American Outsourcing Case Analysis

Case Summary

The American Outsourcing Case is a compilation of factual information for the purpose of provoking debates. The authors present both the pros and cons of outsourcing, and avoid inserting their personal bias. The case clearly defines outsourcing and then focuses on outlining its existence in China, Mexico, and India. The evolution and U.S. involvement in the Maquiladoras of Mexico is described first. The implementation of NAFTA and the creation of Maquiladoras were major catalysts in the growth of free trade between the U.S. and Mexico. China, in an attempt to attract foreign investors, created Special Economic Areas, which designated geographic zones that were enabled to operate under their own laws. With great tax benefits and low utility costs, outsourcing to the Special Economic Areas became very popular. Outsourcing of white collar jobs to India was also a great investment, with their inexpensive and technologically skilled laborers. General Electric Inc. is known as the largest market capitalization in the world. They have established themselves in more than 100 countries, three of those being China, Mexico, and India. The case closes with comparisons of the advantages and disadvantages of outsourcing to the three countries, and leaves the reader with thought provoking questions about the future of outsourcing from the U.S.

Companies that Outsource

GE has outsourced to Mexico for the past 108 years, and has employed around 30,000 citizens. The majority of the thirty plants they operated in Mexico were maquiladoras. GE’s Mexican based operations are primarily targeted at the blue collar workers, with the production of anything from motors to lighting products. Mexico’s close proximity to the U.S. enables cheap shipping costs and short travel time. This is a distinct advantage when in comparison to outsourcing to China.

Even so, GE has invested around $1.5 billion in outsourcing to China, while providing around 12,000 jobs. China was even identified as GE’s major target for international growth in 2002. Outsourcing to China was and is slightly more sophisticated than that of Mexico. GE strategized to further develop distributional channels for selling purposes, build up product related services, and eventually start delegating financial services. They sell, purchase, and produce goods in China. GE has outsourced to China for electronics, telecommunications advancements, jet engine services, and even medical equipment.

GE found India to be useful in the area of human capital, where they employed more than 22,000. The came upon very intelligent, college-educated Indians willing to work for a small portion of what Americans would expect.