The New Offshoring of Jobs in

the Global Economy

Gary Gereffi Duke University

ggere@soc.duke.edu

“Globalización, Conocimiento y Desarrollo desde la perspectiva mexicana”

Universidad Nacional Autónoma de México (UNAM), México, DF, México

15-17 de marzo, 2006

Main Topics

1. Offshore outsourcing: new & old trends

2. Contemporary global labor market: a typology of jobs

3. Shifts in labor-intensive jobs: apparel

4. Shifts in knowledge-intensive jobs: engineering

5. Development dilemmas: winners & losers

Starting Point

• Outsourcing – corporate control– move supply of goods and services from “in house” to

external supplier

• Offshoring – geographic location– move activities from domestic to overseas location

• Offshore outsourcing – What’s new? – Types of jobs– New “drivers” of job shifts in global industries– Where jobs are going

Global Outsourcing of U.S. Jobs

Trends• 1960s & 1970s – basic factory jobs

– Shoes, clothes, electronics, toys, appliances

• 1980s – routine service work– Call centers, back office jobs (credit cards, banks)

• 1990s – advanced business services – Finance, accounting, medical records, software

• 2000s – design, brands, innovation

An Unprecedented Expansion in Global Capitalism

• In 1985, the global economy consisted of 2.5 billion people (N. and S. America, W. Europe, Japan, E. Asian NIEs, Africa)

• In 2000 as a result of the collapse of the Soviet Union, India’s turn from autarky, China’s shift toward a market economy, global capitalism consisted of 6 billion people

The Global Force Has Doubled since 1990

1980 2000

Traditional Capitalist Economies 960 1,460

Advanced Economies 370 460(United States) (120) (150)Developing Economies 590 1,000

1,460

China 760India 440Ex-Soviet Union 260

Total 2,920

Millions of Economically Active in the Labor Force

New Entrants from Former Socialist Bloc

Source: Richard Freeman, “The real effect of globalization on labor,” Harvard University and NBER.

4 Types of Jobs in Global Economy

1. Assembly jobs in export industries (EPZs)

2. “Full package” (or OEM) production jobs, associated with buyer-oriented upgrading

3. Advanced production jobs that require design (ODM) and marketing (OBM) capabilities, associated with supplier-oriented upgrading

4. Knowledge-intensive jobs in offshore services

2005 Phase Out of Quotas

and the Consolidation of the

Apparel Value Chain

In 2005, Multi-Fiber Agreement Ends

Jan. 1, 1995

16% Integration

Jan. 1, 1998

Another 17% Integration

Jan. 1, 2002

Another 18% Integration

Jan. 1, 2005

100% Integration

MFA(1974 – 1994)

ATC(1995 – 2004)

Quota Abolitionfrom 2005

Source: World Trade Organization.

Figure 1

Major clothing exporters' share of the US market 2004

Other24%

China16%

Rest of Americas16%

Mexico10%

Hong Kong9%

EU5%

Taiwan4%

Philippines4%

Indonesia4%

India4%

Bangladesh4%

Source: Financial Times, July 19, 2004, p. 11.

Figure 2

How U.S. market shares may rank after elimination of MFA quotas

Other12% Bangladesh

2%

Indonesia2%

Philippines2%

Thailand3%

India15%

China50%

Hong Kong6%

Rest of Americas5%

Mexico3%

Source: Financial Times, July 19, 2004, p. 11.

The rings indicate the share of total U.S. imports in U.S. dollars by partner country:

1. 10% +2. 6.0% - 9.9%3. 4.0% - 5.9%4. 2.0% - 3.9%5. 1.0% - 1.9%

Total value of U.S. clothing imports was $41.6 billion in 1996 and $72.3 billion in 2004.

1The 2004 position corresponds to the ring where the country’s name is located; the 1996 position, if different, is indicated by a small circle. The arrows represent the magnitude and direction of change over time.

Source: Compiled from official statistics of the U.S. Department of Commerce, U.S. imports for consumption, customs value.

Northeast Asia

Southeast Asia

Central America and

the Caribbean

Europe and the Middle East

China

1

2

3

4

5

Hong Kong

South Korea

Taiwan

Thailand

Indonesia

India

Turkey

Italy

Macau

North America

South Asia

Pakistan

Bangladesh Sri Lanka

Malaysia

Philippines

Canada

Mexico

Guatemala

ElSalvador

Costa Rica

Honduras

Dominican Republic

Cambodia

Vietnam Jordan

Jamaica

Figure 3: Shifts in the Regional Structure of US Apparel Imports from 1996 to 20041

Figure 4: Shifts in the Regional Structure of Japanese Apparel Imports from 1996 to 20041

1The 2004 position corresponds to the ring where the country’s name is located; the 1996 position, if different, is indicated by a small circle. The arrows represent the magnitude and direction of change over time.

N.B.: From 1996 to 2004, China’s import share of the Japanese apparel market grew from 59.4% to 80.9%.

Source: UN Comtrade, SITC 84 (“Articles of apparel and clothing accessories”).

1

2

3

4

5

Europe Northeast Asia

North America

Southeast Asia

China

Hong Kong

Italy South Korea

USA Vietnam

France

Thailand

United Kingdom

Indonesia

Philippines

The rings indicate the share of total Japanese imports in U.S. dollars by partner country:

1. 25% +2. 10.0% - 24.9%3. 4.0% - 9.9%4. 2.0% - 3.9%5. 1.0% - 1.9%

Total value of Japanese clothing imports was $19.7 billion in 1996 and $21.7 billion in 2004.

Export Value

(US$ mill)% of Total

Export Value

(US$ mill)% of Total

Export Value

(US$ mill)% of Total

Export Value

(US$ mill)% of Total

Export Value

(US$ mill)% of Total

Export Value

(US$ mill)% of Total

China 8,483 13.2% 8,866 13.9% 9,565 15.0% 11,381 16.7% 13,607 18.8% 11,660 29.6%

Mexico 8,731 13.6% 8,128 12.7% 7,733 12.1% 7,199 10.6% 6,945 9.6% 3,776 9.6%

Hong Kong 4,587 7.1% 4,309 6.7% 3,960 6.2% 3,785 5.6% 3,936 5.4% 1,476 3.7%

Honduras 2,417 3.8% 2,439 3.8% 2,504 3.9% 2,568 3.8% 2,744 3.8% 1,568 4.0%

Vietnam 47 0.1% 48 0.1% 900 1.4% 2,380 3.5% 2,571 3.6% 1,446 3.7%

Indonesia 2,191 3.4% 2,356 3.7% 2,156 3.4% 2,236 3.3% 2,486 3.4% 1,661 4.2%

India 2,002 3.1% 1,934 3.0% 2,064 3.2% 2,156 3.2% 2,378 3.3% 1,866 4.7%

Total 64,296 63,862 63,810 68,162 72,311 39,424

Source: Compiled from official statistics of the U.S. Department of Commerce, U.S. General Imports, customs value. Accessed Sept. 20, 2005.

* Through July, 2005.

2004 2005 Jan-July2000 2001 2002 2003

Table 1

Top 7 Apparel Exporters to the United States, 2000-2005*

Table 2

Apparel % of Sales

% Low Cost Sourcing

Private Label (Estimate)

Sales 2003, US$ billions

Apparel Sales, 2003

Wal-Mart 14% 100% 80% 258.7 36.22

JC Penney 70% 100% 40% 17.8 12.46

Target 18% 100% 80% 48.2 8.68

Federated 50% 90% 17% 15.3 7.65

Kohl's 70% 100% 25% 10.3 7.21

May 50% 100% 20% 13.5 6.75

Dillard 65% 100% 17% 7.9 5.14

Sears, Roebuck 12% 100% 40% 41.1 4.93

Saks 70% 60% 16% 6.5 4.55

Nordstrom 60% 70% 20% 6.1 3.66

Neiman Marcus 80% 10% 8% 3.1 2.48

Source: Standard & Poor's Industry Surveys, Retailing-General, May 20, 2004; Morgan Stanley research.

Apparel Sourcing by Top U.S. Retailers

MAJOR TRENDS IN THE POST-QUOTA WORLD China will benefit most from the end of MFA quotas

Consolidation is likely to accelerate

More mega-factories will emerge post-2005

Retailers will cut down on the number of sourcing countries

Remaining factories will have to provide higher level services (logistics, customs clearance, and product design)

Time to market considerations will allow regional producers to maintain a role in apparel sourcing

Pressures for “ethical sourcing,” corporate codes of conduct, independent monitoring and labor standards will grow

The Rise of Engineering Outsourcing in India and China

• Economic growth• Massive labor forces• Low labor costs / specific labor polices• A new emphasis on knowledge-intensive jobs

• India: IT expertise• China: manufacturing expertise

In the Media

• “Last year more than 600,000 engineers graduated from institutions of higher education in China. In India, the figure was 350,000. In America, it was about 70,000”– The National Academies, Press Release: “Broad Federal Effort

Urgently Needed to Create New, High-Quality Jobs for All Americans in the 21st Century”, 10/12/2005

• “Last year China's schools graduated more than 600,000 engineers and India's schools produced 350,000, compared with 70,000 in America”– The U.S. Department of Education, Press Release: “In Case You

Missed It: Let's Get Serious”, 2/7/2006

Engineering, Computer Science and Information Technology Degrees Awarded in 2004

137,437 112,000

351,53784,898 103,000

292,569

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

United States India ChinaCountry

Deg

rees

Aw

ard

ed

Number of Subbaccalaureate Degrees

Number of Bachelors Degrees

2004 Engineering, CS and IT Degrees Awarded Per Capita

289.3

103.7

271.1

468.3

95.4

225.7

0

200

400

600

800

United States India ChinaCountry

Deg

rees

Aw

ard

ed (

per

Mil

lion

Cit

izen

s)

Subbaccalaureate

Bachelors

A Breakdown of the 2004 Economic Structure of the United States, China and India

21.20%15.20%

19.70%

27.00%52.90%

79.40%

51.80%

31.90%

0.90%0%

20%

40%

60%

80%

100%

United States India China

Country

% o

f GD

P Services

Industry

Agriculture

Thank you

for your attention!