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Cost of off shore labor
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Ron
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« on: July 05, 2010, 03:44:16 PM » Reply with quote

I'm putting this topic here because I want to research what the actual savings of outsourcing is.
My reading has led me to believe that the average cost of labor off shore is 60% of that onshore.
At first it doesn't make sense if a Union laborer was making $20/hour to assemble clothes dryers and the Malaysian that took over his job is making only $2 per hour. But it is not just wages that count. It is the TOTAL cost of labor which could fall in many categories like training time, quality of product, cost of scrap, etc. So when companies like General Electric are done with the true costs it comes out to a real burden of around $12/hr.

I'll find more links and post them here.
This is interesing
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Phil Westcough
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« Reply #1 on: July 07, 2010, 05:03:16 PM » Reply with quote

Good! I'll stop by now and then to read up because it interests me too.
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fanelli18
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« Reply #2 on: July 16, 2010, 12:51:30 PM » Reply with quote

Great I would love to Read more Ron,

However in that 60% is that including the cost to have it barged over to the U.S. or other developed countries for sale? Or is that just the labor cost?
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Ron
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« Reply #3 on: July 17, 2010, 07:04:02 AM » Reply with quote

Here is a good article I ran across. Follow the numbers
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This article delves into a well known and overly written area of investment for many companies, cost reductions in offshore labor.  The authors attempt to explore other areas of the P&L effected by outsourcing, but in the end, the article circles back around to cost reductions.  This limited article does not address recent cost increases, non-headcount related expenses, or quality management issues.  This commentary reviews recent developments of offshore labor in such geographic areas such as India and China.
Analysis

I have had the experience of directing the international expansion for three companies into India and China as a means of controlling costs (and in two instances, expanding revenue).  Five years ago, the cost ratio for west coast employees to India work was 6:1 and the quality of work was on a level playing field with the work completed in the US.  With so many companies investing in offshore expansions, the cost of labor has had a CAGR [Compound Annual Growth Rate] of 15% over the past five years (vs 3.5% in the US).This translates into a 3.5:1 ratio and is shrinking every year.  When non-headcount costs such as facilities and T&E are considered (typically 1:2 ratio), the total cost reduction is approximately 2.5:1, US to India.

While this should still be considered a substantial cost control driver, consider attrition caused by the growing number of companies recruiting a limited pool of employees, and quality management factors caused by long distant management relations.  The number of US based companies expanding into India and China has grown 5X over the past five years.  The number of qualified employees has impressively grown over the same timeframe, however, the employee pool has not been able to keep pace with the number of expanding companiesí job opportunities.  This means multiple companies are recruiting the same employees, and are making offers increasingly lucrative.  The companies I worked with have experienced an attrition rate that is twice the US rate, causing the cost of recruiting and training to increase over the US counterpart.

While the infrastructure in India and China has impressively grown during this period, it too has not been able to keep pace with the US based expansion rate, causing facility costs to be almost twice that of the US rates.  Also consider the heightened communication needed to assure corporate initiatives are fully understood, and you find the cost savings that so many companies have enjoyed over the past five years beginning to diminish.

Offshore labor should still be considered to be a cost savings driver, however, the window is closing and will probably in shut within the next 5-10 years for places such as India and China.  When calculating future earnings stream, analysts should factor this element into a company with major offshore labor initiatives.

GL Group

http://www.glgroup.com/News/Recent-developments-with-Offshore-Labor-Cost-Savings-1888.html

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The thing to note is this article was written in 2006

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Ron
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« Reply #4 on: July 17, 2010, 07:27:14 AM » Reply with quote

Great I would love to Read more Ron,

However in that 60% is that including the cost to have it barged over to the U.S. or other developed countries for sale? Or is that just the labor cost?

No, transportation is not included. That's an added cost. I read an article where the CEO of Walmart said the cost of a Chinese toy was 15% transportation. So if it doubles it could make more sense to make the toys local.

When I worked as a Manufacturing Engineer we had a group of bean counters calling themselves "industrial engineers". They explained labor costs as being fully burdened. So much per hour wages so much per hour benefits so much per hour for the cost of the building so much per hour for electrical power and toilet paper  etc. Fully burdened means everything it takes to keep a body working. The demand for industrial real estate in China and India is sky rocketing... read my other post.
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lilyran
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« Reply #5 on: July 19, 2010, 03:22:46 AM » Reply with quote

I'll find more links and post them here.
This is interesing




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Carl
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« Reply #6 on: July 24, 2010, 06:34:43 PM » Reply with quote

You make no sense, man.
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MasonMiller
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The past cannot be changed.

« Reply #7 on: July 26, 2011, 04:52:42 AM » Reply with quote

Some people argue saying, "this is the case with almost every developing country", but what they fail to understand is that the complete package of benefits experienced by companies.
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jeofjingjeff
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« Reply #8 on: August 29, 2011, 08:06:50 PM » Reply with quote


All companies are now operating in a global business ecology, the offshoring issue at this point
seems to have become a matter of business survival, an attitude that is emerging in corporations
across the U.S. and Europe in virtually every industry.


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Ron
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« Reply #9 on: August 30, 2011, 03:49:35 PM » Reply with quote


All companies are now operating in a global business ecology, the offshoring issue at this point
seems to have become a matter of business survival, an attitude that is emerging in corporations
across the U.S. and Europe in virtually every industry.


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dental implants clinics

locksmiths in Newbury


There are three assumptions there that have been demonstrated not to be all inclusive. There are many posts and links here that you may want to read. Re shoring is happening due to many factors.
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