Manufacturers Today


Source: USCIB

USCIB members took part in a panel discussion at the APEC (Asia-Pacific Economic Cooperation) Regulators Forum on March 30 in Singapore, drawing attention to some of the challenges manufacturers face in many countries with respect to chemicals regulation, which is having an increasing impact on downstream users of chemicals.

For the past several years the APEC Chemical Dialogue has discussed how best to contribute to APEC’s overarching goals of trade liberalization and business facilitation throughout the Asia-Pacific region.

The discussion this time around was productive, with a consensus among participants that regulating chemicals in articles is a complicated matter, and that further discussion on the topic is needed. It revolved around how various industries are dealing with the need to communicate substances in articles along the supply chain.

To read more on the subject, click here.