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North Texas Objectivist Society (NTOS) Message Board › The Surprising Shortage Of Quality Global Labor

The Surprising Shortage Of Quality Global Labor

A former member
Post #: 23

The Surprising Shortage Of Quality Global Labor
Posted on Apr 9th, 2007

Nicholas Vardy submits: At first, it was just a trickle. Indian call center workers become serial job hoppers, boosting their salaries 20% with every new position. Factory workers in Vietnam leave for the holidays and don't return. Computer programmers in Bulgaria don't bother to answer the want ads of a Los Angeles movie studio. But today, anecdotes of a global labor crunch have turned into a flood. Last week, staffing agency Manpower Inc. released the results of a survey of nearly 37,000 employers in 27 countries. It turns out that more than four out of 10 employers around the world are having trouble hiring the right kind of staff for the right kind of money. And the problem is getting worse.

The Global Labor Shortage: Cheap Labor R.I.P.?

At first, the flood of three billion new workers into the global marketplace for labor was a boon to employers across the globe. But cost cutting strategies, like offshoring and outsourcing work to low-wage countries, are running out of gas far sooner than many expected.

The salaries of IT workers from Central Europe to India are rising by double-digits every year. In the past five years, Hewlett-Packard (HPQ), SAP (SAP), and even Morgan Stanley (MS) have set up shop in former Communist countries of Eastern Europe. There, a deep pool of highly qualified math and science graduates were supposed to be willing to work for a third of that paid their Western counterparts.

Yet today, IT directors in Poland can cost companies more than $100,000 a year. That approaches Silicon Valley levels. And the number of highly qualified workers is surprisingly low. Multinationals have reacted swiftly, moving operations to ever lower-cost centers. Nokia, which already employs nearly 5,000 people in Hungary, recently announced that it is building a new handset factory in Romania.

This is all rather unexpected. Five years ago companies never thought they would have to worry about human resources. China and India were supposed to have seemingly inexhaustible pools of cheap labor. Yet today, the #1 challenge for multinationals setting up operations abroad is finding and keeping good workers.

The Global Labor Shortage: Chinese Wages Rising

Labor shortages in China are forcing companies to boost wages as the supply of surplus labor from the countryside tapers off. Salaries in China jumped by an average of 8.4% last year -- with some factory salaries surging as much as 40%. And employee turnover is skyrocketing. An average of one out of seven Chinese workers switched jobs last year, and turnover in some low-tech industries is approaching 50%.

Both rising wages and turnover are affecting how companies operate in China. Factories are seeing their margins shrink to 5% -- half what they were only a few years ago. General Motors, Honda, Motorola, and Intel have all shifted some manufacturing or research to inland locations, where wages can be half what they are on the coast. Others are looking even farther to lower-cost countries such as Vietnam or Indonesia.

The pressure has as much to do with skills as it does with sheer numbers. Although China's total labor force is about 800 million, consultant McKinsey & Company estimates only about 10% of Chinese candidates for high, value-added jobs like finance, accounting, and engineering are qualified to work for a foreign company. More than 75,000 jobs for such managers are expected to be created over the next five years. Yet today, China has fewer than 5,000 managers with those skills.

The Global Labor Shortage: "The Saudi Arabia of Outsourcing"

India accounts for 65% of all IT work performed offshore. This is largely thanks to its seemingly limitless supply of low-cost engineers and other professionals.

Yet, not all is as it seems. India produces 400,000 engineering graduates a year (five times as many as the United States) and a stunning 2.5 million university graduates overall. Yet only about a quarter of India's college graduates are up to snuff. The odds at top Indian companies are even worse. Some 1.3 million people applied to tech-services giant Infosys last year. Fewer than 2% of those were employable.

Graduates of non-elite schools suffer from weak English skills. The quality of faculty and courses is sub-par. In-house training programs for new recruits at top Indian IT services firms such as Infosys (INFY), Genpact, and Tata Consultancy Services fill some of the gaps. But by 2010, India will have a shortfall of 150,000 IT engineers and 350,000 business-process staff.

The Global Labor Shortage: Academic Conundrum Resolved

Academic economists insist that the global labor shortage is an illusion. With the entry of China, India and the former Soviet bloc roughly doubling the number of workers in the market economy, Harvard economist Richard B. Freeman argues that the only thing that could cause a real shortage would be "a global pandemic that kills millions of people." This increased supply of labor -- argues Freeman -- will keep wages down and corporate profits up for decades to come. Nor is this just about a few blue-collar factory workers in the Midwest losing their jobs. All kinds of white-collar jobs -- including accountancy, medical diagnostics and information technology -- have started moving to the developing world.

Here's where Freeman gets it wrong. First, wages and cost of living will adjust upward much more quickly than the 30 or 40 years he expects. It turns out that companies only enjoy the advantages of low-cost labor at best for a three- or four-year window. Consider that the cost of living in every city in the United States (outside of New York City) is now lower than in the former Communist capitals of Prague, Budapest, or Warsaw. Second, statistics on education don't equate with skills. Precious few Chinese and Indian university graduates can play ball on the multinational playing field. Those that do, can write their own (expensive) ticket.

Jim Rogers is fond of noting that no one can repeal the law of supply and demand. The global labor shortage proves a corollary: in the long run, there is no free lunch.
Plano, TX
Post #: 453
"This is all rather unexpected. Five years ago companies never thought they would have to worry about human resources. China and India were supposed to have seemingly inexhaustible pools of cheap labor. " it wasn't - at least not for the smart companies. They realized this over whelming supply of "cheap" labor was not going to be easy to tap forever. In the recruiting and staffing world, we have been talking about labor shortages for years, and not just here in the US.

Also, it doesn't matter how many people you have available for work - if their isn't enough with the right skills for the fastest growing jobs, then there still is a shortage. Before 9/11, layoffs in IT were already starting. And then of course after 9/11 millions of people were out of work. But even then, there was still a shortage of people for certain skillsets.

Indian has an interesting relationship with call centers. In fact, there is a tv show over there (I want to say it is called Indian Calling but I am not sure and couldn't find it online. I heard about it Friday on the radio.) Apparantly, working in a call center was something people weren't open about for a long time, especially the woman. I found it it was some sort of sleazy job hahah.

"Precious few Chinese and Indian university graduates can play ball on the multinational playing field. Those that do, can write their own (expensive) ticket."

I am not sure I really understand that statement. Is the author stating that students that graduate from Chinese or Indian schools don't often do well if they choose to work outside their country?
Old T.
Group Organizer
Dallas, TX
Post #: 509


Hi Rob,

I have been meaning for some time to say thank you for bringing us such interesting news items, and I found this one particularly intriguing.

In following the link, this seems to be associated with some kind of press release or comment in relation to two particular stocks. I cannot determine for the source whether it is intended to be freely reproduced or not. Perhaps in such situations, we should err on the side of caution and just provide the link, not copy the whole article? That leaves the source (assuming even it owns the copyright) responsible for the publication and any copyright issues and whether or not to maintain the publication on its website.

Cut & Paste -- so easy, it's hard not to do. tongue

-- Todd
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