Global Sourcing (Bharat)

Global sourcing is a term used to describe practice of sourcing from the global market for goods
and services across geopolitical boundaries. Global sourcing often aims to exploit global
efficiencies in the delivery of a product or service. These efficiencies include low cost skilled
labor, low cost raw material and other economic factors like tax breaks and low trade tariffs.
Common examples of globally-sourced products or services include: labor-intensive
manufactured products produced using low-cost Chinese labor, call centers staffed with low-cost
English speaking workers in the Philippines and India, and IT work performed by low-cost
programmers in India and Eastern Europe. While these examples are examples of Low-cost
country sourcing, global sourcing is not limited to low-cost countries.
Majority of companies today strive to harness the potential of global sourcing in reducing cost.
Hence it is commonly found that global sourcing initiatives and programs form an integral part
of the strategic sourcing plan and procurement strategy of many multinational companies.
Global sourcing is often associated with a centralized procurement strategy for a multinational,
wherein a central buying organization seeks economies of scale through corporate-wide
standardization and benchmarking. A definition focused on this aspect of global sourcing is:
"proactively integrating and coordinating common items and materials, processes, designs,
technologies, and suppliers across worldwide purchasing, engineering, and operating locations
The global sourcing of goods and services has advantages and disadvantages that can go beyond
low cost. Some advantages of global sourcing, beyond low cost, include: learning how to do
business in a potential market, tapping into skills or resources unavailable domestically,
developing alternate supplier/vendor sources to stimulate competition, and increasing total
supply capacity. Some key disadvantages of global sourcing can include: hidden costs associated
with different cultures and time zones, exposure to financial and political risks in countries with
(often) emerging economies, increased risk of the loss of intellectual property, and increased
monitoring costs relative to domestic supply. For manufactured goods, some key disadvantages
include long lead times, the risk of port shutdowns interrupting supply, and the difficulty of
monitoring product quality.
International procurement organizations (or IPOs) may be an element of the global sourcing
strategy for a firm. These procurement organizations take primary responsibility for identifying
and developing key suppliers across sourcing categories and help satisfy periodic sourcing
requirements of the parent organization. Such setups help provide focus in country-based
sourcing efforts. Particularly in the case of large and complex countries, such as China, where a
range of sub-markets exist and suppliers span the entire value chain of a product/commodity,
such IPOs provide essential on-the-ground information.
Over time, these IPOs may grow up to be complete procurement organizations in their own right,
with fully engaged category experts and quality assurance teams. It is therefore important for
firms to clearly define an integration and scale-up plan for the IPO.
 Jagdish N. Bhagwati (10v & VJ)
Jagdish N. Bhagwati is a university professor at Columbia University in New York and a leading
expert on trade who has emerged as a defender of offshore outsourcing. He was born in India and
was educated there as well as in England and the U.S. He earned his Ph.D. from the
Massachusetts Institute of Technology and is currently the Andre Meyer Senior Fellow in
International Economics at the Council on Foreign Relations in New York.
International trade theory is hardly productive, important issues at stake in the furor over the
outsourcing of online services today. First, that the transition to new jobs is a hardship for the
workers who are losing jobs; and second, that the new jobs are less good, that in the famous
words of Vice President Mondale, our workers will lose good jobs and we will become a nation
of "hamburger flippers." Or, in modern parlance, that the programmers who were earning
$60,000 will wind up bagging groceries or stocking shelves for $15,000.
Take the issue of whether we are going to lose skilled jobs so that Mondale's scenario is
vindicated. For starters, it did not [happen] when he was sketching it in gory colors. Fast-food
jobs increased for sure; but by no means did they overtake the expansion of skilled jobs. And
there is little fear of it happening now either. Look at the facts for 1999-2002. The Bureau of
Labor Statistics shows that, counting four IT-related sectors, the jobs expanded; slowly no doubt,
but contract they did not. In 2002, the number of jobs in these sectors was over 17 million.
Contrast that with the estimate of gross numbers of outsourced jobs: They were around 100,000
per annum, and the upper estimates of job loss annually over the next 15 years has been put at
225,000, which is less than 1.5% of the stock of available jobs in 2002. I must add that the net
estimates show that the U.S. has many more people employed in services that are exported than
are "lost" in services that are imported.
And these jobs will surely expand because the main driver of growth in our economy is our
prodigious technical change. Technical change nearly always substitutes for unskilled labor, but
it creates new skilled jobs, both by creating new products and processes but also because the
maintenance of technology also requires skilled labor.
Mr. Bhagwati: While your approach, based on views of international trade analytics which I
believe are flawed, is not overtly protectionist, it will take you quickly into protectionism in
reality. "Trade strategy," worked out with "careful thought from many," can only mean, if it
means anything concrete, some sort of industrial, and associated, managed-trade policy.
One thing you need to remember, Craig, is that "strategic" trade and industrial policy, devised by
gifted bureaucrats and wise economists, sounds fine in theory but is hard to work with in
practice.
Mr. Bhagwati: Fifteen years ago, how many of us knew that there would be an obesity epidemic,
with associated expansion in liposuction, diabetes management, etc.? How many could have
forecast that our aging women would be increasingly flocking in huge numbers to plastic
surgeons for cosmetic surgery of all kinds? And yet these and countless other new jobs in
unforeseen and unforeseeable occupations, requiring new skills, have emerged and will continue
to emerge.
True, we will need to extend our adjustment assistance programs beyond manufacturing. We will
also need imaginative programs to assist the older folks who cannot readily acquire new skills
for the new jobs. We will finally need to delink medical benefits from employment: a change
whose time has come, now that increased exposure to trade means that flexible responses to
changing opportunities are possible.
But what we do know is that protection will only compound manifold the difficulties of
adjustment for our skilled workers. We live in a globalized economy where foreign firms sell in
our markets and we sell in their markets and in third markets. If foreign governments do not
share our hysteria, and they continue to outsource (as the British have openly said they will),
several of our firms will become seriously uncompetitive and could fold.
Mr. Bhagwati: I do think that the reactions of the British producers and government have been
very much more positive than ours. Historians of the 19th-century British embrace of free trade,
when Britain was the biggest dog on the road, have argued that the British politicians opted for
free trade because they expected Britain to win in open markets. Why then does the United
States, which is a hyper power, the Rottweiler on the road, begin screaming protection every
time trade with the poor nations, the French poodles, is at stake: Mexico, the Far Eastern
exporters of labor-intensive goods (the "yellow peril") and now India (the "brown peril")? I think
there are two answers.
First, our social safety net is not as strong; and the family has been frayed, so neither the social
nor the personal safety net is available to meet difficult problems of adjustment to import
competition. So, when the fear of job losses is high, anxiety is immense, as now.
Second, despite its waning numbers, the AFL-CIO has managed to get a stranglehold on the
Democrats, and it shows in their strange obsession with covert protectionism, masked as
demands for higher labor and environmental standards in trade treaties as preconditions for
market access, and now with overt protectionism in the shape of demands to ban outsourcing and
even direct foreign investment. Astonishingly, a liberal leadership of the Democratic Party that
professes to better credentials on altruism in regard to developing countries is now committed to
policies that are aimed at the developing countries which are using the trade opportunity to work
themselves out of poverty, while a Republican president has taken the high road on both
outsourcing and on foreign investment!
In this election year, it will be interesting to see how all this plays out. But there is little here that
does credit to our politics and our probity

Paul Craig Roberts (Palak & Dev)

Paul Craig Roberts is a former assistant Treasury secretary for economic policy in the Reagan
administration and was once an avid free-trader. He's one of a small but growing group of
economists raising warning flags about the impact of offshore outsourcing.
Mr. Roberts, who studied in the U.S. and England and has a Ph.D. in economics from the
University of Virginia, argues that the world may have fundamentally changed and that
economic thinking simply hasn't kept up. He says companies are now freer to move capital and
technology around the globe in search of cheaper labor. And as countries like China and India
have emerged, with their vast pools of skilled and well-educated workers, it becomes harder for
any industry to justify investing in or employing people in the U.S. and other high-wage
countries.
Mr. Roberts is currently chairman of the Institute for Political Economy, a think tank in
Washington.
Here are excerpts from their discussion.
Mr. Roberts: From the perspective of trade theory and economic-development theory, it is hard
to see the benefit to the country whose firms outsource. With domestic capital and technology
reallocated to the employment of foreign labor, there is less to employ domestic labor. Either
unemployment results or the remaining capital is spread more thinly with a decline in labor
productivity and real incomes. As industries move offshore, suppliers are forced to follow. The
domestic economy becomes a less-efficient place to produce as concentrations of skills are
diluted by movement offshore.
If outsourcing were a limited phenomenon driven, for example, by domestic scarcity of a few
specific skills, it is possible to imagine scenarios under which a country gains from outsourcing.
But even here caution is appropriate. For example, if technology jobs are outsourced because of
domestic supply constraints, the mechanism for expanding domestic supply is short-circuited. If
a shortage of nurses is met by importing foreign nurses under a visa work program, domestic
nursing schools are unlikely to increase their enrollments.
Outsourcing is a problem for the U.S. and First World in general, because all tradable goods
production and service jobs can be outsourced. The higher the value added, the greater the
incentive to outsource the work to India or China where enormous excess supplies of labor
guarantee relatively low wages for years to come. Faith that new industries and occupations will
rise to replace lost ones is problematical, because the same incentive will encourage replacement
industries to be outsourced as well.
With excess supply overhanging Indian and Chinese labor markets, First World wages and
salaries can fall swiftly and sharply long before Asian wages rise. The resulting declines in
employment and/or real wages can bring political instability to First World countries.
Mr. Roberts: To get to the "solution" stage, we have to pass through the "identification of the
problem" stage. Jagdish says that there is no problem, but I am concerned that comparative
advantage [theory] might be broken. [The theory says countries should specialize in goods
they're better at producing than other countries and then trade for things in which they don't have
the edge.] One virtue of comparative advantage is that a country doesn't need a trade strategy,
because comparative advantage causes all free-trade outcomes to be beneficial. But if
comparative advantage is broken and cannot be fixed by restoring its premises, the U.S. needs to
develop a trade strategy.
A successful trade strategy would require careful thought from many, and require economists
first to get their minds around the problem. Perhaps this exchange will lead in that direction.
I am calling for a policy of thought to examine whether real-world conditions still support the
case for free trade. If real-world conditions differ from the premises of the free-trade case, we
must learn to think differently and to develop a strategy based on recognition of synergies
between industries and occupations and geared toward retaining high-productivity industries.
Mr. Roberts: I agree that government policy is capable of worsening any situation. At the same
time, I am aware that economists, long accustomed to shouting down "protectionist impulses,"
can fail to carefully examine whether changed real-world conditions or new developments in
theory undermine the assumption that every act of free trade is beneficial. All I am asking is that
economists seriously re-examine the case for free trade and verify that the conditions necessary
for the case still hold.
In my opinion the issue will be settled by developments in the U.S. labor market and not by
economic debate. If there is a recovery in high-productivity, high-value-added jobs in the U.S.,
the issue will dissipate. However, if U.S. labor continues to be reallocated toward lower-pay,
nontradable, domestic services, the issue will come to a head, especially as wages in domestic
nontradable services would experience downward pressure both from entry from displaced
manufacturing and knowledge workers and from high rates of legal and illegal immigration.
Mr. Roberts: Jagdish, retraining programs are a misplaced hope. As all tradable goods and
services production can be outsourced today, retraining is limited to domestic services, an
increasingly crowded field, and even here foreign labor is brought in under various work-visa
programs.
I appreciate your optimism, but it needs to be tempered with realism. According to economist
Charles McMillion's report in the April 2 Manufacturing & Technology News, the U.S. has lost
its lead in advanced-technology products and now runs a deficit in advanced technology with
China (supposedly a low-tech producer of clothes and shoes) that is almost five times larger than
the U.S. technology deficit with Japan. It is not clear how a country benefits from losing its
superiority in advanced-technology products.
Neither is it clear how a country benefits from declining incomes. Occupations where jobs are
growing pay considerably less than occupations that are contracting. Americans are heavily in
debt, and their debts are not indexed to their incomes. With any luck, perhaps our discussion will
prevent economists and policy makers from being caught off guard in the event there is a
deterioration in U.S. economic welfare.
Mr. Roberts: In the current economic climate, "tax subsidies for hiring foreigners" is an easy
political target. As I have made clear, I would prefer a reasoned assessment by economists to
policy crafted in a political campaign.
I believe that the First World in general is vulnerable to employers' substituting cheaper foreign
labor for more expensive domestic labor. The U.S. and U.K., being the most open economies, are
first to experience the impact. Japan, Germany and France are closed by attitude if not by trade
agreement. Executives of tire companies, for example, report that it is difficult to purchase
inexpensive Korean tires in Germany, because German tire suppliers will not sell them. France
and Japan have their own ways of discouraging unwanted imports.
Another difference is that business executives in Japan, France and Germany have a stronger
sense of national identity and national interest. Perhaps this comes from being more
homogeneous populations or from the influence of a trade strategy. Unlike U.S. executives ruled
by quarterly earnings reports, they are free to focus on long-term strategy.
Such differences and the overburdened European welfare systems might result in different
responses to the supplies of inexpensive Asian labor. Political reasons would probably dictate
that European employers would first turn to labor supplies in Eastern Europe. The European
internal market is a large one. So is the North American one. There is plenty of room within
these markets and in trade between them for specialization and division of labor.

John Forbes Kerry (Bhavin & Praneta)

John Forbes Kerry (born December 11, 1943) is the senior United States Senator from
Massachusetts, and is chairman of the Senate Foreign Relations Committee.[1] He was the
presidential nominee of the Democratic Party in the 2004 presidential election, but lost by 34
electoral votes to incumbent President George W. Bush
In 1962, Kerry entered Yale University, majoring in political science. He graduated with a
Bachelor of Arts degree in 1966
To Democrat John Kerry outsourcing is an evil that has to be stopped. The Senator has expressed
strong views to keep American jobs in America
n most of his election campaign speeches. To Kerry outsourcing has lead to the drainage of jobs
that belong to the American middle class that should be stopped at any cost. In a recent speech
Kerry made it clear that the Bush administration has been unable to provide basic fairness to the
American middle class by denying American jobs to Americans.
Top lists on Kerry's outsourcing agenda is to keep government jobs in America, Stop
government contract outsourcing and keep all call center jobs in America. John Kerry has also
promised to stop all tax breaks and incentives for companies that move jobs to overseas
destinations.
Many experts are of the opinion that John Kerry has adopted this approach against outsourcing in
order to gain instant popularity given the fact that the job outsourcing statistics are alarming.
Kerry has over his campaign speeches highlighted the main points on outsourcing jobs to
conclude it as bad for the US economy. He has also vowed to stop job outsourcing in America if
elected. On outsourcing Bush has kept a low profile and has even told that outsourcing was a
win-win situation. Many economists believe that Bush has a more mature view on outsourcing as
compared to Kerry as they consider outsourcing as a inevitable phenomena as the present
business process outsourcing trends show a bright future for all communities involved in
outsourcing.
IDG News Service - One of the central themes in Sen. John Kerry's presidential campaign is
ending tax breaks for companies that send jobs overseas. But the IT community is split on
whether Kerry's plan would actually keep jobs in the U.S.
The Kerry plan, outlined online (download PDF), doesn't spell out many details, but Kerry
advocates eliminating "special tax breaks" for U.S. companies with overseas subsidiaries. Under
current U.S. tax law, U.S. companies with overseas operations can defer paying taxes on income
at those operations until they bring the profits back into the U.S.
The Kerry campaign has criticized President George W. Bush for "encouraging" offshore
outsourcing. Bush's advisers have suggested that limiting offshore outsourcing may hurt the U.S.
economy in the long term.
"Right now, we've got a choice," Kerry said in a statement released in August. "We can keep on
subsidizing companies who send jobs overseas, or we can reward companies who keep them
here in America, where they belong."
The Kerry plan lacks details, noted Joe Tasker, senior vice president and general counsel for the
Information Technology Association of America (ITAA), which has opposed most moves to
limit offshore outsourcing. The ITAA sees a number of ways to help U.S. IT workers compete
with workers in other nations, including an emphasis on training and opening more global
markets to U.S. products.
The ITAA argues that by limiting offshore hiring, the U.S. could start a trade war in which other
nations cut back on their purchasing of U.S. IT products.
"[Kerry] sees there's an incentive to move jobs offshore, and he wants to eliminate that
incentive," Tasker said. "But [the Kerry plan] is really just not that clear."
The Kerry campaign didn't respond to a request for more information on the outsourcing
proposal.
Profits from overseas subsidiaries of U.S. companies are currently taxed -- generally at a 35%
rate -- only when the company returns those profits to the U.S. Supporters of this policy argue
the profits are already taxed in the country where the subsidiary is based, and without the U.S.
tax deferral, those profits would be taxed twice.
Kerry's plan seems to distinguish between U.S. companies that move jobs overseas in an attempt
to reduce U.S. labor costs and those that open foreign production facilities in a foreign country
when the facility serves customers in that country. Companies that locate production in a foreign
country that serves that country's markets would continue to have the U.S. taxes on those
facilities deferred under the Kerry plan.

Importance of Outsourcing (Shivam)

Business services outsourcing includes a wide variety of businesses that offer services to other
businesses on an outsourced basis that can comprise of accounting, receivables collection,
benefits administration, HR administration, recruiting, training, security and computer-related
services.
This industry is one of the three major industries in the United States that has seen a major
growth in the last decade due to recent technological developments.
As organizations have become more comfortable with the benefits of outsourcing transactional
processes, they have progressively started to outsource higher value-added services and more
comprehensive processes for example, they move from outsourcing just one, discrete function to
outsourcing an entire end-to-end process (from accounts payable to complete finance and
accounting operations, from payroll to entire HR operations).

As companies move to more comprehensive outsourcing relationships, they are able to benefit
from greater economies of scale, broader transformation of their processes and an accelerated
speed to value.
Many CFOs have seen BPO as a viable approach for managing discreet processes, thanks to
increasing vendor Expertise, multi-language support and successful delivery with balanced SLAs
for monitoring and control.
As successful outsourcing project experience spreads, they see that substantial operational
efficiencies and cost savings are not only possible but realistically within reach.
When CFOs are considering BPO, we recommend that they evaluate suppliers on their ability to
deliver the following four types of benefits:
Rapid and Sustainable Cost Reduction:
India has historically been the offshore location of choice, serving as the pricing benchmark for
outsourced services. With its large, low-cost, English-speaking labor pool, India still dominates
the scene, especially for organizations that value price and English fluency.
Strategic Flexibility:
Strategic flexibility means more than just a choice of lower cost locations. Companies
streamlining their Operations with us have the flexibility to:
Rely on a highly qualified labor pool with access to some of the best trained resources in the
market.
Leverage an operating model with a truly variable cost base that’s easily scalable to grow with
business requirements.
Manage the scope of what is outsourced and when, by addressing traditional processes first and
broadening to core business processes at the desired time.
Offload and improve transaction-based, repeatable processes so Finance can expand its role to
handle more strategic, value added activities that contribute to the profitability and growth of the
business.
Compliance and Control:
Regulators are watching to ensure that standards of compliance and governance are maintained,
particularly as outsourcing pushes into higher value-add areas that are more critical to business
continuity and where concerns over client confidentiality and data protection loom large. One of
the key issues under discussion is whether to use one or multiple centers. This issue has become
more prevalent as clients require outsource higher value processes.
Service Quality:
The tendency to outsource the more transaction-based processes has led to a commodity mind-
set. With AP and Payments Processing, for example, the focus is very much on cost reduction
and maximizing productivity, a key goal for many insurers when outsourcing back-office
processes. While cost is always important, BPO in financial services provides the opportunity to
generate additional value.
Value can be measured financially, as in a reduction in AR days, but can also be intangible, such
as improved Management Information. Both types of value can be incorporated into an
arrangement with a supplier, but the more intangible the requirements, the more collaborative the
approach to working between client and supplier should be. As can be seen, there are many
variables to consider when thinking about outsourcing elements of the finance function. Client
and supplier should work collaboratively to construct the solution and define their subsequent
relationship.