Jessica Kline & Shea Patterson11.26.2012

Outsourcing United States Jobs to Foreign Countries

Determine the relationship between outsourcing United States jobs into foreign countries

Countries Being Tested Included United States Brazil China Colombia India Jordan Mexico Philippines Russia South Africa

Purpose of the Study

Testing several variables with a variety countries

Determinants of outsourcing United States jobs Human development Index (Human

Development Reports) GDP per Capita (The World Data Bank) Imports of Goods and Services (The World

Data Bank) Exports of Goods and Services (The World

Data Bank) Outward Foreign Direct Investment

(UNCTAD, World Investment Report )

Papers Contribution

Outsourcing of jobs from the United States to foreign countries can provide a competitive advantage if the job/labor being outsourced is not a core competency of the firm.

Hypothesis

Advantages Costs—cost of living/wage rates are

significantly lower in most other countries Tax incentives by foreign governments Access to foreign markets 24/7 production capabilities Lack of capacity The need for access to technology and

innovation

The Supporters Increase a company’s productivity and

profits Drive developing markets to open further Enable developed nations to use profits to

expand their economies

Previous Literature

Disadvantages Decrease in US jobs Giving away knowledge and technology in

the home country Middle class workers losing good pay and

benefits Company cannot hide behind poor quality Start-up, training, and oversight costs Addressing safety and reliability

expectations

Critics Fear it will weaken developed nations There will be a loss of irreplaceable jobs Developing nations will be further exploited Labor costs may be relatively high in the US,

but they are increasing in other countries quickly

US companies will have trouble building new high-tech factories in high skill countries due to shrinking workforces

When the economy is bad, outsourcing of jobs becomes a major political/economical issue

Previous Literature Cont.

Modularity-Maturity Matrix determines the relationship between innovation and manufacturing.

High modularity product does not determine the

production processes so the two functions can be performed in different locations

Low Modularity Design choices influence manufacturing

choices so the R&D and manufacturing facilities should be kept relatively close to each other

Matrix Quadrants Pure-Product Innovation Pure-Process Innovation Process-embedded Innovation Process-driven innovation.

Previous Literature

Cont.

Cross Sectional from the year 2011

Why are United States jobs continually being outsourced to foreign countries?

Data

Research Question

Countries HDI GDP PPP Per Capita

LN Population

Imports of goods and services

Exports of goods and

servicesOutward FDI

Flows

USA 0.91046701.51778 19.54998287 7618.239435 5947.314852 396,656

Brazil 0.71810992.94249 19.08823557 1308.480563 1195.1071 -1,029

China 0.6874432.963557 21.014311 1136.417161 1309.888008 65,117

India 0.5471375.391157 20.9258918 370.2766914 313.1938617 14,752

Russia 0.75510481.36702 18.77077408 2263.136824 3132.826218 67,283

Mexico 0.7709132.807729 18.54663516 2898.357333 2766.120364 8,946

Philipines 0.6442140.121591 18.35091041 783.6311661 744.832787 9

South Africa 0.6197271.729185 17.72735955 2002.730055 1988.322849 -635

Jordan 0.6984369.998242 15.61507284 3016.604672 2088.359494 31

Colombia 0.7106237.515632 17.65054109 1118.25744 980.2585517 8,289

Model R R SquareAdjusted R

SquareStd. Error of the Estimate

1 .891a .794 .537 .06626

Model Summary

Descriptive Statistics

N Minimum Maximum Mean Std. Deviation

HDI 10 .55 .91 .7058 .09741

GDPPPP 10 1375.391157 46701.517780 10313.63543830 13201.168037617

LogPop 10 15.615072840 21.014311000 18.72397143700 1.594875246493

Import 10 370.2766914 7618.2394350 2251.613134050 2081.0867260297

Export 10 313.1938617 5947.3148520 2026.622408540 1625.1727334302

FDI 10 -1,029.00 396,656.00 55,941.9000 1.22554E5

Valid N (listwise) 10

Correlations

HDI GDPPPP LogPop Import Export FDIHDI Pearson Correlation 1 .838** -.071 .848** .872** .758*

Sig. (2-tailed) .002 .845 .002 .001 .011N 10 10 10 10 10 10

GDPPPP Pearson Correlation .838** 1 .139 .931** .910** .954**

Sig. (2-tailed) .002 .702 .000 .000 .000N 10 10 10 10 10 10

LogPop Pearson Correlation -.071 .139 1 -.103 -.046 .285Sig. (2-tailed) .845 .702 .776 .899 .424

N 10 10 10 10 10 10Import Pearson Correlation .848** .931** -.103 1 .964** .883**

Sig. (2-tailed) .002 .000 .776 .000 .001N 10 10 10 10 10 10

Export Pearson Correlation .872** .910** -.046 .964** 1 .867**

Sig. (2-tailed) .001 .000 .899 .000 .001N 10 10 10 10 10 10

FDI Pearson Correlation .758* .954** .285 .883** .867** 1Sig. (2-tailed) .011 .000 .424 .001 .001

N 10 10 10 10 10 10**. Correlation is significant at the 0.01 level (2-tailed).*. Correlation is significant at the 0.05 level (2-tailed).

HDI= 314443384 + 5.6072E-06 GDP - .006777611LNPOP – 2.14062E-05IMP + 5.03202E-05EXP – 2.03045E-07FDI

HDI= Human Development IndexGDP= GDP Per CapitaLNPOP= Log PopulationIMP= Imports of Goods & Services (% of GDP)EXP= Exports of Goods & Services (% of GDP)FDI= Outward FDI Flows

Estimation Equation

HDI is a good overall indicator of how well the United States ranks as compared to other countries. Shows that other countries have the capability to support jobs that have high costs associated with them in the States.

Outsourcing has a positive linear relationship with the Human Development Index of each country, GDP per Capita, Percent of Imports/Exports, and the Outward FDI Flows

Population of country positively relates but does not have a significant impact on outsourcing

Conclusions

Business’s need to decide what are their core competences and not outsource them.

Outsource jobs that are not deemed to be core competencies to countries that can provide a better cost/quality advantage (ex. Manufacturing Jobs)

The public needs to be better informed of the benefits of outsourcing, as the news media tends to portray outsourcing in a negative manner.

Policy Recommendations

Find more variables that help describe how outsourcing can be explained

Larger Sample Size

Multiple years of data

Next Steps in Research

Process

References Anderson, S., Cavanagh, J., Madrick, J., & Henwood, D. (2004).

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Lewin, Arie Y., Silvia Massini, and Carine Peeters. "Why Are Companies Offshoring Innovation? The Emerging Global Race for Talent." Journal of International Business Studies 40.6 (2009): 901-25. Print.

Pisano, Gary P., and Willy C. Shih. "Does America Really Need Manufacturing?." Harvard Business Review 90.3 (2012): 94-102. Business Source Premier. Web. 28 Sept. 2012.

Schultz, C. (2006). TO OFFSHORE OR NOT TO OFFSHORE: WHICH NATIONS WILL WIN A DISPROPORTIONATE SHARE OF THE ECONOMIC VALUE GENERATED FROM THE GLOBALIZATION OF WHITE-COLLAR JOBS?. Houston Journal Of International Law, 29(1), 231-269.

VIEWS ON OUTSOURCING ENGINEERING. Advanced Materials & Processes [serial online]. January 2005;163(1):35-39. Available from: Academic Search Complete, Ipswich, MA. Accessed September 30, 2012.

References