Interesting Fortune magazine article

[simplydamon]

Hi,

This is an interesting article...

http://www.fortune.com/fortune/subs/article/0,15114,1081269-1,00.html

What do you think? Do you think the U.S. will adapt as we have in the past? In my mind, and this is just a personal opinion, there are still some things that favor the U.S. (if viewed on a cultural basis) relative to work, innovation, and efficiency. For example, aspects of our economy are growing because of the relative freedom we have with accessing the internet (China is fairly restrictive when it comes to free speech - which impacts things like blogging, message boards, etc.)

One aspect of the article that stands out for me:
"Turning theory into reality is the third factor: Low-cost countries—not just China and India but also Mexico, Malaysia, Brazil, and others—are turning out large numbers of well-educated young people fully qualified to work in an information-based economy. China will produce about 3.3 million college graduates this year, India 3.1 million (all of them English-speaking), the U.S. just 1.3 million. In engineering, China’s graduates will number over 600,000, India’s 350,000, America’s only about 70,000."

While it is too late for me to do the calculation because I am lazy, it would seem that the percentage of population achieving a college degree still favors the U.S.? India and China both have well over 1 billion people, whereas the U.S. has just a little over 300 million. The engineering numbers, however, do appear to be a major problem for us.

However, as the article points to, many of the students overseas do appear to work much harder at school than our kids do. I was able to witness just how long students go to school in China when I was there in 2003 (many students were still at school at 6pm). As I am not an education expert, it does mystify me why there appears to be such a suddent drop in performance for our students between 4th and 9th grade. It is also a little curious because many of our students are much more likely to be more familiar with technology because most of us grow up with it ( having a computer in the home is somewhat expected here; overseas it can be quite the luxury in some places).

***The article also mentions outsourcing, which is a topic that is quite hot for some sectors in the U.S. right now.

[George]

I should have kept my subscription to fortune magazine. Now I cant view that link.

There will be more out sourcing due to the fact that other country have so many qualify tech people who are willing to accept the low pay.

[simplydamon]

Hmmm...I did the link through AOL. I assume it should be viewable. Let me check on it....

[simplydamon]

I think I didn't have a problem because I subscribe to Fortune. I hope they don't get mad with this posting because it could send a few more customers their way;)


In the relentless, global, tech-driven, cost-cutting struggle for business, America isn’t ready—here’s what to do about it.
By Geoffrey Colvin

(Illustration: R. Sikoryak)

It’s a crisis of confidence unlike anything America has felt in a generation. Residents of tiny Newton, Iowa, wake up to the distressing news that a Chinese firm—What’s it called? Haier? That’s Chinese?—wants to buy their biggest employer, the famed but foundering Maytag appliance company. Two days later, out of nowhere, a massive, government-owned Chinese oil company muscles into the bidding for America’s Unocal. The very next day a ship in Xinsha, China, loads the first Chinese-made cars bound for the West, where they’ll compete with the products of Detroit’s struggling old giants.

All in one week. And only two months earlier a Chinese company most Americans had never heard of took over the personal computer business formerly owned—and mismanaged into billions of dollars of losses—by the great IBM.

"Can America compete?" is the nation’s new No. 1 anxiety, the topic of emotional debate in bars and boardrooms, the title of seminars and speeches offered by the liberal Progressive Policy Institute, the conservative economist Todd Buchholz, and countless schools and Rotary Clubs. The question is almost right, but not quite. We’re wringing our hands over the wrong thing. The problem isn’t Chinese companies threatening U.S. firms. It’s U.S. workers unable to compete with those in China—or India, or South Korea. The real question is, "Can Americans compete?"

The stakes are mammoth: Respectable analysts believe it’s possible—not certain, but possible—that the U.S. standard of living, after decades of steady ascent, could stall or even begin to decline. More worrisome is the chance that if the world’s most powerful nation finds itself getting poorer rather than richer, some kind of domestic or even global political crisis could follow.

As for the big question at the center of it all—Can we compete?—the answer isn’t obvious. The don’t-worry-be-happy crowd points out that our last national fit of wailing and garment rending, when Japan was going to smite us in the 1980s, proved unfounded. We adapted and prospered, as we always had (and Japan didn’t). But today’s situation is so starkly different that it’s tough to find comfort in our experience then.

We’re not building human capital the way we used to. Our primary and secondary schools are falling behind the rest of the world’s. Our universities are still excellent, but the foreign students who come to them are increasingly taking their educations back home. As other nations multiply their science and engineering graduates—building the foundation for economic progress—ours are declining, in part because those fields are seen as nerdish and simply uncool. And our culture prizes cool.

No one is saying that Americans can’t adapt and win once more. But look at our preparedness today for the emerging global economy, and the conclusion seems unavoidable: We’re not ready.

To understand better whether Americans are destined to be the scrawny and pathetic dweebs on the world’s economic beach, it’s necessary to refine the question. Who is most threatened? How come? What will it take to make America stronger in a new economic world? What political forces could propel—or derail—progress?

Many iconic U.S. firms—Coca-Cola, Procter & Gamble, Texas Instruments—already do most of their business and employ most of their workers outside the U.S. Conversely, some of the most American brands you can think of—Hellmann’s mayonnaise, Jeeps, BV California wines—are owned by non-U.S. companies (Unilever, DaimlerChrysler, and Diageo, respectively). To complicate matters further, many products of U.S. companies are made outside the U.S.—Maytag refrigerators are no longer made in Galesburg, Ill., but in Mexico—while many non-U.S. companies make products here—your new Toyota may have come from Kentucky. Now add a few more twists: Your Dell laptop may have been assembled in Malaysia from parts made by American companies in Thailand.


The truth is that large companies transcended nationality long ago, and globalization gives them as many opportunities as problems. It increasingly lets them hire, source, and sell wherever they like, and that is basically good news no matter where the incorporation papers are filed.

For American workers, globalization is a radically dicier proposition—far more so than most of them realize. The fast-changing economy is exposing vast numbers of them to global labor competition, and it’s a contest millions of them can’t win right now.

Three main factors are changing the game. First, the world economy is based increasingly on information, bits and bytes that have to be analyzed, processed, and moved around. Examples: software, financial services, media. Second, the cost of handling those bits and bytes—that is, of computing and telecommunications—is in free fall. Wide swaths of economic activity can be performed almost anywhere, at least in theory.

Turning theory into reality is the third factor: Low-cost countries—not just China and India but also Mexico, Malaysia, Brazil, and others—are turning out large numbers of well-educated young people fully qualified to work in an information-based economy. China will produce about 3.3 million college graduates this year, India 3.1 million (all of them English-speaking), the U.S. just 1.3 million. In engineering, China’s graduates will number over 600,000, India’s 350,000, America’s only about 70,000.

The result is that many Americans who thought outsourcing only threatened factory workers and call-center operators are about to learn otherwise. That is a giant development, because information-based services are the heart of the U.S. economy. With 76% of its jobs in services, America’s economy is the most service-intensive of any major country’s. Of course many of those jobs can’t be shipped abroad: Chefs, barbers, utility and NFL linemen, and many others know they can’t be replaced by even the smartest person in Bangalore.

But growing numbers of other service jobs are not safe. Everyone has heard about the insurance-claims processors, accountants, and medical transcriptionists in India and elsewhere who’ve taken away U.S. jobs by doing the same work for much less money. More alarming is that the value of outsourced jobs is steadily rising. Morgan Stanley is hiring Indian bond analysts, fearsome quants who can make or cost a company millions. Texas Instruments is conducting critical parts of its next-generation chip development—extraordinarily complex work on which the company is betting its future—in India. American computer programmers who made $100,000 a year or more are getting fired because Indians and Chinese do the same work for one-fifth the cost or less.

The big question is how far all this will go. A massive new study from the McKinsey Global Institute predicts that some industries could be changed beyond recognition. In packaged software worldwide, 49% of jobs could in theory be outsourced to low-wage countries; in infotech services, 44%. In other industries the potential job shifts are smaller but still so large they’d create major dislocations: Some 25% of worldwide banking jobs could be sent offshore, 19% of insurance jobs, 13% of pharmaceutical jobs.

Looking at occupations rather than industries, some fields will never be the same. McKinsey figures that 52% of engineering jobs are amenable to offshoring, as are 31% of accounting jobs.


Adding up all the numbers, McKinsey calculates that some 9.6 million U.S. service jobs could theoretically be sent offshore today. That is a staggering number. If all those jobs really did get outsourced, the U.S. unemployment rate would leap from 5% to 11.4%. For various reasons, not all those jobs will get sent abroad. Some companies aren’t big enough to make the effort worthwhile. Some have infotech systems so old or messed up that they can’t adapt to offshoring. Some managers just don’t like the idea.