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Globalization–Transforming the Way America Works

More on Outsourcing . . . 

The following is the continuation of a discussion about globalization with University of Michigan Business School faculty members: Izak Duenyas, the John Psarouthakis Professor of Manufacturing Management and associate dean for development and research; Robert Kennedy, clinical professor of corporate strategy and international business and associate director of the William Davidson Institute; C.K. Prahalad, the Harvey C. Fruehauf Professor of Business Administration and co-director of the Center for Global Resource Leverage: India; and Dennis G. Severance, Accenture Professor of Computer and Information Systems. The discussion about how outsourcing is transforming the way America does business was published in the Spring 2004 Dividend.

Dividend: Several states have introduced laws saying we won’t do business with companies that move jobs overseas. Should firms take an activist position or avoid the limelight?

Duenyas: I think the political backlash will grow. American students pay $100 for a textbook. The same book in a Third World country is $20. People used to think this made sense. Now, if you go to the same people and say that a $20 book could lead to a well-educated person who will take jobs you used to have, suddenly the whole game has changed. We see the same thing with respect to political pressure in the pharmaceutical field. We have the greatest R & D in pharmaceuticals, but that R&D cost is borne completely by the U.S. patient because pharmaceutical prices are regulated everywhere else. I think these political pressures will grow. I believe in free markets throughout the world so I think there shouldn’t be protectionism, but if there is it should be at the global level. If you’re regulating pharmaceutical prices in the rest of the world, then that should also be an issue here.

Kennedy: It’s important for businesses to engage in the discussion. Politicians would like to frame the debate by asking if jobs should be here or in India. A businessperson is not going to win that debate. Businesspeople must shift the terms of the debate by asking, “What can we do to make the economics less compelling?” If we want to save jobs, what can we do to make it more viable to keep jobs here? It might have to do with training. In some states, it probably has to do with worker compensation and disability and other business-friendly activities. It is incumbent on managers to engage in the political process. Over the next 10 years this will be a huge political issue, dwarfing the controversy over offshoring manufacturing jobs. The math tells you why: manufacturing comprises about 16 percent of U.S. employment; the service sector is about 70 percent. Many of those services can’t be sent overseas. However, there are tens of millions of people who’ve never really been exposed to global competition who are about to realize for the first time that they might be. Businesses must understand their value chains and move some things abroad to strengthen the core business. It is better to strengthen the business and save 70 percent to 80 percent of your jobs than it is to pretend this isn’t happening.

Prahalad: Healthcare is an excellent example of an area that we mistakenly thought could not be outsourced. Now, in the United Kingdom, if a patient requires cardiac care, the national health service will fly the patient from England to India for care and fly him or her back. India is doing well in the medical area because of an innovation of a different kind. India builds hospitals that specialize in certain kinds of surgery and gains an economy of scale. Our MBA students are gaining first-hand knowledge of this through Multidisciplinary Action Projects (MAP) at locations such as the Aravind Eye Hospital.

Kennedy: Michigan’s MBA program is much more applied than many MBA programs. At the William Davidson Institute, we’re sponsoring International Multidisciplinary Action Project (MAP) assignments to help companies think about this. It’s great for students because they work with real companies grappling with these issues. MAP also provides faculty excellent raw material for shaping research and has an impact on Executive Education, as we move toward centers of excellence that tie our research into programs for middle and senior managers. Severance: Collaboration, partnering and outsourcing are important emerging issues. One area we focus on is collaboration, particularly in the auto industry. How do we take a global view of who the buyers are, where design should be done, how to maintain control over intellectual property, how to maintain control and recoverability of the systems once designed and the privacy of the records that are generated about individuals. There are several impediments to collaboration, the largest of which is lack of trust. Trust derives from positive experiences with people: an agreement on purpose, rules of engagement and what it means to act ethically and morally. Impediments to success are fear of shirking or poaching and a collection of traditional disadvantages you put yourself at when you trust someone without a regulating framework to monitor and reward or punish behavior. All these topics are germane to education, information systems and business in general.

For more information, contact:
Bernie DeGroat
Phone: (734) 936-1015 or 647-1847
Email: bernied@umich.edu

(Back to the Outsourcing Special Report)