GIANT SUCKING SOUND

Forbes Magazine via Yahoo ^ | September 11, 6:34 pm ET | By Robyn Meredith

[11th_VA]

Battered by the tech slowdown, EDS is shipping white-collar jobs offshore to catch up with low-cost competitors.

The new Electronic Data System office in Mumbai (formerly Bombay) is half a world away from company headquarters in Plano, Tex. Getting to this Indian office requires a bumpy two-hour drive from downtown Mumbai. At every stoplight women dressed in rags and holding emaciated, dull-eyed infants tap car windows to beg. In the slums lining the roads, thousands of people live crammed into dirt-floored rooms, sheltered from monsoon rains by plastic sheets.

At the end of the drive is a heavily guarded, new office tower that rises above the slums. This is where Amit, 24, works. "This is Andy. How may I help you?" he says politely, hour after hour, to the Midwesterners who have forgotten their e-mail passwords or need the phone number of a colleague. EDS (NYSE:EDS - News) hired Amit and 500 of his colleagues--young men and women dressed in khakis or saris--to answer phone calls and e-mails on behalf of American companies that have outsourced tech work or customer service calls to EDS.

Amit and colleagues are paid $1.25 an hour. His counterpart in the U.S. would get $10. On that difference rests whether or not EDS can wiggle itself out of deep trouble. Victimized by cheap outsourcing by competitors, EDS is playing the low-cost-labor game itself now. It is rushing to hire thousands of mostly Asian college graduates like Amit, who are desperate for the kinds of jobs found in the U.S. Frantic to cut costs, EDSplans to hire 13,800 workers by the end of next year--a tenth of its current global work force of 137,000--in low-wage countries like India, Malaysia, Hungary and Mexico, places where starting pay is as low as $2,400 a year. Meanwhile, EDS plans to lay off at least 2,750 higher-paid workers, mostly in the U.S. and Europe.

Companies as varied as General Electric (NYSE:GE - News) and Morgan Stanley (NYSE:MWD - News) are making the same calculation. White-collar jobs--in engineering, programming and accounting--are leaving America's shores for low-cost locales at a pace of nearly 4,000 a week, according to Forrester Research. The U.S., Europe and Japan combined are losing 600,000 a year, says McKinsey & Co.

Cheap labor is the motivation for these companies; for EDS it's the heart of new Chief Executive Michael Jordan's strategy to catch up with the competition. Low-cost outsourcing companies like India's Wipro (NYSE:WIT - News) and Infosys (NasdaqNM:INFY - News) are snatching away business, while such rivals as IBM (NYSE:IBM - News) and Hewlett-Packard (NYSE:HPQ - News) are aiming squarely at EDS' core business--running the computers of big corporations. Hurt also by the slowdown in tech spending and unprofitable contracts, EDS' second-quarter earnings dropped 56% to $138 million and its credit rating was cut to just above junk.

"The concepts of low cost and high value must be present in every action we take, in every service we provide, in every piece of new business we pursue," Jordan told employees in July. Jordan took over when Richard H. Brown was fired in March after unexpectedly disastrous third-quarter results led last year to a Securities & Exchange Commission investigation, which continues.

Jordan plans to triple the number of Indian workers to 3,500 by the end of next year. Indian programmers are maintaining old software written in the U.S.--some of it in Cobol--and making it work alongside newer programs. Indian keypunchers are typing in address changes for American workers who notify their companies they have moved. Others are updating computerized records to keep paychecks and 401(k) benefits going to the right place. EDS' U.S.-certified CPAs in Chennai (formerly Madras) are preparing corporate tax returns for an American manufacturing giant and doing bookkeeping tasks outsourced by other big companies. (EDS won't name its clients.)

The picture is the same companywide. In the same month that Jordan said hewould lay off thousands in the U.S. and Europe, EDS announced the opening of the Mumbai office and another in Auckland, New Zealand. It is scouting for bigger offices in Malaysia, where 100 jobs will be added in the next 18 months to the 400 already there. Workers do such jobs as processing bills for phone companies, handling expense report payments and writing code to keep computer systems from overloading. "I can offer someone the same capability at half the price," says Michael Stockwell, managing director of EDS Malaysia.

Why half the price when wages are just one-tenth? Higher expenses for new computers and long-distance phone bills account for some of the spread. Wider profit margins are part of the picture, too; suppliers don't pass along all their labor savings.

Jordan's strategy is even playing out at EDS unit A.T. Kearney, its troubled management-consulting firm. Jordan isn't hiring cheap consultants in India--not yet, anyway--but he is hiring the back-office support they need. So far Kearney has hired 50 workers for a new office in New Delhi. They sit next to 75 empty cubicles that are scheduled to be filled by the end of the year as layoffs claim the jobs of Kearney's staff elsewhere. The consultancy, based in Chicago, employs 5,000 people.

Half the Indian workers prepare PowerPoint presentations for the firm's six-figure consultants in the U.S. or Europe. Others help maintain Kearney's computer network and Web sites. The techworkers earn about $4,500 a year compared with about $45,000 a year for workers doing similar jobs in the U.S.

To overcome resistance from U.S. managers, Kearney's Indian executives had researchers do work overnight that couldn't be finished the same day in the U.S. When the quality of the overflow work proved first-rate, more responsibilities were assigned to Delhi. "It is very addictive, once companies learn what is possible," claims Chandramowli Srinivasan, head of EDS and A.T. Kearney operations in India.

There are obstacles big and small, the least of them American pseudonyms like "Andy." Indian workers who take phone calls for EDS clients attend weeks of classes to learn to speak with American accents and idioms. And it's too early to say whether certain white-collar work can be done so many miles and time zones away without foul-ups.

There's also a price to be paid in angry and anxious workers. "I'm sure I lost my job to offshoring," says Richard Randall Mohler, 51, an EDS programmer from Midland, Mich. who earned $68,640 a year until he was let go last year. That job in India pays about $6,500 a year. Mohler remains unemployed and says his former colleagues at EDS are worried, too. "They are all scared to death," Mohler says. "When you can get the same job done for a fraction of the cost, it puts everybody on edge."

Is Jordan the bad guy? If he doesn't export jobs, someone else will.

[11th_VA]

How depressing ...

[soothsayer99]

It's not because they're being taxed to death, either. It's simply to make more money.

Posted this earlier, but I think it's worth re-posting.

"It is estimated that currently less than half of corporate profits are taxed in this country. There are various tax and accounting gimmicks that have permitted very profitable companies to not only have no tax liabilities but even receive multimillion-dollar refunds from the American taxpayers.

Take CSX, for example, which until recently has been headed by the President's nominee for Secretary of the Treasury, John Snow. In the last 4 years, CSX reported U.S. profits of $934 billion, and they paid zero in U.S. corporate taxes. In fact, they received rebates of $164 billion.

I will repeat that. They made $934 billion in U.S. profits, paid no taxes, and received a $164 billion refund. That is certainly not double taxation. That is not even single taxation. That is no taxation, and it is a bigger winner on Wall Street to inflate corporate profits at the expense of the rest of American taxpayers. It is one of the reasons corporate income tax has been a declining share of Federal tax revenues in the last 40 years. In 1960, corporations paid 23 percent of all Federal tax revenues. Last year, that dropped to 9.5 percent, less than half of the share that corporations paid 40 years ago."

http://dayton.senate.gov/~dayton/releases/2003/01/2003129A21.html

[Dane]

Huh a statement from demo Senator Dayton.

Are you sure it is $934 Billion?

If it is then the stockholders are happy as they should be.

Seems that you soothsayer have an animus towards stockholders.

[BushCountry]

The Coming Job Boom; Forget those grim unemployment numbers.
Business 2.0 ^ | September 2003 Issue | Paul Kaihla
 

Posted on 09/12/2003 4:33 AM PDT by BushCountry
 

 

The Coming Job Boom

Forget those grim unemployment numbers. Demographic forces are about to put a squeeze on the labor supply that will make it feel like 1999 all over again.

By Paul Kaihla, September 2003 Issue

Judy Reed is a buyer in a buyer's market, and frankly, that has its advantages. The vice president for human resources at Stratus Technologies, a Maynard, Mass., maker of high-reliability servers, Reed never lacks for attention at parties and dinners in this employment-starved economy. When she does post a job, she gets four times the volume of responses she got three years ago, and some job seekers even follow up with Christmas cards. If she wanted to, she could fill every opening at a salary 15 percent below the going rate -- as, in fact, many of her competitors do.

But that's one advantage Reed won't take. She recently hired an engineer with more than 10 years' experience for nearly six figures -- the same wage she paid at the height of the bubble. Reed isn't just being kind. She asserts that any other course of action is asking for trouble down the road. "The buyer's market we're in now is temporary," she warns. "Maybe it'll last another year or two." And then? "Companies that haven't taken care to build worker loyalty," she says, "will find themselves in the same predicament as in 1999 and 2000."

At this particular moment in economic history, that is quite a statement. Two million workers have been downsized or displaced since the recession of 2001. At 6.2 percent, the national unemployment rate is the highest it's been in nine years, and the number of new jobless claims has sat above 400,000 for 20 weeks. To base hiring policy today on the prospect of a return to the tight labor market of 1999 seems not just counterintuitive -- it defies the evidence of one's own eyes.

But Reed isn't alone. Executives at Cigna (CI), Intel (INTC), SAS, Sprint (PCS), Whirlpool (WHR), WPP (WPPGY), and Adecco (the world's largest placement firm) have told Business 2.0 that they, too, worry that the supply of labor is about to fall seriously short of demand. Former treasury secretary and current Harvard University president Larry Summers regards a skilled labor shortage as all but inevitable. Economists like former Deputy Secretary of Labor Edward Montgomery and Sigurd Nilsen, the director of education, workforce, and income security in the General Accounting Office, have issued warnings to the same effect. And in April the country's largest and most influential industrial trade group, the National Association of Manufacturers (NAM), added its voice to the chorus. The association released a white paper based on research by labor economist Anthony Carnevale, former chairman of President Clinton's National Commission for Employment Policy, that forecast a "skilled worker gap" that will start to appear the year after next and grow to 5.3 million workers by 2010 and 14 million 10 years later. (Including unskilled workers, the gaps will be 7 million in 2010 and 21 million in 2020.) "By comparison, what employers experienced in 1999 and 2000 was a minor irritation," Carnevale says. "The shortage won't just be about having to cut an extra shift. It will be about not being able to fill the first and second shift too." This will occur, he adds, without any heroic growth rates or bubblelike economic anomalies; all it will take is a return to the economy's long-term growth rate of 3 to 3.5 percent a year.

continued...
 

Excerpted - click for full article ^

[CasearianDaoist]

These people have mortgages or pay rent and are most of the tax base. They have kids in college. What will happen to the price of real estate? The tax base? National security? The education of the labor force. If this is not stopped it will be the end of us. One can talk about creating new jobs - the tech field was not created overnight - it took decades to mature. This is a political timebomb - it may finaly push us all the was to full blown socialism.

[gathersnomoss]

Thank government for all of our future prosperity through their job creation. sarcasm off.

[Texas_Dawg]

How depressing ...

Depressing? I think it's great:

The techworkers earn about $4,500 a year compared with about $45,000 a year for workers doing similar jobs in the U.S.

Think how much money that saves to be redistributed more efficiently elsewhere in our economy.

[soothsayer99]

You can't have it both ways. Either you're worried about jobs leaving the country by the tens of thousands, or you're for companies doing whatever it takes to make loads of cash and make shareholders happy (and keep US companies competetive), including shipping jobs overseas.

As someone who works, pays taxes, and owns a few stocks, I think that keeping jobs here is most important. I can live with holding my stocks longer before I double my money. I can't live at all without working. And I'm kind of sick of paying all these taxes when corporations actually get millions in refunds instead of paying along with me, but apparently if we tax then they will leave.

Doesn't seem right somehow, does it. And no, I have no idea how to solve it.

[ChromeDome]

Ping

[Dane]

You can't have it both ways.

Neither can you. You posted something from demo senator Mark Dayton. I find it hard to beleive that CSX had $934 Billion in profits for the last 4 years.

There supposed profits of $250 billion per year would be in the top 10 of GDP in the world.

Why did you post such demo hyperbole?

[LibertyAndJusticeForAll]

A Job Boom for WHOM?

The answer is in this thread's article: The 3rd world.

[Nov3]

All we need to do is work for 1.25 an hour here. Problem solved!< /sarcasm>

[EagleMamaMT]

Read later.

[Walkin Man]

"I'm sure I lost my job to offshoring," says Richard Randall Mohler, 51, an EDS programmer from Midland, Mich. who earned $68,640 a year until he was let go last year. That job in India pays about $6,500 a year. Mohler remains unemployed and says his former colleagues at EDS are worried, too. "They are all scared to death...

Hey, this can't be! Prosperity is right around the corner! Don't cha know that a massive labor shortage is gonna happen any day now?? Just ask Texas Dawg, happy days are here again!

/sarcasm

[soothsayer99]

Why does it matter so much?

Here's something on CSX's earnings:

WASHINGTON -- Led by strong railroad earnings, CSX Corp said that net
income in the second quarter was $108 million or 51 cents per share,
more than double earnings in the same period the prior year, the Journal
of Commerce Online reports.

The 125% increase "reflects the fact that the railroad is running well
and getting better," said John Snow, chief executive. "We are running a
good network."

The company said the increase came despite the fact that total CSX
revenues were virtually unchanged at $2.06 billion versus $2.07 the year
before. "Costs poured out in this quarter," said Snow. The improved
results came despite what Snow said was "about the worst time for the
industrial economy we serve in about two decades."

Overall carloads were down about 3% to 1,797,000. CSX said continued
strength in agricultural and coal shipments offset declines in
automobile, intermodal and other general merchandise, though the company
was able to achieve rate increase for many of these commodities as well.

The carrier said that it was having good success in getting more
shippers, especially shippers of food and consumer goods, waste, and
metals, to convert from truck to rail.

Snow said that a week after a derailment and fire in a Baltimore rail
tunnel, CSX operations are "essentially up and running." The railroad
and city are in discussions as to what caused the derailment, and who
will pay for the clean-up and reconstruction.

"We came through a difficult time well and don't anticipate any major,
long-term impacts." Earnings per share should not be reduced more than a
few cents by the fire.

While an investigation of the accident is ongoing, He said the tunnel
"has been inspected and appears to be structurally sound."

The company said its CSX World Terminals business had operating income
of $18 million, about the same as in the same period the prior year. By
reducing costs, the company was able to offset about an 8% decline in
revenue, in part because of less cargo handled at its terminal in Hong
Kong.

CSX Lines, the company's domestic shipping arm, had operating income of
$7 million in the quarter, up from $4 million in the same period the
prior year, partly due to reimbursement for Maersk transition expenses
when CSX sold its international shipping business to the A.P. Moller
Group. CSX Lines continues to operate container ships to Alaska, Hawaii,
and Puerto Rico.

Last week the company announced a plan to move some containers to Hawaii
on ships operated by Matson and the company said today that going
forward it would "build on asset redeployment and rationalization" and
expected earnings to be more attractive in the next quarter.

[soothsayer99]

Forgot to post date - it's from July 2001.

[CasearianDaoist]

You people laugh at this but I am telling you that this is just the sort of issue that allowed the Dems to seize power during the 30s. It does not matter if it will not work in the long term - when we descend into that dark night we will not get out. We need to find a way to deal with it. Conservatives to this day are tarred with the great depression, if the Dems can turn this on us we will be out in the cold for another generation - maybe forever. We will loose the entire moderate voter segment and a good bit of the middle class. I cannot understand why people on FR do not see the danger here.

We need to present a real solution. Banging out the same old free trade rhetoric is not going to cut it.

[MissAmericanPie]

The same animus as all normal people have for cannibals that surive on a human diet, or profit at the misfortune of other's, most especially their own countrymen.

[Nov3]

Amen

[ClearCase_guy]

Why does it matter so much?

The company said the increase came despite the fact that total CSX revenues were virtually unchanged at $2.06 billion versus $2.07 the year before.

According to your posts, CSX makes about $250 Billion in profits, based upon total revenues of about $2 Billion. That is real cool! Wish I could do that!

I guess your statistics don't add up.