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
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