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How We Compete: What Companies Around the World Are Doing to Make it in Today's Global Economy Kindle Edition

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Length: 352 pages Word Wise: Enabled

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About the Author

SUZANNE BERGER is the Raphael Dorman and Helen Starbuck Professor of Political Science at MIT and director of the MIT International Science and Technology Initiative. She was a member of the MIT Commission on Industrial Productivity, whose report, Made in America, analyzed weaknesses and strengths in U.S. industry in the 1980s. She lives in Boston, Massachusetts.

Excerpt. © Reprinted by permission. All rights reserved.

CHAPTER 1

Who’s Afraid of Globalization?

Globalization means a world of opportunity and a world of danger. We rush to Wal-Mart for the basics, but we know that many of them are made in China or some other low-wage country. We want low prices at Best Buy and Circuit City on digital cameras and flat-panel TVs, but we fear that our good fortune as consumers costs jobs at home. We like to be able to place orders on the telephone twenty-four hours a day, but when we hear strange accents on the other end of the line, we wonder where on earth the operator sits. We realize when we think about it that the rise out of poverty of more than 2 billion Chinese and Indians must be good for the world; we question whether it’s good for us.

We celebrate the fact that American success is built on innovation and rising productivity, but we wonder whether the new technologies and products will create enough jobs and if our children will live as well as we do. Surveys in the United States and Europe find very mixed opinions about globalization, often reflecting these conflicting feelings within individuals themselves, rather than simply the rifts between supporters and opponents of globalization. A majority of Americans and Europeans think globalization raises their standard of living; a majority also believe that it is bad for employment and job security.(1)

For the questions about who wins and who loses in the new global economy and the uncertainties about whether the opportunities are worth the risks, there is no one right answer. People disagree about definitions of globalization, its causes, and its consequences. Many simply wonder whether any job in America is safe. By mid-2004, about 1,000 stories a month on outsourcing and offshoring were appearing in the U.S. print media, with such titles as “Is Your Job Going Abroad?”(Time, March 1, 2004), “Is Your Job Next?”(BusinessWeek, February 3, 2003), and “Is Your Job Coming to India? Get Used to It” (William Pesek Jr., Bloomberg.com, October 5, 2004).(2) One consulting firm predicted in September 2003 that 1.4 million American jobs would move overseas over the next twelve years, and that the real wages of 80 percent of the population would fall.(3) But a McKinsey study conducted a month earlier concluded that offshoring jobs was a “win-win” for both the United States and developing countries like India, as many low-skilled jobs would move overseas, raising incomes there, and U.S. firms would become more productive and profitable and better able to expand higher value-added operations at home.(4) Despite their optimism, however, McKinsey researchers did acknowledge that 55 percent of those reemployed after losing a job because of import competition or offshoring end up earning less than 85 percent of their old wages in the new job. Many take even bigger pay and benefit cuts.

Other studies claim that outsourcing low-end jobs leads to more job creation at home. Matthew Slaughter, an economist at Dartmouth, analyzed government data on U.S. multinational corporations and found that for every job offshored, a company created almost two in the United States.(5) Catherine Mann at The Brookings Institution showed that by lowering the cost of information hardware, production abroad has raised
U.S. productivity and generated $230 billion of additional GDP between 1995 and 2002. Furthermore, an open economy in which U.S. companies can create jobs abroad is also one in which foreign companies can create jobs in the United States. Between 1986 and 2001, the number of jobs that foreign businesses established in the United States actually
doubled, while the number that moved offshore grew only by 56 percent. The private services work (like legal services, programming, banking, and consulting) that the United States sells to foreigners exceeds by over $50 billion the services Americans buy from foreign companies.(6) Similar findings are reported for Europe. Oxford University researchers found that while U.K. companies are buying more services from firms abroad, U.K. exports of business services have grown even faster.(7)

Mainstream economists like Alan Greenspan, the chairman of the Federal Reserve Board, and N. Gregory Mankiw, former chairman of the Council of Economic Advisors, assure the public that outsourcing work raises productivity and the standard of living in the United States. Free trade, they argue, ultimately creates more and better jobs in the United States than it destroys. Historically, Mankiw explained, innovation has always generated good new employment opportunities:

It is hard to predict what changes American ingenuity will bring to the
U.S. economy. For example, over the past half century, new technology has led to great advances in farm productivity. As a result, the number of Americans working on farms has declined from almost 20 percent of the workforce in 1940 to about 2 percent today. In 1940, no one could have predicted that some of the grandchildren of farmers would become website designers and CAT scan operators. But they did, and at much higher wages and incomes.(8)

The economists base their optimism about globalization and jobs on standard trade theories of comparative advantage. These theories predict that as developing countries with large populations move into activities that use a lot of unskilled and semiskilled labor, the United States and other advanced countries will gain advantage in activities requiring more intensive use of capital and well-educated workers. Some of these neoclassical economists now, however, are having second thoughts. Paul Samuelson, Nobel Prize-winning economist at MIT known for his contributions to modern trade theory, published an article in fall 2004 in which he shows how even skilled workers in the advanced countries could lose out as China upgrades its economy.(9) Globalization should increase the world’s total income and its average standard of living, but there’s no reason to think that any particular country or region’s advances will outweigh its losses. As Samuelson points out, worldwide gains will only be “cold comfort” for losers.

Some think that in an open global economy, government can no longer regulate or buffer citizens against strong economic tides of change. In The Borderless World (1990), one of the first books on globalization, Kenichi Ohmae, a well-known management consultant, claimed that “[the global economy] is becoming so powerful that it has swallowed most consumers and corporations, made traditional national borders almost disappear, and pushed bureaucrats, politicians, and the military toward the status of declining industries.”(10) Thomas Friedman, the New York Times op-ed writer, describes globalization as a race of Formula One cars.(11) If you’re worried about drivers smashing into the walls, you can give them driving lessons and improve the skills of the ambulance technicians. But, says Friedman, you can’t put bales of straw around the walls of the racetrack to buffer the accidents without ruining the race. “If you don’t want to do all these things, then you should forget about Formula One racing and become a jogger. But be careful, because as a jogger in this world you will be run over by a Formula One Car.”

Ohmae and Friedman are enthusiastic about globalization’s impact in shrinking the role of government in the economy, thereby allowing people to develop their talents without hindrance from the bureaucracy. Critics of globalization, though, see a world “running out of control toward some sort of abyss.”(12) They regard the World Trade Organization, the International Monetary Fund, the World Bank, the G8 summits, and the Davos World Economic Forum as arms of multinational capitalism: institutions bound on destroying the safety nets that once cushioned economies, rather than organizations working to moderate and regulate the international system. Starting with the huge demonstrations against the World Trade Organization in Seattle in 1999, massive protests against globalization have been mounted at virtually every important international meeting. At Seattle, the “turtle and Teamster” alliance of environmentalists and union members showed the glimmerings of a new politics building on anxieties about the global economy.

In countries around the world today, political movements are organizing around these issues. Politicians have climbed on the bandwagon, too. In the U.S. 2004 presidential election campaign, Democrats accused managers who offshore jobs of being “Benedict Arnold CEOs,” while Republicans claimed that savings from outsourcing created more jobs than were lost. But are the new jobs in the economy as good as the ones that are disappearing? The Democrats proposed to remove tax loopholes for companies who invest abroad. But are tax breaks really a major factor driving offshoring? To these and other basic questions about the impact of globalization, the politicians provided little in the way of convincing evidence to back up their positions.

The contradictory claims about globalization and its effects led a group of us who are researchers at the Industrial Performance Center (IPC) at the Massachusetts Institute of Technology to launch a systematic investigation into the large-scale changes in the international economy that have occurred over the past twenty years and their effects on the organization of economic life. Globalization may be the single most important change in our lifetime, yet virtually everything people think they know about its consequences comes either from opinions, anecdotes, or very general economic theories. Analyses based on hard evidence from the experience of societies dealing with these pressures are few and far between. While facts alone will not necessarily force anyone to reach one conclusion or another about the effects of glo...

Product Details

  • File Size: 458 KB
  • Print Length: 352 pages
  • Publisher: Crown Business (December 27, 2005)
  • Publication Date: December 27, 2005
  • Sold by: Random House LLC
  • Language: English
  • ASIN: B000FCKNP0
  • Text-to-Speech: Enabled
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  • Word Wise: Enabled
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  • Amazon Best Sellers Rank: #704,443 Paid in Kindle Store (See Top 100 Paid in Kindle Store)
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3 of 3 people found the following review helpful By Etienne ROLLAND-PIEGUE on November 2, 2012
Format: Hardcover
Optimists and pessimists take opposite views on globalization. The first ones believe international trade and investment will spread wealth and prosperity across the globe, and make revenues converge to a higher level. The second ones denounce a race to the bottom that benefits only a handful and makes the rest poorer while destroying communities and the environment. But both camps assume that global market forces make economies converge toward a single world standard, and that globalization radically constraints national policy choices. For happy globalists or gloomy anti-globalizers, there is only one way, one single road to heaven or to hell.

How We Compete challenges this basic assumption. Based on five years of research (from 1999 to 2004) covering 500 companies on three continents, the book demonstrates that the global economy leaves us with many choices, and that different brands of capitalism may coexist and thrive. More provocatively, Suzanne Berger and her team argue that no sector is doomed to extinction in advanced economies. This was not a preordained conclusion, but the result of patient research. In the course of their study, they found prosperous companies in high tech or low tech, in capital-intensive or labor-based activities, in fast-moving sectors or craft activities that have not changed over centuries. They did not find evidence of a race to the bottom in terms of wage and labor conditions or of environmental standards. In particular, they found that offshoring or outsourcing production abroad is not a fatality, and that manufacturing or "making things" has a future even in advanced economies based on knowledge and services. They conclude that market pressure and economic convergence alone do not force a single model unto corporations or economies.
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0 of 1 people found the following review helpful By J. Swanoski on October 7, 2008
Format: Hardcover
This is a great book that explores globalization. It presents information about offshoring and outsourcing that most people do not hear or think about.
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22 of 45 people found the following review helpful By Loyd E. Eskildson HALL OF FAME on January 20, 2006
Format: Hardcover
More than two million jobs disappeared from the U.S. between '01 and '04 - half a million in high-tech industries alone. Further, Steven Roach, chief economist at Morgan Stanley, estimates that there have been about 8 million fewer jobs in the current recovery than would have been expected from prior history, and most of the new jobs come with low wages and few benefits.

Berger knows these numbers have caused a rising fear that no American job is safe from low-wage countries. To discover whether these fears are justified, Berger and a group of MIT researchers visited over 500 workplaces and factories around the world. Their conclusion is that cheap labor is not the answer.

This conclusion is currently true in some instances; however, the authors fail to see that cheap labor (the "China price") is increasingly dominating decision-making - both in services and manufacturing. Jobs that formerly were not candidates for outsourcing (finance, market research, industrial design, computer systems design, paralegal research, reading X-rays) now are; strategies that previously fought off Asian alternatives often fail to work several years later as China and India adopt new techniques; in fact the authors often cite previously highly successful American companies that subsequently succumbed.

G.M. and Ford are additional examples where this may yet happen - despite years of world-leadership. Part of their problem was believing that they could let Japan have the low-cost market - this worked for awhile, but now Toyota et al have applied the lessons learned in that market segment, and leveraged their distribution etc. systems on to producing competitive SUVs and innovative hybrids as well.
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1 of 6 people found the following review helpful By Giovanni Polastri on February 25, 2006
Format: Hardcover
A real page turner, plenty of insight into outsourcing and globalisation, very impressive piece of work!
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4 of 22 people found the following review helpful By Betty Burks on February 19, 2006
Format: Hardcover
In the boom years of mass consumption after WWII, the vertically integrated companies flexed all their muscles. Giants like RCA, IBM, Levi Strauss, and Volkswagen coordinated all the functions from research and development to distribution within their own control in the company. "For the first time in history, a great number of complex manufactured goods, like automobiles, refrigerators, canned foods, bicycles, and radio and television sets, became affordable for people with ordinary earnings."

In this book, they attempt to report on what the team learned about constraints and strategic choices in the global enonomy. "As far as I know, this is the first large-scale analysis of globalization that starts with a view from the trenches -- the people under great pressure to respond to new challenges in hundreds of companies around the world." If all manufacturing leaves America, can research, design, and services be far behind?

Firms locate production abroad or contract out to foreign manufacturers to get the cheap labor. It doesn't matter that the quality is poor and not up to standard. "Finding workers at lower wages is the main concern." Who makes Dell computers and where? The December 19, 2004, 'New York Times' article quoted Kevin Rollins as saying that "Dell makes them in the United States." They even moved a production group to Nashville, Tennessee. "None is outsourced; none is made in other countries and shipped in." It has been pointed out that Dell laptops are assembled abroad." In 2005, 'Fortune' named Dell "America's most admired company." Ms.
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