Globalization and How It Globalization and How It Affects ArizonaAffects Arizona

Roger A. Dale, Managing PrincipalRoger A. Dale, Managing Principal

The Natelson Company, Inc.The Natelson Company, Inc.

Yorba Linda, CAYorba Linda, CA

• International Outsourcing and Arizona’s Prospects for Job Growth

• The California Connection

• Workforce Development in an Era of Globalization

Globalization and How it Affects ArizonaGlobalization and How it Affects Arizona

• What’s happening and why?

• How big is the impact?

• How much bigger could it get?

• How vulnerable is Arizona?

• Is it really a bad thing? – What are the upsides?

Outsourcing…Outsourcing…

• Free markets are forever seeking efficiency

• Trade: cost savings through specialization

• “White Collar” outsourcing is latest manifestation

• Recent media attention on tech jobs

What’s happening and why?What’s happening and why?

• No face-to-face customer service

• High information content

• Work is telecommutable and Internet enabled

• Low setup barriers

• Low social networking requirement

• High wage differentials with destination country

Source: Fisher Center (UC Berkeley)

Attributes of Jobs OutsourcedAttributes of Jobs Outsourced

Wage differentials can be huge…Wage differentials can be huge…

Occupation Hourly Wage, US Hourly Wage, India

Telephone Operator $13 Under $1

Medical Transcriptionists

$13 $2

Payroll Clerk $15 $2

Paralegal $18 $7

Accountant $23 $6-15

Financial Analyst $34 $6-15

Source: Fisher Center

Average Salaries of ProgrammersAverage Salaries of Programmers

Country Typical Salary

USA $70,000

Ireland $28,500

Israel $26,500

Canada $28,000

China $9,900

India $8,400

Malaysia $7,200

Philippines $6,500

Poland $6,400

Russia $6,300

Source: Fisher Center

Data challenges due to simultaneous events:

• Recession and “jobless” recovery

• Bursting of the high tech bubble

• Outsourcing

How big is the impact?How big is the impact?

Percentage of jobs lost in heavily outsourced sectors since 2001:

• Software publishers - 10%• Accounting/payroll - 10%• Call Centers - 11%

• Computer Systems Design - 14%• Computer/Electronics Products - 24%

Source: Fortune Small Business

Some numbers…Some numbers…

• 11% of U.S. jobs are “at risk” (Fisher Center)

• That translates to 14 million jobs

• 3.3 million jobs will be lost to outsourcing by 2015 (Forrester Research)

• July 2003: 25,000 – 30,000 jobs outsourced to India

• Offshoring accounts for nearly 1/3 of lost manufacturing jobs since 2000 (Goldman Sachs)

Some numbers…Some numbers…

• Using Fisher’s formula, we estimate 12% of Arizona jobs are at risk.

• That translates into approximately 279,000 jobs

• But that’s not the whole story…

How vulnerable is Arizona?How vulnerable is Arizona?

• Cost savings result in lower inflation, increased productivity

• This boosts business and consumer spending

• This increases overall economic activity and creates jobs in other sectors

What are the benefits of outsourcing?What are the benefits of outsourcing?

NET Impact of IT OutsourcingNET Impact of IT OutsourcingINDUSTRY SECTOR Net New Jobs by 2008

Arizona U.S.

Natural Resources & Mining 13 1,182

Construction 2,283 75,757

Manufacturing 308 25,010

Wholesale Trade 784 43,359

Retail Trade 604 30,931

Transportation & Utilities 1,165 63,513

Publishing, Software & Communications -802 -50,043

Financial Services 656 32,066

Professional & Business Services 743 31,623

Education & Health Services 826 47,260

Leisure, Hospitality & Other Services 243 12,506

Government 87 4,203

Total Employment 6,909 317,367

Source: Global Insight, Inc. and NAICS

• Outsourcing is still experimental

• “New” phenomenon that may already be coming full circle

• Dell – a notable example of call center “repatriation”

Outsourced jobs aren’t always gone for Outsourced jobs aren’t always gone for good – the Call Center examplegood – the Call Center example

• What are California’s points of vulnerability?

• What are the opportunities for Arizona, and does the outsourcing issue change them?

• How California may reposition itself – the Arnold factor

How can Arizona benefit from How can Arizona benefit from California’s situation?California’s situation?

Costs of doing business

• Energy

• Workers’ compensation

• Real estate

• Regulatory environment

Some of California’s challenges…Some of California’s challenges…

Attractiveness to workforce

• Housing costs

• Educational quality

• Other quality of life issues

Some of California’s challenges…Some of California’s challenges…

Fiscal constraints

• Infrastructure investment

• Quality of government services

• ED investment at all levels

Some of California’s challenges…Some of California’s challenges…

Can California reposition itself?Can California reposition itself?

Key Issue Can California Improve?

Energy Costs Not realistically in short term

Workers’ Compensation Hopefully – plan underway

Regulatory environment Improvements possible, but will likely remain a significant disadvantage

Housing Costs Not realistically, will likely remain an overall disadvantage

Fiscal Crisis Budget can be balanced, but “fallout” may be severe

• For foreseeable future, California remains a ripe target

• “Outsourcing” may undermine some opportunities

What does it mean for Arizona?What does it mean for Arizona?

Workforce Development in an Era of Workforce Development in an Era of GlobalizationGlobalization

Why it’s more important than ever

• Expanding range of workers facing transitions

• Workforce is increasingly important part of an area’s “product”

ED and WD – merging the “cultures”ED and WD – merging the “cultures”

Balancing perspectives:

“people prosperity”

versus

“place prosperity”

The ED Product and MessageThe ED Product and Message

• What drives industrial location decisions? – Land (costs) vs. workers

• How does Arizona really want to position itself?

Shifting Priorities in the New EconomyShifting Priorities in the New Economy

Source: Progressive Policy Institute

In the old economy, people believed that:

In the New Economy, people believe that:

Being a cheap place to do business was key.

Being a place rich in ideas and talent is key.

Attracting companies was key. Attracting educated people is key.

A high-quality physical environment was a luxury that stood in the way of attracting cost-conscious businesses.

Physical and cultural amenities are crucial to attracting knowledge workers.

Regions won because they held a fixed competitive advantage in some resource.

Regions prosper if organizations and individuals have the ability or skill to learn and adapt.

Economic development was government-led.

Only bold partnerships among businesses, government and the non-profit sector can bring about change.

What does it all mean for Arizona What does it all mean for Arizona Economic Developers?Economic Developers?

1. One sure thing about economic forecasts – they’ll be wrong!

2. Economic trends tend to be unpredictable and/or inevitable

3. Economic developers – especially at the local level – aren’t so much in the business of changing global trends, but being poised to pursue the opportunities they present

What does it all mean for Arizona What does it all mean for Arizona Economic Developers? (continued)Economic Developers? (continued)

4. Innovation is key

5. Economic developers need to be continually thinking about their “product” and their “message”

6. Clusters are as important as ever, and an ideal framework for addressing new challenges

What does it all mean for Arizona What does it all mean for Arizona Economic Developers? (continued)Economic Developers? (continued)

7. ED is not just about marketing – attention to “foundations” (people, institutions, and infrastructure) is what makes marketing successful over the long term

8. Cost and value are not synonymous – at the end of the day, value and innovation win!

9. You’re on the right track!

Some Useful Publications on this Some Useful Publications on this Topic:Topic:

“The Comprehensive Impact of Offshore IT Software and Services Outsourcing on the U.S. Economy and the IT Industry” by Global Insight (USA), Inc. Executive Summary is available free online at: http://www.itaa.org/itserv/docs/execsumm.pdf

“The New Wave of Outsourcing” by Ashok D. Bardam and Cynthia Kroll, Fisher Center for Real Estate & Urban Economics. Available online at: http://www.haas.berkeley.edu/news/Research_Report_Fall_2003.pdf

Series of articles in the San Franciso Chronicle: http://www.sfgate.com/news/special/pages/2004/offshoring