Monday, September 22, 2008

No longer cheaper, now just smarter

A pretty extraordinary statement in here, which would be racist and xenophobic if turned around and stated as fact about the U.S. or any Western nation. Since they claim there is little difference in cost for the workers, they are now pursuing overseas workers because , although they cost about the same, they are better , smarter, faster ....

Being willing to match India’s low-cost model was essential, but Mr Cannon-Brookes insists that IBM’s enthusiasm for emerging markets is no longer mainly about cheap labour. Jeff Joerres, the chief executive of Manpower, an employment-services firm, also thinks the opportunities for savings are dwindling. “When you see Chinese companies moving in a big way into Vietnam, you think there is not much labour arbitrage left.”

Perhaps a bigger attraction now, according to IBM, are the highly skilled people it can find in emerging markets. “Ten years, even five years ago, we saw emerging markets as pools of low-priced, low-value labour. Now we see them as high-skills, high-value,” says Mr Cannon-Brookes. As for every big multinational, winning the “war for talent” is one of the most pressing issues, especially as hot labour markets in emerging markets are causing extremely high turnover rates.

The empire strikes back

Sep 18th 2008
From The Economist print edition

Illustration by James Fryer

Why rich-world multinationals think they can stay ahead of the newcomers

“YOU get very different thinking if you sit in Shanghai or São Paulo or Dubai than if you sit in New York,” says Michael Cannon-Brookes, just off the plane from Bangalore to Shanghai. “When you want to create a climate and culture of hyper-growth, you really need to live and breathe emerging markets.” Mr Cannon-Brookes is the head of strategy in IBM’s newly created “growth markets” organisation, which brings together all of Big Blue’s operations outside North America and western Europe. “This is the first line business in 97 years of our history to be run outside the US,” he says excitedly, noting that “Latin America now reports to Shanghai.”

IBM’s thinking about emerging markets, and indeed about what it means to be a truly global company, has changed radically in the past few years. In 2006 Sam Palmisano, the company’s chief executive, gave a speech at INSEAD, a business school in France, describing his vision for the “globally integrated enterprise”. The modern multinational company, he said, had passed through three phases. First came the 19th-century “international model”, with firms based in their home country and selling goods through overseas sales offices. This was followed by the classic multinational firm in which the parent company created smaller versions of itself in countries around the world. IBM worked liked that when he joined it in 1973.

The IBM he is now building aims to replace that model with a single integrated global entity in which the firm will move people and jobs anywhere in the world, “based on the right cost, the right skills and the right business environment. And it integrates those operations horizontally and globally.” This way, “work flows to the places where it will be done best.” The forces behind this had become irresistible, said Mr Palmisano.

This ambitious strategy was a response to fierce competition from the emerging markets. In the end, selling the personal-computer business to Lenovo was relatively painless: the business had become commoditised. But the assault on its services business led by a trio of Indian outsourcing upstarts, Tata Consulting Services, Infosys and Wipro, threatened to do serious damage to what Mr Palmisano expected to be one of his main sources of growth.

So in 2004 IBM bought Daksh, an Indian firm that was a smaller version of the big three, and has built it into a large business able to compete on cost and quality with its Indian rivals. Indeed, IBM believes that all in all it now has a significant edge over its Indian competitors.

IBM also says it can manage the risk of intellectual-property theft—a perennial worry for multinationals in emerging markets, especially China—well enough to have cutting-edge research labs in India and China. And it is starting to “localise” its senior management, including moving its chief procurement officer and the head of its emerging-markets business to China. But as yet it has no plan to move its headquarters from Armonk, New York, whereas Halliburton, an energy-services firm, shifted its headquarters to Dubai last year. One notable success has been the company’s partnership with AirTel in the Indian mobile-phone market, which it has already extended to other Indian phone companies and is likely to take to other countries. In this partnership IBM manages much of AirTel’s back-office operations and shares the financial risk with the phone company. “We grow as they grow,” says Mr Cannon-Brookes, noting that IBM is now the largest service provider to local customers in India.

Risk-sharing has worked well for other multinationals too. Vodafone, for example, is a big shareholder in Safaricom. In June Daiichi Sankyo, a Japanese pharmaceutical giant, bought a 51% stake in India’s Ranbaxy Laboratories. Such deals increasingly involve strategic partnerships rather than the joint ventures of old. Daiichi hopes the deal will add value to its research and development expertise and provide access to Japan’s fast-growing market to Ranbaxy, which in turn brings low-cost manufacturing and an understanding of the generics market.

In many emerging markets the most attractive potential customer is the government, thanks to an infrastructure boom that promises to span everything from mobile telephone networks to roads, airports and ports, energy and water supply. IBM is not alone in pitching directly to governments for this business, relying on its established brand and on the growing pressure on emerging-country governments—even those that are not strictly democratic—to deliver high-quality, value-for-money infrastructure. Instead of trying to sell specific products, they say, these firms aim to help governments draw up plans for improving their country—plans which invariably require substantial spending with the company concerned. Both Cisco and GE have recently started establishing long-term problem-solving relationships with governments in which the firms help to design an infrastructure programme as well as build some or all of it.

Buy my strategy

Three years ago Cisco combined all its emerging-markets activities into a single unit. Since then the share of its revenues coming from emerging markets has risen from 8% to 15%, accounting for 30% of its total revenue growth. “We identify the country’s most important industries and go to them with a blueprint for a strategy to improve them using our technology to beat global benchmarks; this is about revolutionary not incremental change,” says Paul Mountford, head of Cisco’s emerging-markets business.

In 2006 GE—which since launching its Ecomagination strategy in 2003 has bet big on a boom in green technologies—signed a “memorandum of understanding” with China’s National Development and Reform Commission to work jointly to safeguard the country’s environment. It also wants to forge relations with local government in 200 second-tier Chinese cities, each of which will soon have a population of at least 1m and will need everything from a power supply to an airport.

More recently, top GE executives have got together with Vietnam’s government to discuss the huge problems facing the country in water, oil, energy, aviation, rail and finance—all areas in which GE has products to sell. At one meeting GE’s president found himself in the same room with no fewer than three Vietnamese leaders who had taken part in a leadership programme at GE’s famous training facility in Crotonville, New York, recalls John Rice, the company’s head of technology and infrastructure. This programme of inviting groups of 30-40 senior government and business leaders from a particular emerging country to Crotonville for a week was launched more than a decade ago, starting with a group from China. “We transfer a lot of learnings between us, and we end up friends for life,” says Mr Rice.

Illustration by James Fryer

Today’s leading multinationals “are no longer the slow-moving creatures they used to be. They are not going to be beaten up like the big American companies were by the Japanese,” says Tom Hout, a former consultant at BCG who now teaches at Hong Kong Business School. With Pankaj Ghemawat, who last year published a well-received book, “Redefining Global Strategy”, Mr Hout has analysed the emerging market in which multinationals have competed longest against local champions: China. Whether the established multinationals or their local rivals are winning “depends on the segment you’re looking at”, says Mr Hout. Established Japanese and Western multinationals dominate in the high-tech sectors of the economy; the Chinese are strong at the low end. The main battleground is in the middle. This is quite different from the conventional wisdom, which is that established multinationals are getting pushed out by local companies, he concludes.

A 2007 study by Accenture of China’s top 200 publicly traded companies found that the best businesses in China are not yet on a par with the world’s foremost ones. Although their revenue growth increased on the back of China’s continued economic growth, their ability to create value was still only half that of their global peers. “It remains to be seen whether China’s best players have built the management practices and supporting business operating models that will allow them to generate profitable growth in more mature markets over the long term,” the study went on to say.

Their legacy thinking and cost structures notwithstanding, some established multinationals are increasingly trying to take on the frugal engineers of the emerging markets head-to-head, says Mr Ghemawat. “Smarter multinationals have all given up on the idea that they can simply deliver the same old products in the developing world,” he explains. “If they just focus on pricing high in mostly urban areas, they will miss out on the mass consumer markets that are emerging. And they have to be able to compete as cost-effectively as the local firms, which can mean fundamentally re-engineering their products and business model.”

A recent report by BCG, “The Next Billion Consumers”, highlighted many innovative business models and products offered by multinationals such as Nokia— still the biggest mobile-phone producer in China, despite frequent predictions that it will fall behind a local rival—and Procter & Gamble, as well as similar efforts by emerging-market firms.

In search of excellent managers

The decisive factor may turn out to be management. Although some emerging-market firms are very well managed, by and large established multinationals still seem to have the edge. Mr Hout reckons that the expatriate managers now deployed by multinationals in emerging markets are generally of a much higher quality than the “young bucks or retirement-posting types” they used to send. “They are aggressive, smart, at the heart of their careers. And they tend to be married to more worldly women than management wives used to be.”

That said, the multinationals’ management advantage is based more on training and experience of running a large business than on exposure to other countries. Indeed, leading multinationals are reducing their use of expats, and those they do send are often expected to train a local manager as their successor. There is still a striking lack of executives from emerging markets at the top of developed-country multinationals. Even at GE, which is wholeheartedly committed to emerging markets, around 180 of the top 200 managers are still Americans. “The single biggest challenge facing Western multinationals is the lack of emerging-market experience in their senior ranks,” says Mr Ghemawat.

Such companies’ boardrooms are even less globalised. According to Clarke Murphy of Russell Reynolds, a recruitment firm, American multinationals now have a “ferocious interest in attracting non-Americans to the board”, but as yet even Europeans are a rarity, let alone directors from emerging markets. The share of non-Americans on the boards of American multinationals is less than 5%.

The main problem “is attendance, especially if there is a crisis and the board needs to meet a lot at short notice”. Once again, Goldman Sachs seems to have found a clever compromise by appointing Lakshmi Mittal to its board. The Indian steel tycoon is based in London and often visits New York, where the investment bank has its headquarters.

Some European firms are doing slightly better than their American counterparts at internationalising their boards. Nokia recently appointed Lalita Gupte, an Indian banker who had just retired from ICICI bank, one of the world’s most innovative practitioners of bottom-of-the-pyramid finance. And leading British companies have lots of foreigners in their executive suites and boardrooms.

Moreover, multinationals have great trouble retaining the managers they do have in emerging markets, says Mr Hout. “Well-trained, good, honest people are scarce in emerging markets. Multinationals are better at training these people than emerging-market companies, which prefer to poach them once they are trained.”

The founders of emerging-market firms are often impressive, but such firms typically lack the depth of management talent of old multinationals, says Mr Hout. The best students he has taught on MBA courses in Hong Kong and Shanghai have typically worked for developed-country multinationals.

Part of the problem in China is that running a big company—even a giant such as China Telecom, with its 220m customers—still has a lower status than a political job such as governor of a province. And Chinese managers, being used to protected markets, often lack the skill to operate in more sophisticated markets overseas.

Anil Gupta, co-author with Haiyan Wang of a forthcoming book, “Getting China and India Right”, says that recognition of their lack of management capability may have been one reason why no Chinese steel firms joined their Indian and Brazilian peers in the bidding war for Corus, and why no Chinese carmakers entered the battle to buy Jaguar and Land Rover. “If one could create a Jack Welch index of leadership and assess companies on such a measure, the top 50 companies from India would come out way ahead of the top 50 companies from China,” says Mr Gupta, a professor of strategy at the University of Maryland.

Certainly some Indian firms are extremely well run. The senior ranks of Tata, for example, are full of professional managers. On the other hand, many Indian firms are in family ownership, and “it can be hard to find room for professional managers when you have several sons demanding jobs of similar high status,” says Mr Ghemawat.

Perhaps the best-known example of the problems of family ownership is the feud between the Ambani brothers, who after their father’s death divided the family’s huge conglomerate, Reliance, between them. The dispute still simmers on. In July a bid by Reliance Communications, run by Anil Ambani, to buy a South African mobile-phone company was thwarted by Mukesh Ambani, the boss of Reliance Industries. No wonder that the brothers, who live in the same opulent apartment building, have separate lifts to avoid chance meetings.

Wednesday, September 17, 2008

Another example of Free Trade

They put melamine in baby food but won't buy 'Low-pathogen avian flu ' that ' poses no threat to human health' ....

Free trade ... what's not to like !

China to lift ban on U.S. poultry

YORBA LINDA, California (AP) -- China has agreed to partially lift a ban on poultry exports from several U.S. states.

The announcement came Tuesday after a day of talks between Chinese and U.S. trade officials at the Richard Nixon Library in Yorba Linda.

Chinese Vice Premier Wang Qishan says his country will now accept poultry from six of the eight U.S. states that China had placed under a ban. Those include Connecticut, New York, West Virginia, Rhode Island, Pennsylvania and Nebraska. A ban still applies to Arkansas and Virginia.

The bans were put into place after low-pathogen avian flu was found in the states in recent years. Low-pathogen avian flu poses no threat to human health, unlike its more virulent cousin.

Thursday, August 28, 2008

More Jobs Americans won't do

Walking horses and cleaning stables for $5/hr and 4 to a room bedbug-ridden dormitories.

Employed by the wealthiest racehorse-owning Americans .

This snapshot is surely a microcosm of the plight of real American workers today also. Jobs moving to lower cost workers overseas by corporate managers earning lottery winning compensation each and every year .

August 28, 2008

Racetrack Workers Aren’t Paid Minimum Wage, State Agency Finds

By STEVEN GREENHOUSE

With its stately beau monde setting, the Saratoga Race Course is the place to be in August for highbrow horse lovers. But a State Labor Department investigation has found a far less attractive picture for the track’s 1,200 backstretch workers.

The state labor commissioner, M. Patricia Smith, announced on Wednesday that 80 percent of the 110 backstretch workers investigators interviewed — grooms, hot walkers and night watchmen — were not paid minimum wage or time and a half for overtime.

The backstretch workers are employed by individual trainers, who typically train horses for several thoroughbred owners. Some workers told investigators that they were paid just $5.06 an hour, far less than the state minimum wage of $7.15 an hour, Ms. Smith said.

In addition, workers told of being bitten by bedbugs in the racetrack’s dormitories and of eating at soup kitchens because they could not afford the restaurants in Saratoga Springs.

“The violations we uncovered were extensive and significant,” Commissioner Smith said in a telephone interview. “With many workers forced to go to soup kitchens, one can only conclude that the work at the backstretch at Saratoga is a bad bet.”

She estimated that the 1,200 backstretch workers were cheated out of $70,000 in pay each week because of wage violations. Some workers said their pay had not risen in a decade.

Beginning in late July, when the track opened for the season and Saratoga Springs swelled with racetrack fans, 10 state investigators descended on the historic track and interviewed workers in the dorms and horse stalls, where track visitors rarely go.

The investigators found that most of the workers — more than 95 percent of whom are Hispanic — were required to work seven days a week, and often more than 360 days a year when their work included time at the two New York City-area tracks, Aqueduct and Belmont, the Labor Department said.

The hot walkers walk the horses to cool them down after they exercise, while the grooms brush and bathe the horses, rub them down and muck out their stalls.

Lauro Ventura, 61, a groom for 15 years, said in a telephone interview on Wednesday that living conditions at the track were bad. “Three or four of us sleep in a room that’s 10 by 10,” he said in Spanish. “Some guys sleep on air mattresses, some buy little cots, and some just sleep on the floor.”

Bedbugs are a big problem in the dorms, he added. “A lot of the workers bring their sleeping bags from Belmont, where the bedbug problems are much worse,” he said.

Ms. Smith said her department would hold seminars on labor laws for all horse trainers doing business in New York. She said she also wanted to work with the State Racing and Wagering Board to see whether labor law violations should be taken into account in licensing trainers.

Charles Hayward, chief executive of the New York Racing Association, which runs Saratoga, Belmont and Aqueduct, the state’s largest thoroughbred tracks, said the association was concerned about the findings of the investigation.

“N.Y.R.A. shares Commissioner Smith’s concern that workers who are employed by independent trainers on the backstretch are treated fairly and with dignity,” Mr. Hayward said, “both in respect to their living conditions and their ability to earn a living wage.”

The investigators interviewed 88 of the Saratoga track’s 115 trainers, and concluded that 77 of them had failed to keep legally required time and payroll records, Ms. Smith said. The trainers interviewed did not dispute the wage and hour figures that investigators found, she said.

The Labor Department computed that the hot walkers were underpaid by an average of $71.65 each week and the grooms by $82.31.

Mr. Ventura said he was paid $475 a week for about 55 hours of work, which comes to slightly more than $7.15 an hour when overtime is included. But he said that some friends who worked the same schedule were paid only $300 a week.

Jose Ramon Rivera, a hot walker, said in a telephone interview, “We’re fighting for all the grooms, hot walkers and night watchmen to get paid the minimum wage of $7.15 an hour, and overtime after they work 40 hours.”

Ms. Smith said the Labor Department would continue the investigation at Aqueduct and Belmont when the workers moved back there.

The racetrack investigation is part of a stepped-up effort by the department to uncover wage violations in low-wage industries. Two weeks ago, Ms. Smith announced that labor investigators had visited 84 carwashes across the state and found $6.5 million in wage violations involving 1,380 workers.

Mr. Ventura, the groom, discussed another issue that investigators found troubling: the conditions under which the backstretch workers travel when they accompany horses from track to track.

“The trainers want us to be inside the trailer with the horse because sometimes the horse goes crazy,” Mr. Ventura said. “They want us to calm him. The trailer is so small there is no chair for us to sit on. Sometimes we just sit on the floor and risk getting stepped on.”

On one trip, the driver slammed on the brakes, Mr. Ventura said, and he went flying under the horse. His hand and back were stepped on, and his eye was gashed open. He said a track doctor told him he should take a few days off from work, but when the trainer said he would not pay him for missed days, Mr. Ventura decided to work anyway.

“If we don’t work the days we’re injured, we don’t get paid,” he said.

Tuesday, August 19, 2008

Having Children - a 'phase of life'

This is an interesting way of viewing the world and the researcher uses a subtle phrasing that actually displays a radical new view of the world, a feminist view that women are doing other things, perhaps more important , and need not consider having children.

“A lot of women are not having any children,” said Jane Lawler Dye, a Census Bureau researcher who did the report, which looked at women of childbearing age in 2006. “It used to be sort of expected that there was a phase of life where you had children, and a lot of women aren’t doing that now,” Ms. Dye said.

I remember that one of the tenets of biology, one that is still taught in High Schools, is that a 'living organism, i.e. LIFE' is defined as something that has movement, consumes resources AND reproduces. If it doesn't have all of these, it can't be defined as 'living'.

Now reproduction is viewed as merely a 'phase of life', one involving choice, and therefore having no children is a sensible, rational choice. Certainly there is much truth to this. Usually this choice meant 'when', not 'if' .

But, If everyone made this 'no children' choice then either:
- Human Life will cease to exist
- or biologists will need to redefine what a 'living entity' is

August 19, 2008

More Women Than Ever Are Childless, Census Finds

By KATIE ZEZIMA

Women are waiting longer to have children, and more women than ever are choosing not to have children at all, according to a new Census Bureau report.

Twenty percent of women ages 40 to 44 have no children, double the level of 30 years ago, the report said; and women in that age bracket who do have children have fewer than ever — an average of 1.9 children, compared with the median of 3.1 children in 1976.

“A lot of women are not having any children,” said Jane Lawler Dye, a Census Bureau researcher who did the report, which looked at women of childbearing age in 2006. “It used to be sort of expected that there was a phase of life where you had children, and a lot of women aren’t doing that now,” Ms. Dye said.

Women with advanced degrees are more likely to be childless, the study found. Of women 40 to 44 with graduate or professional degrees, 27 percent are childless, compared with 18 percent of women who did not continue their education beyond high school, the data show.

The numbers are consistent with a 2006 report Ms. Dye issued on the same subject. While year-by-year change is slow, Ms. Dye said, the data show that women of the baby boom generation are continuing to transform the American family.

Hispanic women are the only group bucking the trends found in the study, averaging 2.3 children each by their 40s. The number of children a Hispanic woman has decreases sharply, however, depending on how many generations her family has lived in the United States, the data show.

One in five new mothers in 2006 were foreign-born, the study found, with California having the highest number of foreign-born new mothers.

Of all the women who had children in 2006, nearly 60 percent worked, with the highest numbers of working mothers in the Midwest. That may be explained by another census study, which found that, for children under 5, the Midwest has more child care available than any other region. Researchers said the numbers seemed to be consistent with other demographic trends, including the rising age of women marrying and having children for the first time, as well as women with more education having fewer children later in life.

“Clearly women have competing alternatives for the use of their time, with the labor market and employment being one and delayed marriage, which has been another trend,” said Suzanne Bianchi, chairwoman of the sociology department at the University of Maryland. “The interesting question is, has it stopped? Is this it, or will we see even higher rates of childlessness among future generations?”

Of women who gave birth in 2006, 36 percent were separated, widowed, divorced or never married. Five percent were living with a partner.

The study also shows sharp geographic differences among children who were born into poverty in 2006. Nearly every Southern state had more children born into poverty than the national average of 25 percent.

Monday, August 18, 2008

Red Flag for US manufacturing

In a world rife with political and social instability this is a major warning signal that is being ignored by corporations and the government alike, based on responses in the article below.

Even those industries that maintain some manufacturing here in the States do NOT plan on increasing that capacity.

They have blinders on and are hoping that the world continues the course, even in the face of rising fuel costs and deadly oil politics as evidenced by Russia's invasion of Georgia.

In the better than average chance that worldwide instabilities cause a significant negative impact on many of these off-shored manufacturing companies, there is a good chance that they may not survive another 5 years.

Not to mention the fact that the US no longer even has the ability to manufacture many products here anymore, leaving us vulnerable politically and economically to foreign manipulations ala OPEC.

The critical paragraph from this article :

Weakening demand abroad accounts for some of the decline. But the manufacturers themselves acknowledge that they gradually undercut their ability to export as they moved more and more production to factories overseas. Bringing that production back to this country, so that it could be exported, would dismantle global networks constructed relentlessly over the last 25 years.

And how about this little tidbit, just briefly noted in the article ?

Since when does a country insist on all manufacturing needing to be done in that country ? It sounds like they have a full-employment policy for their people and we have nothing similar, in law or custom, over here.

In addition, as American companies set up operations in, say, China, they insist that their suppliers locate nearby, for quick and efficient delivery — and that draws more manufacturers overseas.

What do they get if they move everything overseas:

“Our customers just love for us to make our stuff near their new operations,” Mr. Pistell said, “and if we do, they reward us with a lot of business.”

August 18, 2008

Export Boom Helps Farms, but Not American Factories

By LOUIS UCHITELLE

Exports are the bright spot this year in an otherwise bleak economy. But the world is not suddenly snapping up made-in-America goods like aircraft, machinery and staplers. The great attraction is decidedly low-luster commodities like corn, wheat, ore and scrap metal.

This helps explain why manufacturing jobs are continuing to disappear by the tens of thousands and factories are closing even during a miniboom in exports. While the surge in commodities is a welcome relief, it is an unreliable prop for an industrial power.

“The historical data tell us clearly: don’t get too used to commodity export booms; as any third world country will tell you, they tend to go away pretty quickly,” said L. Josh Bivens, a trade expert at the labor-oriented Economic Policy Institute.

His point was that while Boeing’s aircraft or Caterpillar’s tractors are distinctive and sought after, corn grown in Iowa is virtually interchangeable with corn grown in Argentina or any other bread-basket country. “Over a long period,” Mr. Bivens said, “commodities contribute right around zero to export growth.”

Commodity sales have been helped greatly this year by rising prices, particularly for grains, and also by the decline in the value of the dollar, which reduces the cost of American exports in other currencies. Both trends, however, have recently reversed, suggesting that the rise in commodity sales will not be sustained, and that exports might shrink, weakening the economy another notch.

“What amazes me,” said Robert L. Thompson, an agriculture specialist at the University of Illinois, “is that we have been able to greatly increase corn exports while also using it for ethanol. Only by increasing the acreage devoted to corn have we been able to do this, and by squeezing down the use of corn for domestic livestock feed.”

An analysis of trade data by the federal Bureau of Economic Analysis illustrates just how lopsided the gains have been between manufactured goods and unprocessed commodities.

All exports of goods and services in the first half of the year rose at a $52 billion annual rate, adjusted for inflation, up 7.1 percent. Commodities accounted for 41 percent of the increase and manufactured products contributed just 12 percent, the bureau reported. (The figures strip out such items as arms sales and exports to American territories, like Puerto Rico and the Virgin Islands.)

Such unevenness, favoring commodities, is unusual, given that manufactured products, even by this definition, account for 40 percent of the nation’s exports, while commodities make up only 26 percent and services 30 percent. Indeed, not since the bureau began compiling detailed trade data in 1977 have commodities outpaced manufactured exports for two consecutive quarters.

Weakening demand abroad accounts for some of the decline. But the manufacturers themselves acknowledge that they gradually undercut their ability to export as they moved more and more production to factories overseas. Bringing that production back to this country, so that it could be exported, would dismantle global networks constructed relentlessly over the last 25 years.

“We have achieved a worldwide manufacturing base, and we are not going to shut down our factories overseas,” said Franklin J. Vargo, vice president for international economics at the National Association of Manufacturers. “But on the margin, we will shift a little bit of manufacturing back to the United States.”

That has happened recently, in response mainly to soaring transportation costs and the weaker dollar. DESA LLC, for example, known for its heating devices, recently moved some production back to Bowling Green, Ky., from China.

The contrast with commodities, which cannot be shifted overseas, is striking. John Hardin Jr. and his son, David, focus their attention on growing as much grain as they can on 2,500 acres near Indianapolis, counting on exports to absorb their harvest. Meanwhile, Sarah Bovim, a Whirlpool Corporation executive, points to expanding global operations at her company, where production abroad has eclipsed its exports.

“We are looking to expand in emerging markets,” Ms. Bovim said, “which means we are looking to set up shop there.”

The Hardins have every acre of their mostly rented land planted with corn, soybeans and wheat — devoting more acreage to corn in anticipation of huge demand. The nation’s corn exports, measured in tons, have risen nearly 20 percent this year, outstripping the gains of nearly every other commodity. And farmers are on schedule to harvest the second-largest corn crop in the nation’s history, the Agriculture Department reported this week.

“We were in a situation where there wasn’t enough corn in the world to go around,” John Hardin said, noting that damaged harvests in other countries had pushed up the price. The weak dollar also made American corn more attractive.

But even with both of those props disappearing, the Hardins are betting heavily on corn again next year because of its use in ethanol and because of rising demand for livestock feed in India and China, where a rapidly growing middle class increasingly wants meat in its daily diet.

“It is my fondest hope that exports will stay strong,” Mr. Hardin said, “although I don’t think it is realistic to expect a percentage increase equal to what we are seeing this year.”

Whirlpool is proud of its exports but intent on manufacturing more abroad. Ms. Bovim, who is Whirlpool’s director of Congressional relations and trade policy, speaks with equal enthusiasm about sales from the company’s factories abroad and those in the United States. Both are up, she says, and she cites sales of washing machines and dryers to make her point.

Machines that load clothes from a door on top are made only in the United States, principally at a plant in Clyde, Ohio, and are exported to satisfy overseas demand. A newer and increasingly popular model, one that is loaded from a door in the front, is made only at factories in Germany and Mexico.

Whirlpool recently opened its Mexican plant, deciding to bypass the United States. It was a decision that shifted income, investment, employment and exports to Mexico that might otherwise have shown up in the Bureau of Economic Analysis’s accounts as economic growth in the United States.

“We have a supply chain that facilitates entry into new markets,” Ms. Bovim said. “Locating abroad puts us on an equal footing with domestic suppliers” in those countries.

Many American manufacturers argue that as factories spread across the globe, exporting is no longer an effective means of competing against sophisticated and ever more numerous local manufacturers. In addition, as American companies set up operations in, say, China, they insist that their suppliers locate nearby, for quick and efficient delivery — and that draws more manufacturers overseas.

It is certainly a reason that Parker-Hannifin, a Cleveland-based manufacturer of hydraulic pumps and industrial controls, is expanding overseas, said Tim Pistell, the chief financial officer. “Our customers just love for us to make our stuff near their new operations,” Mr. Pistell said, “and if we do, they reward us with a lot of business.”

Parker-Hannifin’s overseas sales have risen to 55 percent of its annual revenue, up from 33 percent in 2002, Mr. Pistell says. Exports, on the other hand, contribute no more than $400 million of its $12 billion in annual revenue, about half the percentage of a decade ago.

Currency fluctuations rarely alter these long-term commitments, and profits stay abroad. “Most of the money we make overseas, we keep there,” Mr. Pistell said, “and then plow it back into growing the business overseas.”

The Bureau of Economic Analysis, tracking this trend for all of America’s multinational companies, says 70 percent of the multinationals’ operations — measured in employment, investment and value added in turning metal into aircraft or wood into furniture or silicon into computer chips — take place in the United States.

That, however, is down from nearly 75 percent in 1999 and, as the shift overseas continues at many manufacturers, commodities inevitably jump to prominence from time to time.

“We have a tremendous capacity to grow corn and other crops in this country,” said Daryll E. Ray, an agricultural economist at the University of Tennessee, “and we are intent on doing so.”

Friday, August 15, 2008

Solid as a BRIC

The current round in the latest surge in historical globalization, affecting the BRIC countries, seems to be hitting political , social , and even economic walls:

Brazil - Social-- Tremendous inequality and poverty with entrenched gang culture has lead to periods of open warfare in it's major cities. The middle-class live in armed enclaves and fear of kidnapping is high. Bulletproof cars are a booming business
Economic -- Lack of skilled workers is leading to higher wages.

Russia - Political -- after their invasion of Georgia they are becoming persona non grata in the world community. Their usage of their oil/gas monopoly with Europe and their readiness to turn off the spigot for political reasons is not winning any friends.
Social -- they have incredibly low birth rate and Muslim insurrections throughout their borders. The State controls most major industries. Gang activity is endemic and is reflected in the State model of governing.
Economic -- A culture lacking in intellectual property rights. The home of much of computer/internet illegal activities and hacking.

India - Political -- problems with their Muslim minority leading to bombings and with their Muslim neighbor Pakistan and the Kashmir question.
Social -- inequalities increasing. A strong intractable caste system. Terrorism.
Economic -- Rising wages. High tariffs for imports. Laws against open foreign investment. Subsidized goods/products such as oil and food.

China- Political -- problems with their Muslim minority . Lack of freedom leading to protests. Policy problems with Tibet, Taiwan and other neighbors including Japan.
Social -- inequalities increasing. Terrorism. Pollution of air and water.
Economic -- Rising wages. High tariffs for imports. Laws against open foreign investment. Subsidized goods/products such as oil and food.

It looks like we are entering the BBRIC age (Beyond BRIC, pronounced like a Scotsman would).
These 'new' developing countries - Vietnam, Cambodia, Malaysia, Philipines, etc. in the East, along with Africa now being targeted, with South Africa and Egypt the first of the African wave.

All the BBRIC nations have the same underlying problems that the BRIC nations have.

If this new globalization wave leaves BRIC behind, then those BRIC nations will have only partially risen politically/socially/economically, leaving them in a precarious social state and they will suffer tremendously by this incomplete metamorphosis.

Look for an acceleration of negative political and social forces in these societies.

Unintended consequences of this latest globalization phase -
- The prospect of War , not peace and greater prosperity, may be the outgrowth of unchecked globalization.
- Economic protectionism and global depression may be another result.
- The rise of religious fundamentalism in the face of serious social instability.

The issue is not whether globalization per se is needed or whether it is a good or bad thing. This process has been going on for millenium. The question is whether the rate of change now going on will stress existing political, social and economic systems, and the ability of humans to adapt quickly, so as to cause massive instability and unrest in the world.

August 15, 2008

India says peace talks with Pakistan under threat

By THE ASSOCIATED PRESS

Filed at 7:30 a.m. ET

NEW DELHI (AP) -- India's prime minister said Friday that the peace process with Pakistan was in danger of failing because of attacks like last month's bombing of New Delhi's mission in Afghanistan.

India and Afghanistan say Pakistan's powerful Inter-Services Intelligence agency orchestrated the attack, which killed 58 people. Islamabad denies playing any role but has promised to investigate the allegation.

''If this issue of terrorism is not addressed, all the good intentions that we have for our two peoples to live in peace and harmony will be negated,'' Prime Minister Manmohan Singh said in an Independence Day speech. ''We will not be able to pursue the peace initiatives we want to take.''

Hindu-majority India and Muslim Pakistan were born during the bloody partition of the subcontinent at independence from Britain in 1947. The split sparked one of the most violent upheavals of the 20th century and created a rivalry that has led to three wars.

But relations between the nuclear-armed rivals have improved considerably since the start of a peace process in 2004, and India's leader has pledged to continue the talks despite the allegations of a Pakistani role in the embassy attack.

''I have personally conveyed my concern and disappointment to the government of Pakistan,'' said Singh, speaking from behind a bulletproof screen atop the ramparts of the historic Red Fort, the massive 17th-century sandstone palace built by the Muslim Mogul emperors who ruled much of India before the British arrived.

India also accuses Pakistan of playing a role in more than a dozen bombings that have hit India in the past three years, and the two sides have blamed each other for a surge in shootings across their heavily fortified de facto border in Kashmir, the divided Himalayan region at the center of their rivalry.

The latest reported shooting -- the 20th so far this year -- came Friday when India said its forces along the frontier, called the Line of Control, were fired on by Pakistani forces armed with rocket-propelled grenades.

No casualties were reported by the Indian side, and Pakistani officials were not immediately available for comment.

Kashmir, an overwhelmingly Muslim region, is claimed by both India and Pakistan and has been the focus of two of their three wars.

There were regular exchanges of gunfire along the Line of Control before the two sides signed a cease-fire in late 2003.

But the recent shootings have led to a familiar round of accusations, with Pakistan blaming India for violating the cease-fire and New Delhi accusing Islamabad of helping Islamic rebels sneak into its part of Kashmir.

Nearly a dozen Islamic rebel groups have been fighting for Kashmir's independence from India or its merger with Pakistan. More than 68,000 people, most of them civilians, have been killed in the conflict since 1989, and India routinely accuses Pakistan of assisting the insurgents, a charge Islamabad denies.

Tuesday, August 12, 2008

Banking and finance accelerating offshoring

Any industry that runs on digitized data will be offshored.

Banking and the security industries are the perfect target for this economic revolution but it wasn't the first industry affected.

Note that this article defines 'grunt' work as '...The jobs most affected so far are those with grueling hours, traditionally done by fresh-faced business school graduates — research associates and junior bankers on deal-making teams — paid in the low to mid six figures....'
Yup... $100- $500k is grunt work compensation for newbies on Wall Street.

Also, they are taking a page from the I/T industry and have started to use the same euphemisms:

Press officers for most banks asked not to be quoted or argued over semantics. For example, one spokesman said his bank’s fast-growing India support operations are not an outsourcing facility, but a “center of excellence”; another argued that large cost cuts at his bank’s New York and London headquarters were really “re-engineering” so the bank should not be included in such an article.

This is because the model used to be that just labor-intensive work that didn't require critical thinking or evaluation were the targets of offshoring. In the past 5 years the process has drastically changed, for all industries, and those jobs requiring the highest levels of analysis and the highest levels of responsibilities in companies are now being offshored.

It used to be thought that the 'creative' talents for some skills were indigenous to specific people and perhaps to educational systems and corporate cultures at home in the West that promulgated these attributes.

This is why executives at the topmost levels of the corporate world commanded the highest, increasing levels of compensation. These people are deemed, by their very compensation, to be uniquely qualified to handle the work and produce their fabulous results, i.e. they were virtually irreplaceable.

Now the tide is changing and many of these mid-level executive jobs will be going offshore also.

I'm still waiting for the very top executive ranks to start moving to lower-cost countries.

Barring political and social unrest in the world today, this too will happen.

August 12, 2008

Cost-Cutting in New York, but a Boom in India

By HEATHER TIMMONS

GURGAON, India — On the top floor of a seven-story building in this dusty aspiring metropolis, Copal Partners churns out equity, fixed income and trading research for big name analysts and banks. It is a long way from the well-cooled corridors of Wall Street, and quarters are tight; business is up about 40 percent this year alone.

“This is one bulge-bracket bank,” said Joel Perlman, president of Copal, pointing toward a team behind an opaque glass wall. “And this,” he said, motioning across a narrow corridor “is another.”

The banks edit and add to what they get from Copal, a research provider, then repackage the information under their own names as research reports, pitch books and trading recommendations.

Wall Street’s losses are fast becoming India’s gain. After outsourcing much of their back-office work to India, banks are now exporting data-intensive jobs from higher up the food chain to cities that cost less than New York, London and Hong Kong, either at their own offices or to third parties.

Bank executives call this shift “knowledge process outsourcing,” “off-shoring” or “high-value outsourcing.” It is affecting just about everyone, including Goldman Sachs, Morgan Stanley, JPMorgan, Credit Suisse and Citibank — to name a few.

The jobs most affected so far are those with grueling hours, traditionally done by fresh-faced business school graduates — research associates and junior bankers on deal-making teams — paid in the low to mid six figures.

Cost-cutting in New York and London has already been brutal thus far this year, and there is more to come in the next few months. New York City financial firms expect to hand out some $18 billion less in pay and benefits this year than 2007, the largest one-year drop ever. Over all, United States banks will cut 200,000 employees by 2009, the banking consultancy Celent said in April.

The work these bankers were doing is not necessarily going away, though. Instead, jobs are popping up in places like India and Eastern Europe, often where healthier local markets exist.

In addition to moving some lower-level banking and research positions to support bankers and analysts in New York and London, firms are shipping some of their top bankers from those cities to faster-growing developing markets to handle clients there.

Owing in part to credit weaknesses and billion-dollar charges from the subprime crisis, “people who were off-shoring high value jobs are increasing the intensity of that, and people who were not are now in the planning stage,” said Andrew Power, a financial services partner at Deloitte Consulting.

Wall Street banks started cautiously sending research jobs to India a few years ago, hiring employees by the handful and running pilot programs with firms like Copal, Office Tiger, Pipal Research and Tata Consultancy Services.

In 2003, JPMorgan and Morgan Stanley said they planned to move a few dozen research jobs to Mumbai, Lehman Brothers was working on a pilot program to create research presentations in India and both Merrill Lynch and Goldman Sachs said they had not moved any research to the country.

Five years later, the trickle is a flood. Third-party firms say they are seeing a 20 to 40 percent upswing in business this year alone.

Morgan Stanley has about 500 people employed in India doing research and statistical analysis. About 100 of Goldman Sachs’ 3,000 employees in Bangalore are working on investment research.

JPMorgan has 200 analysts in Mumbai working for its investment banking operations around the world, doing industry analysis, and compiling data and charts for marketing materials. It has an additional 125 analysts in Mumbai supporting the bank’s global research division.

Citigroup employs about 22,000 people in India, several hundred of whom work in investment research. Deutsche Bank has 6,000 employees in India, according to the bank’s Web site. Deutsche started a pilot program to outsource some research in 2003, and would not provide any update.

Theoretically, as much as 40 percent of the research-related jobs on Wall Street, tens of thousands of jobs, could be sent off-shore, said Deloitte’s Mr. Power, though the reality will be less than that.

The jobs off-shore are more likely to come from the investment bank and trading divisions of Wall Street firms, rather than the sales side, which produces analyst reports about companies and industries, said Andy Kessler, a former analyst who has written several books about Wall Street.

“There’s a huge amount of grunt work that has been done by $250,000-a-year Wharton M.B.A.’s,” Mr. Kessler said. “Some of that stuff, it’s natural to outsource it.”

He added, “These are middle of the office jobs, not back office, but they’re not the people on the front line.”

After research, the next wave may include more sophisticated jobs like the creation of derivative products, quantitative trading models and even sales jobs from the trading floors.

Proponents of the change say Wall Street’s wary embrace of the activity may signal the beginning of a profound shift in the way investment banks are structured, with everyone but the top deal makers, client representatives and the bank management permanently relocated to cheaper locales like India, the Philippines and Eastern Europe.

In the future, executives in India like to joke, the only function for highly paid bankers in New York or London will be to greet clients and shake hands when the deals close.

“Wall Street has to look at the world differently,” said Manoj Jain, the chairman of Pipal Research, a 400-person firm with offices in Chicago, Delhi and Gurgaon. Moving high-value jobs out of high-cost cities is “no longer a hypothesis,” he said.

Pipal has “more work than it can take” right now, he said, and is seeing new clients beyond United States banks, like investment management companies and European financial firms. Like analysts at most offshore research operations, Pipal’s number crunchers do not make recommendations, or generally put their name to the research they write. Instead, they work with the big-name bank or fund analyst to create the research that they want.

Permanently moving banking jobs out of New York or London is a touchy subject on Wall Street. Many investment banks, including Morgan Stanley, Goldman Sachs, Merrill Lynch and Citigroup, would not make executives available to discuss the topic.

Press officers for most banks asked not to be quoted or argued over semantics. For example, one spokesman said his bank’s fast-growing India support operations are not an outsourcing facility, but a “center of excellence”; another argued that large cost cuts at his bank’s New York and London headquarters were really “re-engineering” so the bank should not be included in such an article.

“Some of that is self-serving,” Octavio Marenzi, chief executive of Celent, said of the impulse to keep quiet. “If I admit that research analysts can be off-shored to India, that means that I could too.”

He said the “more advanced firms” will be able to use the cost differences and talent pools in India, and in the future in China, to their advantage.

A few banks have openly embraced off-shoring. Credit Suisse has 6,500 employees around the world working in lower-cost locations in India, Poland and Singapore. Of these about 500 are doing high-value jobs.

“We have people helping the execution of deals, data gathering, helping to build financial models, writing research, and doing scenario analysis,” said Vineet Nagrani, head of knowledge process outsourcing at the bank.

The bank has small teams working on fixed-income research, credit research and foreign exchange research, “all of which are going to grow” Mr. Nagrani said. Credit Suisse is also doubling the number of investment bankers and private bankers in India who deal with local clients in the next 12 months.

The bank’s clients, so far, seem happy. “As long as clients get a good quality product and can talk to their favorite research analyst” they do not care if the grunt work is done in New York or India, Mr. Power said.

Third-party outsourcing firms face two hurdles when winning this business, N. Chandrasekaran, chief operating officer of Tata Consultancy Services, said. First, banks need to be confident that third parties are capable of doing the work. Second, they need to decide whether they want to move the work out of the bank at all.

To address the first issue, Tata sets up pilot programs with clients. A new Tata office in Cincinnati, which will employ 1,000 people in three years, is intended to give the company a United States presence.

In addition to growth outside India, these outsourcing experts are bringing in Chinese nationals, Arabic speakers and even the very people they are replacing: business school graduates from America.

Daniel Peng, who will be a senior at Dartmouth next year, is working in the equity research department of Copal Partners as a summer intern. “I thought it would be a good emerging markets experience,” he said.

Tellingly, Mr. Peng still hopes for an old-fashioned Wall Street job when he graduates. New York would be “ideal,” he said.

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