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Watch the video “Apple Chinese Factory” and briefly answer the questions: what caused Foxconn suicides? Should Apple be responsible for the suicides? Why or why not? Apple Chinese Factory Foxconn Nightline https://www.youtube.com/watch?v=03tlwp805sM

8Sas outsourcinggone too far?( Stephen J. Doig, Ronald C. Ritter, Kurt Speckhals, )V and Daniel Woolson /Farming out in-house operations has become a religion.Faith must now be tempered by reason.•— 3If all manufacturers sang from the same hymnal—and many do—theywould outsource almost everything: management gospel holds that manufacturing is too labor- and capital-intensive to support the high margins andfast growth that investors demand. By shedding assets, companies can beborn again as product designers, solutions providers, industry innovators,or supply chain integrators—and, it is said, quickly boost their return oninvested capital. Indeed, Standard & Poor’s reports that in the year 2000,the market-to-book ratio of the S&P 500 was six times greater than it hadbeen in 1981—a reflection of the declining importance of tangible assets.Such pressures and perceptions make outsourcing an almost irresistibleimpulse for manufacturers. Global access to vendors, falling interactioncosts, and improved information technologies and communications links aregiving manufacturers unprecedented choice in structuring their businesses.Through outsourcing, companies can now dump operational headaches and26 THE McKINSEY QUARTERLY 2001 NUMBER 4bottlenecks downstream, often capture immediate cost savings, and avoidlabor conflicts and management deficiencies. We are aware of no managerswho have been taken to task for farming out in-house operations.But in the race to hand over capital-intensive manufacturing assets to outsidesuppliers, companies may be ceding the very skills and processes that havedistinguished them in the marketplace. Consider the case of Gibson Greetings, the oldest US greeting-card maker. In the 1990s, it started running outof cash. To realize savings, Gibson chose to outsource its manufacturing, butit soon ran into supplier-management problems that cost the company itsplace at large retailers. In the meantime, its competitors had been investingin more efficient printing and production technologies. Ultimately, one ofthose competitors acquired Gibson. An analyst observed, “The final nail inthe coffin was that Gibson got out of the manufacturing business and startedoutsourcing.”^Obviously, the decision to outsource usually doesn’t produce such a drasticoutcome; done right, outsourcing manufacturing or services can delivergame-changing levels of value. But by assuming that outsourcing is theanswer rather than critically assessing its pros and cons, companies may befailing to do what really matters: improving a company’s performance andmaximizing value. Outsourcing can be instrumental in realizing thesegoais—but not always.We are not suggesting a return to the time when Ford’s River Rouge complexmade its own glass, steel, and tires; an original-equipment manufacturerfacing the complexities and asset intensiveness of that level of vertical integration would now collapse under its own weight. Indeed, about two-thirdsof the North American auto industry’s $750 billion in value now resides withsuppliers. This year, the average electronics OEM was hoping to outsource73 percent of its manufacturing, according to Bear Stearns, and 40 percent ofall OEMs were hoping to outsource the manufacture of 90 percent or moreof their final product.^ Pharmaceuticals companies have been witnessing theemergence of a $30 billion contract drug-development and -manufacturingmarket with annual growth rates of 17 to 20 percent.^ In general, the outsourcing of operations and facilities across industries rose by 18 percent inthe period from 1999 to 2000.”‘Marcia Pledger, “The near-fall of Gibson,” Cleveland Plain Dealer, March 9,2000.^Bear Stearns Fourth Annual Electronics Manufaoturlng Outsourcing Survey, May 2001.^Leah Perry, “Outsourcing industry leaders,” Pharmaceutical Technology, January 2001, pp, 68-73.^The 1999 Outsourcing Trends Report, LaGrangeville. New York: Michael R Corbeit & Associates, March1999,HAS OUTSOURCING GONE TOO FAR? 27Yet the rush to outsource has delivered much less value than it might have.A McKinsey study indicates that more effective outsourcing, which requiresa better process for identifying and managing the “natural owner” of everyactivity in the value chain, could by itself almost double the auto industry’stotal profits. But so far, most of the supplynetworks of the automakers have beennotable less for capturing a larger share ofthe total value for themselves than for imposing punitive (and ultimately unsustainable) termson suppliers (see sidebar, “Biting the hand that feedsyou,” on the next page).In the wireless-telephone industry, as well, importantplayers are grappling with such make-or-buy questions.One of the industry’s most aggressive practitioners of outsourcing has found that it alone doesn’t satisfy the investment community.By contrast, industry leader Nokia has been working to improve the productivity of its existing assets and to integrate its sourcing, sales, and manufacturing efforts. The company has designed its new Beijing complex, forexample, to assemble phones with zero inventory for the supply base that itmanages and the functions it hasn’t already jobbed out. Antti Ware, vicepresident of system business at Nokia (China) Investment Company, hassaid, “There’s no point transferring your inventory to your suppliers, becausethey will then have the inventory costs, and you will see it showing up inyour component prices. But if you can reduce the whole chain’s inventory,then you will be very competitive.”^Many practitioners of outsourcing clearly recognize that such difficultiesexist. One-fifth of the executives in a recent survey say that they are dissatisfied with the results of their outsourcing arrangements, while another fifthof the respondents say that they are neither satisfied nor dissatisfied—whichsuggests that they are not seeing clear benefits.^ Dun &: Bradstreet reportsthat 20 to 25 percent of all outsourcing relationships (manufacturing,finance, information technology, and so forth) fail within two years and that50 percent fail within five. Nearly 70 percent of the companies respondingto a Dun 6c Bradstreet survey asserted that suppliers “didn’t understandwhat they were supposed to do” and that “the cost was too high and theyprovided poor service.””^Richard C. Morals, “Damn the torpedoes,” Forbes, May 14, 2001. pp. 100-9.^The 1999 Outsourcing Trends Report, LaGrangeville, New York; Michael F. Corbett & Associates, March1999,”Marq R. Ozanne, D&B Barometer of Global Outsourcing, 2000,28 THE McKINSEY QUARTERLY 2001 NUMBER 4In such cases, it has often been forgotten that outsourcing isn’t an end initself but rather a strategic tool for enhancing overall performance. The ability of outsourcing to play this role depends partly on the form chosen—therelease or sale of assets, a spin-off or initial public offering of the business,or the formation of an alliance or ioint venture. If outsourcing isn’t usedstrategically, it probably shouldn’t be used at all.Biting the hand that feeds you ItJST)ased automakers, once shiniiig examplesof businesses that did it aii, have steadiiy handedover manufacturing to their suppliers during thepast two decades. By the iate 1990s, GeneralMotors and Ford had spun off much of theirremaining parts-manufacturing operations:Delphi Automotive Systems and Vtsteon, respectively. Today, DalmlerChrysier, Ford, and GMmostiy design and assemble vehicies, and theirsuppiiers mostiy make what goes into them. Forthe originai-equipment manufacturers, competingfiercely in a maturing industry, deverticalizationhas meant moving their assets, activities, andinventories to their supply chains.But the OEMs may have taken this strategytoo far—squeezing their suppiiers relentiessly,wringing out an endless series of price cuts, andextracting other operational and strategic concessions. As a consequence, most makers of autoparts have difficulty just maintaining, iet aioneraising, their margins, and many of these companies are earning less than their cost of capital.It isn’t surprising that the market has turnedagainst the suppliers, which are almost even withmakers of fishing equipment in destroying shareholder value,’ If this trend continues, strugglingsuppliers may have to cut their investments ininnovation and quality—which would in turnimpair the OEMs’ performance. Worse, automakers may have to reintegrate assets and activities they once proudly outsourced.What went wrong? Suppliers are in trouble fora number of reasons—above all, their lack ofbargaining power. The OEMs are substantiallybigger than their suppliers {both Ford and GMhave more than five times the revenue o( thelargest} as well as more concentrated (over80,000 makers of auto parts around the worldvie for the business of a handful of large andmidsize giobai OEMs).^ This concentration ofpower has given OEMs the opportunity to outsource and the ability to squeeze their suppliers,which are powerless to stop them.And squeeze they do. Since 1995, the real priceof cars in the United States has declined byapproximateiy 0,5 percent a year. The OEMs’response has been to pressure the suppliers;Ford, for instance, has demanded and won aprice reduction of 3 to 5 percent from severalsuppliers over the past few years. Other OEMshave won similar cuts.Now OEMs have raised the stakes for suppliersstill higher by striving to produce more car modeis while using fewer underlying vehicle platforms. At the same time, OEMs are trimming theranks of the suppliers they buy from and shiftingHAS OUTSOUPCING GONE TOO FAR? 29Whether to outsource is one of the most significant decisions any executiveteam ever makes. Outsourcing involves massive changes to a business’s delivery system—changes involving trade-offs and organizational trauma. It isdifficult to reverse. It affects the livelihood of thousands of employees. And itopens critical aspects of a company’s core business to the scrutiny of supplypartners and other external forces, and to their disruptive interventions.the responsibility for integration and even designengineering to the supply chain. Thus, the valueof deals is rising for suppliers that don’t want tobe left behind. As the deais get bigger, so do therisks for suppliers that must invest in these newcapabilities to win the deals and do the work,Lear Corporation, for instance, bought the UnitedTechnologies auto parts unit for $2.3 biiiion,hoping to make a strong bid to participate inGM’s Delta Car program, GM’s decision to postpone its launch delayed Lear’s return on theinvestment. Having to compete for such businessputs suppliers under even greater pressure to cutprices.Of course, the OEMs are not responsible forall of the woes of the suppliers. To grow andto strengthen their bargaining power, suppiiersclosed more than 1,500 M&A deals from 1995to 2000. but many of the resulting combinationsultimately failed to yieid returns above the acquirers’ cost of capital. Moreover, overcapacity is rife/in some segments of the supplier industry.It turns out that the suppliers’ difficulties, fromwhatever source, are creating troubie for theOEMs. DaimierChrysier, for example, had todelay the launch of its Smart Car for severalmonths because suppliers, struggling with newprocesses and techniques, initiaily couldn’t meetthe carmaker’s quality targets. More problemsmay lie ahead. If margin-constrained suppiierscut back on R&D spending, the kinds of productfaiiures and recriminations that have rocked Fordand Firestone could become commonplace. Evenworse, OEMs could face an increasing numberof bankaiptcies among suppliers or their exodusfrom the sector. If either should happen, OEMsmay be forced to iend financial support to troubled suppliers of key systems—or even tobecome manufacturers again.There are no easy solutions to such problems,in the near term, suppliers must continue improving operations to stay ahead of eroding margins.In the longer term, OEMs wili need to explorestrategies for improving the performance of thevalue chain as a whole. But don’t hold yourbreath: OEMs too are under tremendous pressureand aren’t likely to change their spots any timesoon.—Anjan Chatterjee, T. V. Kumaresh, andAurobmd SatpathyDuring the past five years, auto suppliers havegraced investors with a return of 4 percent ayear, while the return for the S&P 500 has been22 percent. Capital is fieeing the sector.^The bargaining power that the automotive OEMsenjoy is unique. In the aerospace sector, for example, big buyers such as Boeing are matchedby big suppliers such as GE.Anjan Chatterjee is a director in McKinsey’sDetroit office, where T. V. Kumaresh is a consultant and Aurobind Satpathy is a principal.30 THE McKINSEY QUARTERLY 2001 NUMBER 4EXHIBIT 1Make or buy? Look at the big pictureAssessment model tor outsourcing at office products manufacturerThe clued-jn and the cluelessThe make-or-buy riddle can be answered correctly only if you first understand the strategic (and not just the dollar) value of key activities and thenassess the efficiency and capabilities of their providers, internal or external.A large office products manufacturer exemplifies this comprehensiveapproach (Exhibit 1), for it assessed its processes in a full operationalcontext. Managers— I asked not just howmuch they could savein direct costs if agiven function werefarmed out but also(in the case of steelstamping, for example) how much floorspace could be openedup by doing so. Thecompany realized thatit could not only outsource the stampingoperations at each ofits plants but also movethe operations of anentire plant into thevacated space.Dollar value of opportunityO High Medium 9 LowHigtlAssemblyOCoating, OpaintMetalfabricationAfiproprlate ownershipof an activity depends on acombdiatjon ot its strategicvalue, suppllBT capability,^ and dollar value . ‘StampingSteel processingLowLowCapabiiity and efficiencyof supply base‘Maintenance, repair, and operations.Outsourcing the stamp-) ing operations shouldproduce savings of 15to 20 percent, and the plant closing will more than double the savings. Hadthe company looked at stamping alone, it would have kept that function inhouse, since operational improvements can produce savings comparable tothose from outsourcing. But as a result of examining the big picture, thecompany can also eliminate overhead by mothballing a plant and improvethe productivity of the remaining plants in ways that benefit the entiresupply chain (Exhibit 2).An aerospace company facing a slowing business environment and an assetbase bloated by acquisitions provides a counterexample. Management hada gut feeling that the company ought to shed its $50 million printed-circuitboard assembly operation, which was burdened by overcapacity at severalHAS OUTSOURCING GONE TOO FAR? 31facilities. Recognizing that local buy-in was important, senior executivesdelegated the task to plant managers, who considered creating an internal“center of excellence” that would shoulder the board-assembly work of theexisting plants. Concerns about losing any portion of their business loomedlarge, however, since this course would raise their overhead rates, make theircapacity even more underutilized, and thus pose a grave threat to their longterm viability Moreover, none of the managers wanted to run the risk thatsomeone else would be put in charge of so prestigious an operation. Establishing a center of excellence generally leads to initial cost savings of about10 percent, but infighting and an instinct for self-preservation whittled theteam’s estimate to less than 1 percent.Before deciding whether to go forward with the plan, the team asked suppliers to bid on the assembly business, even handing over the company’s billof-materials costs. After seeing such vast inefficiencies and the managerialineptitude that tolerated them, none of the bidders felt it had to offer morethan a token 5 percent savings on the company’s current costs. That oughtto have been deemed too low to warrant moving the assets.® The suppliers,given the higher volume of their purchased materials, should have been ableto deliver 15 to 20 percent savings in the costof materials alone (9 to12 percent of the fullcost). Combined withdirect-labor and overhead savings, thisshould have producedoverall savings of 14 to22 percent. Nevertheless, the managers tookthe bait.EXH I BI T 2The holistic appriMch: Outsourcing in a network contextOperational improvement of oftlce products manufacturer, $ millionPlant-levelopportunity15Plant rationalization1525Outsourcestamping at5 plantsUse freed space lorother operationsand close 1 piant,eliminating overhead thereReduce sharedmanufacturingsupport, such asengineering andmaintenanceThe aerospace companyfell victim to a hardtruth: managers accustomed to meeting internal benchmarks often have no idea how their costs and capabilities comparewith those available in the marketplace. Our experience shows that internalimprovements can produce savings comparable to those of outsourcing—forMerely managing a supply relationship carries administrative costs for ttie client company of at least3 percent (and sometimes more than 10 percent) of the value of a contract. See the report Taking thePulse of Outsourcing—Data and Anaiysis from the 2001 Outsourcing World Summit, LaGrangevilie, NewYork: Michael R Corbett & Associates (Firmbuilder.com), 2001.32 THE McKINSEY QUARTERLY 2001 NUMBER 4EXHIBI T 3Where the savings come frominstance, 20 to 30 percent gains in directlahor productivity,better materials coststhrough improvedpurchasing practices,atid significant reductions in required floorspace. In most cases,a thorough makeversus-buy analysiswill uncover totalsavings of 8 to 18 percent (Exhibit 3). Theymay come from enhancing internal operations, from external suppliers, orfrom some combination of the two. Managers who accept less are probablyleaving money on the table—or in their suppliers’ pockets.Corporate andother overheadsOperating costsMaterials costsShare ot total costof goods for typicalcompatqr, percent1030-4050-60Typical savings,percent0-1010-2010-15Improvement” ‘potential, percent oftotal costs0-13-85-98-18% totalimprovementpotentialMaking the assessmentIt is vital to know how the true cost of manufacturing goods internallystacks up against the cost of acquiring these goods from suppliers. To makethe assessment, senior management must consider three dimensions ofperformance.

Strategic: Does owning or enjoying preferential access to the asset haveany strategic importance? How does the company’s manufacturing strategy meet the needs of its overall business strategy? Ownership of designand manufacturing assets gives Intel, for instance, fast product ramp-upsand prevents the loss of technological know-how to outside suppliers.
Operational: What are the performance targets and the needs (such aslead times and unit costs) of the manufacturing process and the supplychain? Irrespective of ownership, what are the optimal supply chainarrangements for meeting those targets? Dell configured its supply chainto make good on its overall business strategy of delivering customizedcomputers shortly after orders are placed.
Organizational: How does the business, having linked manufacturingstrategy to business strategy, achieve results? Established companies,whether they manage reconfigured networks or operate long-standinginternal ones, seldom have the skills to transform their supply chains.HAS OUTSOURCING GONE TOO FAR? 33EXHIBIT 4Transforming the supply chainEndproductsSelect CaptureInternal operattons Extw^al capabilitiesand internal Understand externaloptions and options andopportunitfes opportunitiesaiternatwesImplement and captureopportunitiesUnderstanding of • Industry-wide analysis • Outline of internal • Detailed implemencurrent cost structure • Detailed supplier profiles and external options tation planand network configu- • Pricing proposal based • Financial models • Supplier-managementration on formal request tor • Assessment of quali- program if necessaryManufacturing quotes tative benefits and risks • Regular reportingdiagnostic and • Optimized cost structure structureimprovement plan • Risk assessmentRisk assessmentSenior managers must use this three-dimensional perspective to assess, first,internal operations; then, external capabilities; and, finally, what combination of the two can create the most value and capture it through good network management (Exhibit 4).Improving internal operationsManagers often don’t know—sometimes because they don’t want to—howtheir companies really stack up against the best-in-class providers. The costaccounting reports against which companies judge outside bids, for example,seldom accurately reflect all overheads embedded in plant activities. A supplier bid that appears to offer no savings over fully loaded costs, for example,could, during the course of three to five years, provide significant benefits byallowing managers to take on higher-value activities.More common than ignorance is a tendency to base outsourcing decisionssolely on current performance rather than on comparisons between thepotential improvements offered by internal and external solutions. Even afteryears of belt-tightening and incretnental gains in efficiency, we have found,most manufacturers can still achieve 20 to 30 percent gains in direct-laborproductivity. Fewer than 5 percent of organizations around the world canreally claim to have “lean” processes; the other 95 percent survive by beingno worse than their competitors. Handing a process to a supplier, which34 THE McKINSEY QUARTERLY 2001 NUMBER 4probably isn’t much better than its competitors and serves many companiesin the same industry, confers parity, not a competitive advantage. And sometimes only proprietary products or processes distinguish a business from itscompetitors—one reason for Procter & Gamble’s policy of investing heavilyin the development of manufacturing processes as well as products, evenbuilding or designing much of its own equipment.Every company faces different operational challenges. Nonetheless, decisionmakers have a basis for retaining any process that• Can meet or beat industry performance norms within three years• Confers a distinct competitive advantage that can’t be replicated (suchas wing assembly for Airbus)• Isn’t available in the supply base or likely to become so anytime soon• Defines the company, as manufacturing does for commodity producersConsiderations that argue against retention, as a purely practical matter, maybe a workforce that resists change and a managerial team that doesn’t knowhow to lead it—perhaps because the managers are wedded to processes thatoffer little clear value to customers.Consider the exampie of Toyota, which developed game-changing valuein the auto industry by improving internal operations through lean production techniques and the development of innovative manufacturing processes.It then developed businesses run on the same principles in new markets(houses, boats, and aircraft). As a result, Toyota has higher returns oninvested capital, operating profits, quality ratings, and price-to-earningsratios thau the Big Three US automakers. It has chosen to retain ownershipof processes (such as stamping, welding, and injection molding) that affectthe vaunted “fit and finish” of its cars, though some of these processes couldbe undertaken more cheaply elsewhere. It outsources the less visible components of its cars but maintains strict quality control and pushes suppliers tomatch its operational efficiency.Few companies can equal Toyota’s manufacturing prowess, but many candramatically improve their internal operations. Alcoa, for example, rolledout an adaptation of Toyota’s production system. Within five years, Alcoahad improved operations so greatly that it could produce aluminum in smallbatches of variable size on short notice—a capability opening up a wholenew market of small to midsize customers that its competitors can’t service.HAS OUTSOURCING GONE TOO FAR? 35Alcoa thereby eased the cycUcal profit performance that aluminum priceshad imposed on the company for years.Gauging external capabilitiesThe balance begins to swing toward “buy” when the supply base offers• Dramatic cost savings from cheaper labor and procurement, lower capitalintensiveness, and bigger scale• A location, process technology, or skill set that would be hard to acquireor reproduce• Greater productive capacity and a more diverse end-user base, which helpto cut down on supply surpluses and shortages• Shareable expertise that a specialist has acquired in other marketsor industriesAn assessment of the specific skill sets, capabilities, and coststructures of the suppiy base should also identify emergingplayers, spotlight regulations reshaping the industry’sstructure, reveal capabilities that vendors aredeveloping, and show how competitors havereconfigured their value chains in responseto these conditions.Next comes a request-for-quote process in whichan organization identifies the strongest candidatesto undertake outsourcing by virtue of their design skills, efficiency, andinventiveness, as well as the ability to sustain those qualities, among others.At the same time, the process must not overlook the possible drawbacks ofthe various bidders—drawbacks that might include longer lead times andconvoluted distribution channels.Determining the mixWith a clear picture of the costs and capabilities of internal and externalproviders, managers can begin to rebuild their supplier network. Marketconditions, technological developments, and strategic considerations willalso influence the selection of suppliers. The process usually leads managersto solutions both inside and outside the organization. Integrating these solutions is essential.36 THE McKtNSEY QUARTERLY 2001 NUMBER 4rSony, for instance, has eliminated 11 of its 70 plants, plans to cut 4 moreby 2003, and now outsources its original PlayStation to companies in China.Newly created manufacturing subsidiaries will oversee its remaining facilities, where novel, strategically important products such as its PlayStation 2will be made. Sony expects this strategy to bring its current 5.5 percentreturn on equity closer to the 15 percent and more achieved by US technology competitors.^Capturing value through relationships iDon’t assume that it is easier to manage suppliers than to improve yourcompany’s internal performance. The money, capabilities, and effort neededto develop and direct a new suppliernetwork are considerable. It is necesDon’t assum e that it is easier to sary, for example, to define explicitmanage suppliers than to improve objectives for suppliers, such asyour company’s own pertormance delivery times and cost reductions,and to incorporate those objectivesin contracts that reward suppliersfor meeting or surpassing them. Supplier-management practices (such as waysof resolving problems) and vendor performance metrics must be developed.People have to be trained to use technologies such as the Internet to reducethe cost of transacting business with suppliers—by, for example, managingtheir performance in real time. Employees capable of understanding theirindustry’s trends and technical advances and of applying their manufacturingknow-how to supplier-management and purchasing operations need to beretained. And cross-company teams ought to be developed to facilitate thesharing of best practices with suppliers.Corporate strategy begets manufacturing strategyEvery few years, the managers of the world get religion. Today, most of thembelieve in outsourcing. But if they are to serve their organizations well, theymust temper faith with reason. The leap from “make” to “buy” requires aciear strategy and a factual assessment of a company’s strengths, weaknesses,and objectives.When IBM spun off much of its hardware and components manufacturing,^^in the mid-1990s, it showed how the reconfiguration of a company’s manufacturing strategy can advance an overall strategic shift. Only after IBM had^Peter Landers. “Foreign aid: Why some Sony gear is made in Japan—by another company,” WallStreet Journal, June 14, 2001.^^Including the Lexmark International computer peripherals business and the facility that would laterblossom into the $10 billion electronics manufacturing-services firm Celestica.HAS OUTSOURCING GONE TOO FAR? 37redefined its core—e-business services and solutions, research and design,and semiconductor architecture and manufacturing—did it reconstruct itssuppiy chain, thus creating, in the end, a different company. Ownership ofcomputer hardware and components manufacturing is essentially nii attoday’s IBM, but the company’s financial performance has soared—fromlosses of $8.1 billion in 1993 to net income of $8.09 billion in 2000. Thereturn on invested capital rose similarly, from -5.7 percent in 1993 to 15.3percent in 2000.IBM’s leaders couldn’t have known, in 1994, how its future would unfold.But they had an idea of what they wanted, and they divested the company’smanufacturing assets with those goals in mind. That is what it takes not justto outsource effectively but also to outperform competitors. Companies thatblindly follow the herd never give themselves a chance to do so. A1-.The authors wish to thank George Taninecz for his invaiuable contributions to this article.Stephen Doig is an associate principal in McKinsey’s Minneapolis office; Ron Ritter is an associate principai in the Orange County oftice, where Daniel Woolson is a consultant; Kurt Speckhalsis a consultant in the Detroit office. Copyright © 2001 McKinsey & Company. Ail rights reserved.

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Professors Richard H.K. Vietor and Jan W. Rivkin and Research Associate Juliana Seminerio prepared this case with the assistance of ResearchAssociate Troy Smith. This case was developed from published sources. HBS cases are developed solely as the basis for class discussion. Casesare not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.Copyright © 2008 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685,write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may bereproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical,photocopying, recording, or otherwise—without the permission of Harvard Business School.RICHARD H.K. VIETORJAN W. RIVKINJULIANA SEMINERIOThe Offshoring of AmericaWhen a good or service is produced at lower cost in another country, it makes sense to import itrather than to produce it domestically. This allows the United States to devote its resources to moreproductive purposes.—The Council of Economic Advisors1President Bush is on an eight-day tour of Asia. He’s visiting American jobs.—David Letterman, late-night comedianAs the 2008 U.S. presidential campaign heated up, candidates scrambled for policy positions on atricky topic: the movement of jobs from the United States offshore, often to developing countries andwithin American companies who had set up subsidiaries in foreign countries. In June 2007, a memofrom Barack Obama’s staff hit a nerve. The memo referred to Hillary Clinton as a senator from theIndian state of Punjab and suggested that Clinton was too close to executives and companies thatwere moving jobs to India. The memo backfired, forcing Obama to apologize to Indian-Americansand to reassure his business backers that he did not oppose all offshoring efforts.2 Presidentialcandidates have struggled to explain what steps, if any, they would take to limit offshoring.At the same time, senior managers struggled to decide which activities, if any, to move offshoreand where to move them. Many companies, such as IBM, had taken dramatic steps. IBM had movedits global procurement chief from New York to Shenzhen, China in 2006; performed its back-officefinancial work in Rio de Janeiro, Brazil; provided global support for its Web sites out of Ireland andBrazil; and moved research efforts into China, India, and Israel.3 IBM’s workforce in India grew from3,000 in 2002 to 53,000 in 2007. During the same period, its headcount fell slightly in the United States,where computer programmers’ salaries were two to ten times higher than in India.4 The shift inemployment was controversial inside and outside the company: union organizers had interrupted arecent IBM shareholders’ meeting with chants of “Offshore the CEO.”5Policy makers in developing countries also faced choices about offshoring—but as an opportunityrather than a challenge. For instance, Mexico’s maquiladoras, China’s Special Economic Zones (SEZs),and India’s software outsourcers had attracted billions of dollars in foreign direct investment. TheMexican maquiladoras had existed since the 1960s, but they had become especially popular after thepassage of the North American Free Trade Agreement (NAFTA) in 1993. The Chinese SEZs wereformed in conjunction with reforms of the post-Maoist era to usher in gradual economic openness708-030 The Offshoring of America2and trade with the West. India’s intellectual capital created a potential for inexpensive white-collarlabor after 1991 after the country’s brush with bankruptcy forced a liberalization program thatcontinued in 2008. The governments in all three countries created favorable business environmentsthat enabled foreign companies to seize opportunities for sales growth or cost reduction not availablein their home countries. In turn, Mexico, China, and India sought to increase inflows of foreign directinvestment to fund this growth, employment, and the acquisition of management skills andtechnology.The Nature of OffshoringDebates about offshoring were muddied in part by the lack of an agreed-upon definition for theterm.6 In its broadest sense, offshoring involved the transfer of job activities abroad, often to attainlower labor costs and centered mainly around manufacturing operations (e.g., a PC maker shutsdown assembly operations in Texas and opens similar operations in China) and service delivery (e.g.,a PC maker shuts down its technical support hotline in Colorado and opens a similar hotline inBangalore, India). The term “offshoring” also described both the shift of activities from the U.S.facilities to wholly-owned subsidiaries (e.g., a company sets up an Indian subsidiary to run its datacenters) and the outsourcing of activities to other companies abroad (e.g., a company signs a contractwith Wipro to run its data centers in India). Further variations of offshoring arose when, for instance,a U.S. company expanded its operations overseas but maintained existing operations in the U.S., orwhen it opened an offshore facility but sold the new output exclusively overseas. Exhibits 1 and 2show two efforts by the U.S. Government Accountability Office to distinguish offshoring from otherpractices.The character of offshore activity shifted over time as conditions in host countries changed, ascompanies grew skilled and comfortable in managing distant operations, as competition in variousindustries intensified, and as communication and computing technology evolved. Among the earliestjobs to move abroad en masse were low-skill assembly operations that migrated to Mexico and Asiain the 1980s. The gradual economic opening of China in the 1980s and 1990s, the renaissance ofEastern Europe after the 1989 fall of the Berlin Wall, and the development of contract outsourcersduring the 1990s accelerated the shift of manufacturing jobs offshore. The so-called “WashingtonConsensus”—a set of economic liberalization policies that India began adopting in 1991—set thestage for gradually increasing foreign investment in India. Meanwhile, Indian software vendorsproved their abilities by helping U.S. companies manage the potential Y2K computer crisis in 2000.The advent of the Internet, the popularization of email, the standardization of computer platforms,and overinvestment in global telecommunications capacity during the high-tech bubble—all eventsof the 1990s—facilitated the shift of offshoring from manufacturing to services. Among the firstservices to shift offshore in large scale were software programming, call-center operations, and datacenter management.By 2007, the general public associated offshoring with assembly operations, computerprogramming, and technical help desks. Yet a wider range of services were beginning to moveoverseas, as the following examples illustrate.• Brickwork, a division of Indian firm B2K, offered a “remote executive assistant” service thatallowed busy businesspeople to hire Indian workers to create PowerPoint presentations, dobasic research, and check facts for about $1,500 to $2,000 a month. Taking advantage of thetime difference between the U.S. and India, an assistant could receive an assignment as theexecutive was leaving work in the evening in the U.S. and then have the completed product inthe executive’s email inbox by the beginning of the next workday.7The Offshoring of America 708-0303• A number of American companies acted to tap pools of scientific talent turned to EasternEurope, Central Europe, and Russia for scientific talent. In 2005, for instance, the investmentbank Morgan Stanley opened a mathematical modeling center in Budapest, Hungary, tosupport its fixed income trading business. The following year, Morgan Stanley expanded itsBudapest operations to provide its New York and London offices with services related tomortgage financing, financial control, and information technology. EDS, ExxonMobil, IBM,General Electric, Cisco, and SAP were said to have similar regional or international servicecenters in Hungary.8• In a similar vein, investment banks in the United States and Europe were increasingly relyingon Indian workers—not only for IT support, but also for investment research and financialmodeling. Goldman Sachs, for instance, launched its Bangalore operation in 2004 to providesupport services for global operations. By 2006, Goldman was performing a broad array ofinvestment banking and securities activities in India. The Bangalore office was on track toeclipse Tokyo as the firm’s third largest office worldwide. The Financial Times reported that,“Goldman’s Bangalore staff includes software designers, transaction processing staff and,increasingly, highly skilled analysts who produce modeling and other data that appear inGoldman research reports.”9 An array of Indian firms such as OfficeTiger and Copal Partnersstood ready to provide financial and business research services to U.S. firms that did not wantto establish their own operations in India.• The number of U.S. tax returns prepared in India rose from 25,000 in 2003 to an estimated400,000 in 2005. While the number of U.S. candidates sitting for the certified public accountantexam had declined during the 1990s, Indian universities produced 70,000 accountinggraduates each year. It was estimated that U.S. tax preparation companies could pay $39 perbillable hour to employ an accountant in the U.S. or pay a middleman $20 per billable hour forequivalent services performed in India. Accountants’ salaries in India were estimated to startat $100 per month.10• Many U.S. hospitals were moving toward “teleradiology,” in which images from X-rays, CATscans, MRIs, and ultrasounds were sent electronically to, and read by, doctors who could belocated anywhere in the world. U.S.-based doctors covered daytime hours while U.S.-traineddoctors located in Israel, India, or elsewhere provided night coverage for U.S. patients,working normal hours in their countries of residence. This arrangement reduced doctorfatigue and mistakes, helped meet the rising demands of an aging population, andsupplemented a shrinking base of caregivers. The largest teleradiology firm, NighthawkRadiology Services, based in Zurich, Switzerland and Sydney, Australia, claimed to serve 933hospitals (about 17% of the hospitals in the U.S.)11 The firm Wipro Spectramind, based inIndia, managed the radiology services of Massachusetts General Hospital for its second andthird shifts. Indian radiologists earned an average of $20,000 per year, compared to the$315,000 annual salary of an American radiologist.12• The domestic operations of certain U.S. firms presaged other business activities that mightsoon be moved abroad. For example, several McDonald’s franchises in Missouri had shiftedthe processing of drive-through orders to a call center in Colorado Springs. Employees in thecall center would take a customer’s order and then relay it, along with a picture of thecustomer, to the interior of the specific McDonald’s via high-speed data lines. On-site workerswould prepare the meal and deliver it to the drive-through window to be picked up by thecustomer. The process boosted the profits of the individual store by allocating employee timebetter and decreasing mistakes.13708-030 The Offshoring of America4• A clinic at Kavai Hospital in Anand, India, specialized in matching infertile couples fromaround the world with Indian women who were willing to be surrogate mothers. The clinicoffered surrogacy services for a fraction of U.S. rates, and each Indian woman earned as muchfrom one pregnancy as she might otherwise earn in ten years. These “pioneers of outsourcedpregnancies” had given birth to approximately forty babies by the end of 2007.14The Extent and Impact of OffshoringEstimates of the number of jobs that had moved offshore, would move offshore, or could possiblymove offshore varied widely—from the hundreds of thousands to the tens of millions. Officialstatistics on the phenomenon were hard to come by. Indeed, a 2004 report by the GovernmentAccountability Office bore the inauspicious title, “Current government data provide limited insightinto offshoring of services.” Exhibit 3 summarizes six different efforts to determine the extent ofoffshoring. The efforts employed quite different methodologies.Just as the extent of offshoring was debatable, so were its firm- and country-level effects.Firm-level effects Most firms moved activities abroad in pursuit of profit. Especially compellingwas the prospect of savings on labor costs. In services, for example, a financial analyst who earned$35 per hour in the United States might receive $10 in India. In the manufacturing sector, workerswho earned $20 per hour or more in the U.S. were replaced by similar employees who worked for adollar or less per hour in China (Exhibit 4). Beyond labor savings, U.S. firms were drawn abroad formany reasons—to gain access to new markets, to serve business customers who were globalizingthemselves, to tap new talent pools, and so forth.Yet offshoring did not guarantee higher profits for a particular business. The success of anoffshoring effort was driven by factors such as the firm’s ability to manage in remote locations and bythe caliber and skills of the local labor force. In addition, exogenous factors such as political stability,language skills, infrastructure, and enforceability of intellectual property rights and businesscontracts affected the success of an offshore operation. In a survey of business executives performedby the Ventoro Institute, a think tank devoted to studying global sourcing, 36% of executivesreported that their offshoring strategies had failed. The Institute found that offshoring had led to anincrease in costs in 28% of cases and no cost savings in 25% of cases.15By 2007, stories of failed offshoring efforts were prevalent in the business press. For example,computer-maker Dell moved customer support for corporate clients back from India to the U.S.Customers, Dell said, complained that the foreign support operators were “difficult to communicatewith because of thick accents and scripted responses.” The company did, however, retain call centersin India to serve the consumer market, which accounted for 15% of its customer base. Of Dell’s 44,300employees, 54% were located outside the U.S.16 In another instance, a skateboard manufacturer,whose clients consisted mostly of teenage boys, moved its customer service operations to India.General cultural misunderstanding and the difficulty of communicating in specialized skateboardingjargon made the move disastrous for the company, and operations were moved back to the U.S.17Similarly, Cogent Road, a software programmer for mortgage banking companies, found that aproject it outsourced took twice as long as expected due to language barriers and time differences. Itvowed never to offshore a “mission critical” project again.18Country-level effects in the United States The macroeconomic impact of offshoring washotly debated. “Just as consumers in the United States have enjoyed lower prices from foreignmanufacturers, so too should they benefit from services being offered by overseas companies thatThe Offshoring of America 708-0305have lower labor costs,” argued Gregory Mankiw, chairman of the White House Council of EconomicAdvisors.19 Mankiw cited outsourcing of healthcare jobs as an example of beneficial offshoring,concluding that such a practice would help control rising medical costs.Supporters of offshoring also claimed that offshore operations ultimately created jobs in the U.S.export sector, lowered domestic firms’ costs, and provided services to consumers at lower prices.According to one economist, “instead of altering the number of jobs, free trade changes the mix ofjobs in the country to reflect those areas in which we have the greatest competitive advantage overother countries. International trade in services expands the process of job specialization and raisesliving standards.”20 Studies such as the one summarized in Exhibit 5 argued that offshoring was a“win-win”: each dollar spent on offshored activity produced benefits for the recipient country andmore than $1 of benefit for the source country.Opponents of offshoring, in contrast, viewed the practice as a grave threat to American jobs.Critics feared not only job losses, but also downward pressure on effective wages. As low-skilledworkers lost their jobs to foreign markets, they usually found replacement jobs that paid 20ñ40% lessthan their previous earnings. And, according to the American Policy Institute, newly expanding firmswere less likely to provide workers with health insurance than firms that were cutting jobs. Suchemployment situations contributed to rising income inequality in the United States. CNN newsmanLou Dobbs had been an especially vocal critic of offshoring. In his 2004 book, Exporting America,Dobbs referred to outsourcing as “simply destructive to our way of life . . . It has to end.”21Detractors of offshoring also worried about the impact of the practice on American intellectualproperty. In a prominent recent case in India, an employee fired by an Indian software company hadtried to sell source code from an American client company to its competitors. Leakage of intellectualproperty was averted only because India’s Central Bureau of Intelligence and the U.S. Federal Bureauof Investigation learned of the situation and arrested the former employee.22 Rumors also circulatedof Indian, Chinese, and Russian vendors that would build software for American companies, then sellthe software themselves in local markets. Intellectual property laws varied widely across countries, asdid the willingness of law enforcement authorities to pursue violations and the propensity of courtsto enforce the laws.Exhibits 6, 7, and 8 present economic data that supporters, opponents, and neutral observers ofoffshoring often reviewed as they tried to discern the true impact of offshoring.An early wave of offshoring activity, during the 1980s and 1990s, focused on the movement ofmanufacturing operations—for instance, to Mexico’s maquiladoras or China’s Special Economic Zones(SEZs). A more recent wave involved services, often relocated to India. The rest of this case describesoffshoring activity in Mexico, China, and India.Mexico: MaquiladorasA maquiladora was a factory or assembly plant operated in Mexico under a preferential tariffprogram. Maquiladoras originated as part of the Mexican government’s 1965 Border IndustrializationProgram, which aimed to stimulate the manufacturing sectors of depressed economies in thenorthern border region and to provide employment for workers displaced by the end of the BraceroProgram (which had allowed Mexican agricultural workers to work legally in the U.S. on a seasonalbasis). These changes, coupled with the substantial devaluations of the peso, made Mexico attractiveto U.S. firms that were facing increased pressure from Asian competitors. The Mexican governmentformally recognized the maquila industry in 1985 and entered into the General Agreement on Trade708-030 The Offshoring of America6and Tariffs (GATT) in 1986.23 The enactment of the North American Free Trade Agreement (NAFTA)in January 1994 created, over 15 years, a free trade zone for Mexico, the United States, and Canada.After the enactment of NAFTA, Mexican imports from the United States and the U.S. share ofMexico’s trade increased substantially. The number of maquiladora plants and employees are shownin Exhibit 9.The name maquiladora was coined from a process in colonial Mexico in which millers charged a“maquila” for processing other people’s grain. Modern maquiladora plants imported inputs from aforeign country, processed the inputs, and shipped outputs either back to the country of origin or toanother country. (The company posted a bond guaranteeing that the outputs would not be sold inMexico.) The outputs were then marketed for sale or processed further. The inputs and machineryentered Mexico without payment of import tariffs, and on return to the country of origin, the shipperpaid import duties only on the value added by the manufacturing or assembly process in Mexico.24Low-cost Mexican labor, advantageous tariff regulations, and close proximity to U.S. marketsmade the maquiladora program very attractive to American firms, which accounted for 90% of maquilaownership and 79 of the top 100 maquiladora employers.25 As a result of the program, foreigninvestment in Mexico was concentrated in the northern states closest to the U.S. border (Exhibit 10),and cities with many maquiladoras grew rapidly, not only industrially but in terms of population andemployment. The growth of the maquila industry also coincided with the growth of Mexico’s middleclass and was partly responsible for the country’s recovery from a severe economic crisis in 1994.The rapid growth of the maquiladora sector generated both criticism and praise. U.S. labororganizations for example, argued that maquiladoras took jobs from U.S. workers and that the wagedifferentials were exploiting Mexican workers. Others contended that since most employees inmaquiladoras came from poor, rural communities with high unemployment rates, maquiladoras gaveemployees opportunities to support themselves and their families without crossing the U.S. border tofind work. William C. Gruben, senior economist at the Federal Reserve Bank of Dallas, argued thatmaquiladoras allowed the U.S. to compete with Hong Kong, Korea, Singapore, and Taiwan; if policychanges limited maquiladoras, jobs displaced from Mexico would go to those countries and not returnto the U.S.26China: Special Economic ZonesAfter the death of Mao Zedong in 1976, the People’s Republic of China began an ambitious andsteady plan to move away from a focus on nationalized heavy industry to a more open, market-basedeconomy with rapid economic growth. Under the leadership of Deng Xiaoping, who emerged asCommunist Party head in 1978, five coastal areas were designated as Special Economic Zones (SEZs)and allowed to benefit from liberal economic policies in an attempt to attract foreign investment. Theterm “special” came to be used to describe policies that were conducive to international commerceand did not exist in China outside of SEZs. These new policies included special tax incentives, arelaxation of China’s restrictive labor laws, and greater freedom for international trade. Sino-foreignjoint ventures were preferred, if not required, and manufactured products were primarily for export,at least for the first decade or two.Between 1980 and 1984, the Beijing government established SEZs in Shantou, Shenzhen, andZhuhai in Guangdong Province and Xiamen in Fujian Province, and it designated the entire islandprovince of Hainan as a SEZ. In 1984, China opened 14 additional coastal cities to overseasinvestment (Exhibit 11) and expanded the coastal area further in 1985 with more open economicThe Offshoring of America 708-0307zones. Together, these areas were the catalysts for China’s economic development by promoting theexport of low-cost products and the import of technologies and management skills (Exhibit 12).The results of Deng Xiaoping’s strategy were extraordinary. China’s economy grew at an averageannual rate of almost 10% for 29 years.Despite the opening of the Chinese economy and a gradual improvement in Sino-Americanrelations, the SEZs were a focus of criticism. Detractors cited their adverse impact on the U.S.economy, the loss of jobs to China, and the impact of American companies moving to the SEZs. InChina, accelerated economic development created considerable regional disparities, which in turn ledto economic and social problems.27 Conservatives at the highest levels of the Chinese CommunistParty condemned the SEZs for re-creating a class system and giving foreigners economic privilegesthat exploited Chinese workers. For this group of critics, the SEZs were not different from the 19thcentury “treaty ports” that were once a source of China’s humiliation. In addition, arable land wasbeing used for development and industrialization while farmers and small landowners were forcedto vacate their property, creating disputes between the government and Chinese citizens. The Beijinggovernment hailed industrialization as the path to reduced poverty, but many rural residentsdisagreed, sometimes violently. A final critique came from environmentalists who condemned SEZsas sources of global pollution. In September 2006, the United Nations Environmental Program labeledShenzen a “global environmental hotspot.”India: Emerging HeavyweightWith more than one billion citizens, India was the world’s second most populous nation. Indiaalso boasted one of the fastest growing economies in the world, with GDP growth of 9.2% during2006–2007. Pricewaterhouse Coopers estimated that India’s economy would be the world’s thirdlargest by 2032, behind the economies of the United States and China.28Since 1991, India had gradually opened its markets through economic reforms and reducedgovernment controls on foreign trade, foreign investment, and privatization. The primary objectivewas to accelerate economic growth and reduce poverty by injecting competition into the economy.The Industrial Policy of 1991 promoted both foreign and domestic investments by relaxingrestrictions on investors. Price controls were eased; industrial licensing was abolished except forindustries focusing on public health, safety, and security; and industries other than atomic energyand railroads were opened to the private sector. At the state level, efforts were made to simplify rulesand procedures for setting up and operating individual businesses. In addition, a Special EconomicZone Policy, similar to China’s system, was announced in April 2000 and approved in April 2005. Thepolicy aimed to increase economic activity, promote exports of goods and services, spur investmentfrom domestic and foreign sources, create employment opportunities, and develop infrastructure.29As a result, the Indian economy had become a fast-growing consumer and producer market.Foreign exchange reserves had risen from $5.8 billion in March 1991 to $256 billion by October 2007.30Foreign direct investment in India had grown much more slowly, rising to $17 billion by 2006(Exhibit 13).Policy changes coupled with improvements in technology and telecommunications allowed Indiato enter the global economy in new ways. Offshoring in India gravitated to two main industries:business processes and software services.Business processes The term “business processes” referred to white-collar activities that mostcompanies undertook to meet the needs of employees, vendors, customers, and regulators. Common708-030 The Offshoring of America8processes included customer care, payroll processing, telemarketing, accounting, auditing, taxpreparation, and claims processing, for instance.31India quickly became the largest provider of offshored business process services. The firstAmerican company to offshore such work was American Express, which began to conduct itsbookkeeping in India in 1993. General Electric, Citibank, AOL, and other firms followed suit in themid-1990s, setting up back-office facilities and call centers in cities such as Gurgaon, Bangalore,Hydrabad, Chennai, and Mumbai (Exhibit 14). Soon after, a wave of venture capital-backed start-upsemerged in India, offering to perform business processes for American and European firms that hadno Indian operations. Over time, Indian information technology firms such as Wipro entered thebusiness processes market, and Indian subsidiaries of multinationals such as British Airways beganto sell their business-process services to external customers.32India’s exports of business-process services grew from $6.3 billion in FY 2005ñ06 to $8.4 billion inFY 2006ñ07 and were expected to reach $10.5ñ11bn in FY2007ñ08.33 More than 400 companies—Indianand multinational—offered business process services from operations in India. The United States wasthe main consumer of such services, with a 67% share, followed by Western Europe, which accountedfor 25% of export revenues (Exhibit 15). Customer care and support services accounted for 34% of theindustry’s revenues, finance-related services represented 22%, and administration and contentdevelopment were 13% and 19%, respectively.34 The most commonly offshored services involved callcenters, which employed about 200,000 people in India at the end of 2003. Most of the offshored callcenter jobs required only basic skills, such as the ability to make outbound calls from strict scripts.Software services The other focus of Indian offshoring, software services, got its start in 1973when the Indian government required multinational firms to reduce their shareholdings in domesticfirms to 40%. Many firms, including IBM (India’s largest IT firm at the time), chose to shut downIndian operations rather than adjust. These firms’ departure created an opportunity for Indianentrepreneurs and firms, such as Tata Consulting Services, to enter the market and fill the void left bythe multinationals. This trend would continue into the 1990s. By 2008, the leading Indian softwarefirms were Tata Consulting Services, Wipro Technologies, Infosys Technologies, Satyam ComputerServices, and HCL Technologies.Scores of foreign software and high-tech firms were also attracted to India. Texas Instruments setup a semiconductor design unit as early as 1985, followed by biopharmaceutical firm Astra in 1987. Inthe 1990s, Motorola, Microsoft, Intel, Daimler-Benz, and Pfizer were among the best-known firmsoffshoring services to India. In 2006, IBM had 30% of its employees in the Asia-Pacific region andboasted 38% revenue growth in India.35 Exports of IT software and services contributed 2% of India’sGDP.Attractions of IndiaEducation India’s education system focused on higher education, with the government funding18 central universities. In 2004, more than 340,000 students were admitted to bachelor degreeprograms in engineering.36 With over seven million students enrolled—more than one million intechnical programs alone—India produced more college graduates than almost any other country inthe world.37 Collaboration between educational institutions and firms led to relationships thatbenefited both companies and students. The use of English as the language of instruction fortechnical and managerial education had produced a vast number of graduates who were able tocommunicate with employers and customers in other countries (Exhibit 16).The Offshoring of America 708-0309Low wages The availability of many well-educated students created a supply of well-trained,affordable workers. The surplus of labor, combined with a low cost of living, caused wage rates inIndia to be as much as 90% lower than the rates of comparable occupations in developed countries.For example, average software programmers in India and the United States would earn roughly$6,000 and $63,000, respectively (Exhibit 17).38 The cost of a call-center employee was $7,500 in Indiaand $19,000 in the United States.39 Although wages in India and other developing countries mightrise over time, the size of the population and differences in the costs of living led most observers tobelieve that wage differentials would remain for many years.Improved technology Improvements in telecommunications infrastructure and technologymade it increasingly easy and affordable to share information around the world. For example, thecost of a one-minute phone call from India to the United States dropped more than 80% betweenearly 2000 and late 2003.40 As data transmission costs went down, the declining costs of personalcomputers and workstations as well as the standardization of Unix/C as a programming languagefacilitated the offshoring of software development.Government incentives State and central governments in India offered firms a range offinancial incentives. To attract foreign investors, many states offered enticements such as taxconcessions, capital and interest subsidies, reduced power costs, a single-window approval systemfor setting up industrial units, stamp duty exceptions, reservation of plots for foreign investmentprojects, rebates on land costs, and so forth. Central government incentives included 100% taxdeduction on profits made as a result of developing, maintaining, and operating infrastructurefacilities; tax exemption of 100% on export profits for ten years; various capital subsidies and financialincentives for expansion in the northeastern region; and tax deduction of 100% of profits for fiveyears and 50% of profits for the next two years for undertakings in SEZs.Time zones By taking advantage of differences in time zones, teams with members in, say, Indiaand the United States could work on projects around the clock without incurring the cost of overtimepay and fatigue that 24-hour operations would normally entail.Potential ConcernsAs a large developing nation, India faced many challenges, including substandard infrastructure,corruption, and other problems typical of poor nations. These led some foreigners to approachoffshoring opportunities in India with caution.Infrastructure India’s power networks, roads, transportation systems, and ports faced hugedemands from the nation’s rapidly growing economy, while years of neglect had left them in illrepair. Within the past few years, the government had recognized these problems and had begun todirect funds toward infrastructure improvement, but it was unclear if the government had the fundsto effect lasting change. It was estimated, for instance, that it would take approximately $45 billion inpublic- and private-sector investment to improve India’s power system alone.41Corruption In 1988, India enacted the Prevention of Corruption Act, an attempt to define clearpunishments for public servants who received monies by corrupt means. Still, questions remainedabout the extent of corruption in the country. Transparency International ranked India 90th out of 145countries in its 2004 Corruption Perceptions Index. (The index, released annually, was based on asurvey that asked business people and risk analysts to share their impressions of the degree ofcorruption among public officials and politicians.) By 2007, India’s corruption ranking had improvedto 72nd out of 179 countries.42708-030 The Offshoring of America10Quality control and information security Despite instruction in English, not every graduatein India spoke the language well enough to meet the needs of multinational companies. Culturaldifferences amplified these language issues, and call-center companies had to make significantinvestments in training before their Indian workers could handle calls from Americans effectively.Managers contemplating Indian operations also worried about the security of corporateinformation. Regulations in some industries reinforced these concerns. In healthcare, for instance, theHealth Insurance Portability and Accountability Act (HIPAA) required that patient data be handledin certain ways to protect confidentiality.43Political stability Potential investors also worried about India’s political stability, bothdomestically and internationally. Problems between ethnic and religious groups had producedepisodes of violence and instability in states ranging from Nagaland in the east to Gujarat in the farwest. Continuing friction with Pakistan over the border of Kashmir made some foreigners nervousabout Indian operations, and there were reports that Kashmiri separatists intended to targetoffshoring facilities as a way to damage India’s economy.44Global Services Location IndexFor several years, A. T. Kearney had analyzed the top fifty locations worldwide that providedservices such as call centers, IT support, and back-office operations in order to produce a GlobalServices Location Index. Each country was scored in three categories: financial attractiveness,availability of people and skills, and business environment. Financial attractiveness was furtherbroken down into subcategories that included compensation, infrastructure, and tax and regulatorycosts. The availability of people and skills was assessed on the basis of education and language,labor-force availability, remote services sector experience and quality ratings, and attrition risk. Thebusiness environment was scored on the basis of country environment, infrastructure, culturalexposure, and security of intellectual property. Exhibits 18a and 18b show India leading A. T.Kearney’s rankings in 2005 and 2007.ConclusionIn January 2007, Princeton Economics Professor Alan Blinder testified before the U.S. Senate’sJoint Economic Committee. The title of his talk, “Will the Middle Class Hold?” summed up his fearsabout the impact of offshoring on America’s economy and society. In closing his testimony, Blindernoted:Mr. Chairman, you may remember a popular 1960s musical comedy called Stop the World, IWant to Get Off. I understand the sentiment. You hear it a lot these days. But we cannot stop,and we cannot get off. Instead, we Americans need to prepare ourselves for the future ofglobalization, whether we like it or not. There is much to be done.The Offshoring of America 708-03011Exhibit 1 Offshoring and Related ActivitiesFirms import servicesfrom foreign suppliersU.S. foreign affiliatesproduce services forforeign marketsU.S. production and employment displacedfor reasons other than offshoring (e.g.,economic recession, technological changes)Firms importservices from theirforeign affiliatesFirms import servicesfrom their foreignaffiliates, displacingproduction and workersU.S. foreign affiliatesdisplace U.S.exports of services inforeign marketsFirms importservices from foreignsuppliers, displacingproduction andworkersExamples of business activity:A U.S. company produces accounting and payroll services abroad through its foreign affiliates and sellsthem to other companies abroad. These services compete against U.S. exports of services, causingsome U.S. production and employment to be displaced.A U.S. company produces accounting and payroll services abroad through its foreign affiliates and sellsthem to other companies abroad. These services do not directly compete against U.S. exports ofservices.A U.S.-based company imports additional accounting and payroll services to supply its expanding U.S.business, but does not displace any current domestic production or employment. The foreign supplier isan unaffiliated foreign-based company.A U.S.-based company imports additional accounting and payroll services to supply its expanding U.S.business, but does not displace any current domestic production or employment. The foreign supplier isthe company’s own foreign affiliate.The most common definition of offshoring includes the types of activities represented by areas A and B.A U.S.-based company moves its accounting and payroll services from its domestic operations to its newforeign-based affiliate set up to produce these services.A U.S.-based company stops producing its accounting and payroll services in-house and insteadpurchases them from a foreign-based company. ABCDEFABC D EAFFirms import servicesfrom foreign suppliersU.S. foreign affiliatesproduce services forforeign marketsU.S. production and employment displacedfor reasons other than offshoring (e.g.,economic recession, technological changes)Firms importservices from theirforeign affiliatesFirms import servicesfrom their foreignaffiliates, displacingproduction and workersU.S. foreign affiliatesdisplace U.S.exports of services inforeign marketsFirms importservices from foreignsuppliers, displacingproduction andworkersExamples of business activity:A U.S. company produces accounting and payroll services abroad through its foreign affiliates and sellsthem to other companies abroad. These services compete against U.S. exports of services, causingsome U.S. production and employment to be displaced.A U.S. company produces accounting and payroll services abroad through its foreign affiliates and sellsthem to other companies abroad. These services do not directly compete against U.S. exports ofservices.A U.S.-based company imports additional accounting and payroll services to supply its expanding U.S.business, but does not displace any current domestic production or employment. The foreign supplier isan unaffiliated foreign-based company.A U.S.-based company imports additional accounting and payroll services to supply its expanding U.S.business, but does not displace any current domestic production or employment. The foreign supplier isthe company’s own foreign affiliate.The most common definition of offshoring includes the types of activities represented by areas A and B.A U.S.-based company moves its accounting and payroll services from its domestic operations to its newforeign-based affiliate set up to produce these services.A U.S.-based company stops producing its accounting and payroll services in-house and insteadpurchases them from a foreign-based company. ABCDEFABC D EAFSource: United States Government Accountability Office, International Trade: Current Government Data Provide Limited Insightinto Offshoring of Services (Washington, DC: Government Printing Office, September 2004), p. 57,http://www.gao.gov/new.items/d04932.pdf, accessed September 2007.708-030 The Offshoring of America12Exhibit 2 Offshoring versus Outsourcing: A Company’s Sourcing OptionsDomestic OffshoreIn-houseDomestic in-house productionExample: Company produces itsproducts domestically without anyoutside contractsOffshore in-house sourcingExample: Company uses servicessupplied by its own foreign-basedaffiliation (subsidiary)OutsourcedDomestic outsourcingExample: Company uses servicessupplied by another domesticallybased companyOffshore outsourcingExample: Company uses servicessupplied by an unaffiliated foreignbased companySource: United States Government Accountability Office, International Trade: Current Government Data ProvideLimited Insight into Offshoring of Services (Washington, DC: Government Printing Office, September2004), p. 58, http://www.gao.gov/new.items/d04932.pdf, accessed September 2007.The Offshoring of America 708-03013Exhibit 3 Private Sector Estimates of Offshoring and Its Potential EffectsSource FindingsBardhan & Krolla

(University ofCalifornia, Berkeley)Finds fourteen million jobs in “”at-risk” occupations in 2001, or 11% of U.S. workforce.These occupations include both IT and other occupations.Describes this as the “outer limit” of potential direct job loss, not actual number of jobsthat will be offshored. Study does not provide a lower limit of potential job losses.Deloitte ResearchbIn the financial services sector, 850,000 jobs may move offshore (15% of industryemployment).Forrester ResearchcAcross all services occupations, 3.3 million jobs are projected to move offshore by2015.Gartner, Inc.dBy the end of 2004, 500,000 IT jobs may be displaced. One out of every 10 jobs withinU.S.-based IT vendors and IT service providers may move to emerging markets, asmay 1 of every 20 IT jobs within user enterprises (non-IT companies that employ ITworkers).Goldman SachseEstimates that U.S. producers have cumulatively moved fewer than 200,000 jobs tooverseas affiliates but could increase the number of jobs overseas to a few hundredthousand per year over the next two to three years. Up to six million jobs could beaffected by offshoring over the next decade.Global Insight, Inc.fAbout 104,000 of the 372,000 IT jobs were lost from 2000 to 2003 owing to offshoring(or 2.8% of total core IT jobs in 2000). After initial higher unemployment (2000 to 2002)primarily due to displaced IT jobs, net employment rebounded with jobs being createdin both the IT sector (though more slowly than if there were no offshoring) and in othersectors of the economy. Other effects include higher real earnings (due to lowerinflation and higher productivity), increased spending on IT (diffusion through theeconomy), higher gross domestic product, and increased exports.Source: United States Government Accountability Office, International Trade: Current Government Data Provide LimitedInsight into Offshoring of Services (Washington, DC: Government Printing Office, September 2004), pp. 44-45,http://www.gao.gov/new.items/d04932.pdf, accessed September 2007.a Ashok Deo Bardhan and Cynthia Kroll, ìThe New Wave of Outsourcing” (University of California, Berkeley, Fall2003).b Deloitte Research, “The Cusp of a Revolution: How Offshoring Will Transform the Financial Services Industry”(2003).c John McCarthy, Forrester Research, “3.3 Million U.S. Services Jobs to Go Offshore” (Nov. 11, 2002).d Diane Morello, Gartner Inc., “U.S. Offshore Outsourcing: Structural Changes, Big Impact” (July 15, 2003).e Goldman Sachs, “Offshoring: Where Have All The Jobs Gone?” (Sept. 19, 2003).fGlobal Insight, “The Impact of Offshore IT Software and Services Outsourcing on the U.S. Economy and the ITIndustry” (March 2004).708-030 The Offshoring of America14Exhibit 4 Hourly Labor Costs in Manufacturing (in U.S. dollars)Country 1995 2003 Country 1995 2003Germany 31.88 29.91 Taiwan 5.82 5.84USA 17.20 21.97 Hong Kong 4.82 5.54France 13.34 21.13 Czech Republic 1.30 4.71United Kingdom 13.77 20.37 Brazil 4.28 2.67Japan 23.66 20.09 Malaysia 1.15 2.51Canada 16.03 19.28 Mexico 1.51 2.48Ireland NA 19.14 South Africa 1.02 1.50Italy 16.48 18.38 Russia 0.60 1.20Spain 12.70 14.96 India 0.25 0.80Korea 7.40 10.28 China 0.25 0.64Singapore 7.28 7.41 Indonesia 0.30 0.20Source: Compiled by casewriter.Exhibit 5 Benefit to the United States and India per U.S. Dollar of Spending on OffshoringUnited StatesSavings accruing to U.S. investors/customers 0.58Imports of U.S. goods and services by providers in India 0.05Transfer of profits by U.S.-based providers in India back to U.S. 0.04Net direct retained in U.S. 0.67Value from U.S. labor re-employed 0.45–0.47Potential net benefit to U.S. 1.12–1.14

IndiaLabor 0.10Profits retained in India 0.10Suppliers 0.09Central government taxes 0.03State government taxes 0.01Net benefit to India 0.33Source: “Offshoring promises huge benefits to consumers,” The Economist, December 11, 2003.The Offshoring of America 708-03015Exhibit 6 Private-Sector Employment in Selected Industries in the United StatesIndustryThousands ofemployees in June 2004Average annual changein employment, March2001–June 2004Legal 1,162 2.5%Scientific research and development 562 1.8%Architectural and engineering 1,281 0.5%Total nonfarm 132,325 0.2%Business support 753 -1.2%Telephone call centers 367 -2.9%Software publishers 241 -4.5%Computer systems design and related 1,122 -5.7%Payroll 132 -6.1%ISPs, search engines, data processing 408 -7.2%Telecommunications 1,048 -7.2%Accounting and bookkeeping 760 -7.9%Source: United States Government Accountability Office, International Trade: Current Government Data Provide Limited Insightinto Offshoring of Services (Washington, DC: Government Printing Office, September 2004), p. 36,http://www.gao.gov/new.items/d04932.pdf, accessed September 2007.Notes: The payroll category is a subset of accounting and bookkeeping, and the telephone call-centers category is a subset ofbusiness support.Exhibit 7 U.S. Imports of Private ServicesCategory of serviceImports in 2006(billions of dollars)CAGR in imports,2001–2006Travel 72.0 3.7%Passenger fares 27.5 4.0%Other transportation 65.3 11.0%Royalties and license fees 26.4 9.8%Other private services 116.5 12.0%Education 4.4 13.9%Financial services 14.3 5.0%Insurance services 33.6 15.0%Telecommunications 4.6 -0.9%Business, professional, and technical services 58.2 13.9%Other 1.5 17.9%Total 307.8 8.6%Source: Complied with data from United States Department of Commerce, Bureau of Economic Analysis,http://www.bea.gov/international/xls/tab1b.xls, accessed November 2007.708-030 -16-Exhibit 8 Changes in Hourly Wage and Employment for U.S. Computer Specialist OccupationsOccupationsHourly wage, U.S. $(May 2005)Percentage change inhourly wage (2001–2005)Number of jobs(May 2005)Percentage change inemployment (2001–2005)Computer and information scientists, research 45.21 22.2 25,890 1.1Computer software engineers, systems software 40.54 13.2 320,720 22.6Computer software engineers, applications 38.24 9.9 455,980 26.1Computer systems analysts 33.86 10.5 492,120 9.8Computer programmers 32.40 7.2 389,090 -22.4Database administrators 31.54 12.3 99,380 -4.7Network systems and data communications analysts 31.23 7.7 185,190 46.9Network and computer systems administrators 30.39 12.0 270,330 18.6Computer support specialists 20.86 3.5 499,860 1.3All U.S. occupations 18.21 11.4 130,307,850 1.8Source: United States Government Accountability Office, Offshoring: U.S. Semiconductor and Software Industries Increasingly Produce in China and India (Washington, DC: Government Printing Office,September 2006), p. 34, http://www.gao.gov/new.items/d06423.pdf, accessed September 2007.Exhibit 9 Maquila Plants in Mexico623 735 876 987 1,015 895 7722,0942,2482,4212,603 2,6692,3562,05705004,0003,5003,0002,5002,0001,5001,0001997 1998 1999 2000 2001 2002 2003Source: Mexico Now, Year 2, Number 9, March/April 2004, p.62.Note: Top number represents the number of plants in border states; bottom number representsnumber of plants in interior states.Exhibit 10 Map of Mexico Showing Share of Maquiladora Establishments, byStateState Percent

Baja California 32.1
Chihuahua 13.4
Tamaulipas 12.4
Coahuila 7.9
Sonora 6.5
Nuevo Leon 5.4
Jalisco 4.1
Yucatan 3.2
Puebla 3.1
Durango 2.0
Guanajuato 1.8
Aguascalientes 1.8
Estado de Mexico 1.58Mexican states with 1 to 5% of total Maquiladora firmsMexican states with more than 5% of total Maquiladora firms15246310712111398Source: Center for Analysis and Economic Projections of Mexico (from United States GeneralAccounting Office, Report to Congressional Requesters: International Trade: Mexico’sMaquiladora Decline Affects U.S.-Mexico Border Communities and Trade; RecoveryDepends in Part on Mexico’s Actions, July 2003).The Offshoring of America 708-03017Exhibit 11 China’s Economic ZonesSource: Courtesy of the University of Texas Libraries, The University of Texas at Austin.Exhibit 12 Outward-bound Exports of China’s Foreign-Invested EnterprisesSource: The Brookings Review; China Statistical Yearbook; WTO Trade Policy Review, March 17, 2006.708-030 The Offshoring of America18Exhibit 13 Foreign Direct Investment in India and China0102030405060701991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006Billions of dollarsChina IndiaSource: Compiled with data from The International Monetary Fund.Exhibit 14 Major Offshoring Areas in IndiaSource: Original map courtesy of the University of Texas Libraries,The University of Texas at Austin; specific cities highlightedby casewriter.The Offshoring of America 708-03019Exhibit 15 Employees and Revenue in Outsourcing Services and Information Technology in IndiaFY 2004 FY 2005 FY 2006 FY 2007 ENumber of employees (thousands)IT services 215 297 398 562IT-enabled services – business process outsourcing 216 316 415 545Engineering services/ R&D/software products 81 93 115 144Domestic market (including user organizations) 318 352 365 378Total 830 1,058 1,293 1,629

Revenue (billions of dollars)Domestic 8.3 10.2 13.2 15.9Export 13.3 18.3 24.2 31.9Global markets (percent of revenue)Americas 69.4 68.3 67.2Europe 22.6 23.1 25.1Rest of the world 8.0 8.6 7.7Source: National Association of Software and Service Companies.Exhibit 16 Indian IT Labor Supply: IT Software and Services2003–04 2004–05 2005–06 2006–07 2007–08 EThousands of engineering graduates 316 365 441 501 536Degree (four years) 139 170 222 270 290Diploma & MCA (three years) 177 195 219 231 246

Thousands of engineering IT graduates 179 201 246 280 303Degree (four years) 84 102 133 162 180Diploma & MCA (three years) 95 99 113 118 123Source: National Association of Software and Service Companies.708-030 The Offshoring of America20Exhibit 17 Annual Salaries for Software Programmers in Various Countries010,00020,00030,00040,00050,00060,00070,000IndiaRussian FederationPoland & HungaryPhilippinesMalaysiaChinaIsraelCanadaIrelandUSA= range of base annual salaries in U.S. dollarsAnnual SalarySource: Compiled with data from Thomas Hoffman and Patrick Thibodeau, “Exporting IT jobs,” Computerworld, vol. 37, no.17 (April 28, 2003), p. 39, accessed via ABI/INFORM Global.The Offshoring of America 708-03021Exhibit 18a A. T. Kearney Global Services Location Index Score, 20052.12.83.12.82.92.91.63.633.23.50.90.80.91.31.21.41.41.21.11.82.10.91.21.00.91.21.22.71.02.01.21.3TurkeySouth AfricaArgentinaRussiaMexicoBrazilSingaporePhilippinesMalyasiaChinaIndiaFinancial attractiveness People and skills availability Business environmentSource: Compiled from A. T. Kearney.Exhibit 18b A. T. Kearney Global Services Location Index Score, 20072.12.62.52.91.72.63.32.62.82.93.21.31.41.21.31.51.51.21.81.32.32.31.41.21.61.32.51.61.31.52.01.41.4TurkeyRussiaSouth AfricaArgentinaSingaporeMexicoPhilippinesBrazilMalyasiaChinaIndiaFinancial attractiveness People and skills availability Business environmentSource: Compiled from A. T. Kearney.708-030 The Offshoring of America22Endnotes1 Council of Economic Advisors, 2004 Economic Report of the President (Washington, DC: U.S. GovernmentPrinting Office), p. 30.2 “Outsourcing’s challenge,” San Jose Mercury News, July 9, 2007, http://www.a1technology.com/blog/2007/07/outsourcings-challenge.html, accessed September 2007.3 IBM, 2006 Annual Report (Armonk, NY: IBM, 2007), p. 5, http://www.ibm.com/annualreport/, accessedSeptember 2007.4 Steve Lohr, “At I.B.M., a smarter way to outsource,” New York Times, July 5, 2007.5 Robert Jaques and Ian Lynch, “IBM staff in offshore outsourcing protest,” vnunet.com, April 28, 2004.6 United States Government Accountability Office, “Current government data provide limited insight intooffshoring of services,” GAO Report 04-932, September 2004.7 Thomas L. Friedman, The World Is Flat: A Brief History of the Twenty-first Century (New York: Farrar, Strausand Giroux, 2005), p. 31.8 Judit Zegnál, “Morgan Stanley to Budapest,” BBJ (Budapest Business Journal), July 24, 2006.9 Ben White, “India staff numbers soar for Goldman,” Financial Times, September 19, 2006.10 Friedman, pp. 11–15; Jesse Robertson, Dan Stone, Liza Niederwanger, Matthew Grocki, Erica Martin, andEd Smith, “Offshore outsourcing of tax-return preparation: Promising business opportunities and professionalstandards,” The CPA Journal Online, June 2005.11 Friedman, pp. 15–16; Erica Chernofsky, “The view from here,” The Jerusalem Post, March 17, 2006, p. 22, viaFactiva, accessed September 2007; “As PHI Flies Over the Ocean, Privacy Risks Mount at Home,” Report onPatient Privacy, August 1, 2006, via Factiva, accessed September 2007.12 Rafiq Dossani, “Globalization and the Offshoring of Services: The Case of India,” Brookings Trade Forum,December 2005, p. 250.13 Friedman, p. 40; “McDonald’s may outsource drive-thru order-taking,” Reuters News, March 10, 2005, viaFactiva, accessed September 2007; “Not so fast,” The Columbus Dispatch, April 29, 2006, via Factiva, accessedSeptember 2007.14 “Giving birth becomes the latest job outsourced to India,” CNN.com, December 31, 2007,http://www.cnn.com/2007/WORLD/asiapcf/12/30/india.wombs.for.rent.ap/index.html, accessed September2007.15 Philip J. Hatch, “Offshore 2005 Research: Preliminary Findings and Conclusions,” Ventoro Institute,October 11, 2004, pp. 16–17, http://www.ventoro.com/Offshore2005ResearchFindings.pdf, accessed September2007.16 April Castro, “Dell to stop using Indian tech support for corporate customers,” Associated Press Newswires,November 24, 2003, via Factiva, accessed September 2007.17 Laurie J. Flynn, “Companies sending work abroad are learning cultural sensitivity—to their Americancustomers,” New York Times, December 8, 2003, p. 4, via Factiva, accessed September 2007.18 Dean Foust, Michael Eidam, Spencer E. Ante, and Manjeet Kripalani, “The Outsourcing Food Chain,”BusinessWeek Online, March 11, 2004,http://www.businessweek.com/smallbiz/content/mar2004/sb20040311_4465_sb014.htm, accessed September2007.19 Warren Vieth, “Fed chief warns of barriers to growth,” Los Angeles Times, February 12, 2004.20 Benjamin Powell, “Outsourcing benefits Silicon Valley,” Pacific Research Institute, www.pacificresearch.org, April 9, 2004, accessed September 2007.The Offshoring of America 708-0302321 Lou Dobbs, Exporting America (New York: Warner Books, 2004), p. 2.22 Michael Fitzgerald, “The risks associated with offshoring software development,” CIO, November 15,2003.23 Richard H.K. Vietor and Alexander Veytsman, “American Outsourcing,” HBS No. 705-037 (Boston:Harvard Business School Publishing, 2005), p. 3.24 William C. Gruben and Sherry L. Kiser, “NAFTA and Maquiladoras: Is the Growth Connected?” FederalReserve Bank of Dallas, June 2001, http://dallasfed.org/research/border/tbe_gruben.pdf, accessed September2007.25 Vietor and Veytsman, p. 3.26 William C. Gruben, “Mexican Maquiladora Growth: Does it Cost U.S. Jobs?” Federal Reserve Bank of DallasEconomic Review (January 1990): 15–29.27 Tatsuyuki Ota, “The Role of Special Economic Zones in China’s Economic Development As Comparedwith Asian Export Processing Zones: 1979–1995,” Asia in Extenso, March 2003, www.iae.univ-poitiers.fr.28 Pricewaterhouse Coopers, “India Realty Check,” September 2006.29 Ministry of Commerce and Industry, Department of Commerce, “Background note: Special EconomicZones in India,” http://sezindia.nic.in/HTMLS/about.htm.30 Reserve Bank of India, “Weekly Statistical Supplement,” October 19, 2007,http://rbi.org.in/scripts/WSSViewDetail.aspx?TYPE=Basic&PARAM1=10/19/2007, accessed September 2007.31 Rafiq Dossani, “Globalization and the Offshoring of Services: The Case of India” in Brookings Trade Forum2005 (Washington, DC: Brookings Institution Press, 2006), pp. 247–249.32 Pricewaterhouse Coopers, “The Evolution of BPO in India,” April 2005, p. 1433 NASSCOM, India ITES-BPO Factsheet 2007, http://www.nasscom.in/upload/5216/Indian%20ITESBPO%20Factsheet%20%20Aug%2007.pdf, accessed September 2007.34 Pricewaterhouse Coopers, “The Evolution of BPO in India,” April 2005, p.9.35 IBM Annual Report 2006, p. 6.36 United Nations, World Investment Report 2005, New York 2005, p. 167.37 United Nations Development Programme, Human Development Report 2001, p. 91.38 Thomas Hoffman and Patrick Thibodeau, “Exporting IT Jobs,” Computerworld, April 28, 2003, p. 42.39 Pricewaterhouse Coopers, “The Evolution of BPO in India,” April 2005, p. 10.40 “Relocating the Back Office,” The Economist, December 13, 2003, p. 79.41 Adil S. Zainulbhai, “What Executives Are Asking about India,” McKinsey Quarterly, 2005 Special Edition,pp. 26–33.42 Transparency International, Corruption Perceptions Index 2007,http://www.transparency.org/news_room/in_focus/2007/cpi2007, accessed September 2007.43 Ann Bednarz, “The downside of offshoring,” Network World, July 5, 2004, p. 33.44 Andy McCue, “Terrorists target India’s offshore IT firms,” www.silicon.com, March 8, 2005, accessedFebruary 2008.

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