by Beth Gorell, guest writer and M Squared consultant

How can something that sounds so simple be so complex?  The nature of globalization as a business phenomenon today goes beyond earlier attempts that simply paid lip service to the term.  Now, business drivers, customers and partners truly are operating globally, and organizations that want to compete need to change how they operate in order not only to keep up but to lead.  But what does “operating globally” really mean?

Key Elements of Globalization Now

In a way, globalization represents the ultimate “free market.”  Structures are now in place to allow wider trade in goods, services and investment internationally than ever before.  Technology makes the ability to trade internationally fast and accurate, and allows participants to react immediately to economic, social and political changes that affect their business decisions.  Large, corporate customers are recognizing their global buying power and using it to negotiate from an increased position of strength.  But perhaps the most noticeable change of the last decade has been the shift away from a “multi-national” approach to international trade, to one that is truly global.

Not What It Once Was

Not so long ago, it was accepted that multi-national US-based companies approached their international business as an opportunistic extension of their US interests.  Product and service introductions, events and partner programs were designed from the US perspective, then “localized” for other countries as a secondary step.  International legal and tax implications were left to local country experts, and – particularly if budgets were tight – English was often the only mandatory language for training and sales tools.  Events were scheduled at times convenient for the US and (possibly) Europe.  Managers with serious career aspirations had to reside in (or move to) the US.

Not so anymore. The rise of business opportunities in countries such as China, India and Korea (just to mention a few) has forced US-based powerhouses to re-think how they approach “emerging” markets.  Competition from companies based outside the US has risen, and both customers and partners have increasing expectations that vendors accommodate their needs.  Companies that continue to operate the old way do so at their own peril.

Getting Ahead of the Curve

Is there a magic formula for succeeding in this brave new world?  Of course not.  But there are some steps that are key for heading in the right direction:

Build Global Knowledge

It is no longer “good enough” for international knowledge to be silo’d with local country experts.  To lead in future, organizations must have greater global understanding at all levels and use this knowledge in their planning and execution.  This means building a knowledge base of how business is done in key geographies – key business practices at the direct and partner levels; economic and political drivers; the competitive landscape; legal, tax and language requirements; etc. – and keeping global requirements at the forefront of planning and decision-making.  How to build this knowledge?  Organizations historically comprised of US-based staff should get more creative than simply sending people to classes or asking them to read books.  Foreign service assignments and temporary job exchange programs, as well as internationally located positions in high-potential geographies at the staff, management and senior management levels, and the inclusion of staff and management with experience at local levels, will pay off for organizations with enough vision and conviction to use them.

Align Globally

While there will always be a need to consider local differences, a significant level of baseline consistency – from programs to organizational alignment – will be required to reap the real benefits of a global approach. This will likely also mean greater fortitude by senior management, both with regions that have traditionally had a large say in how programs and organizations are designed (notably the US and Europe), as well as with program owners who must now think globally right from the start.  Strong and consistent sponsorship from senior management will be required to ensure that business does not slip back into comfortable patterns from the past, and that significant mindset changes are successfully adopted.

Anticipate Customer Demands

As corporations begin to think and act more globally, they will do so not only as vendors, but as customers of other corporations.  Companies that anticipate what this could mean in terms of trade expectations and customer satisfaction will be positioned to take market share away from those that have not thought this through.  Account management, discounts, service agreements and channel support are just some of the areas that will be affected by rising global customer demands.

Embrace Global Scalability

Growth in a global economy requires global scalability.  By building an organizational infrastructure that is optimized to meet current global business requirements, yet able to respond to changing global and local needs, companies can increase alignment on business priorities, build internal efficiencies, develop consistent metrics, provide staff with improved career opportunities, and respond to changing industry dynamics more quickly and effectively.

But building a scalable global infrastructure is not without its pitfalls.  Demographic diversity presents challenges in terms of language, time zones and approach – all of which combine to test organizations in their ability to build expertise, teamwork and trust.  Fortunately, the tools for doing this have never been better, and will only continue to improve. 

A Final Thought

Globalization is an ongoing process that is affected by many geo-political factors outside the control of the businesses that want to participate.  A careful eye on the world economy and ever-changing elements that affect the business climate in specific geographic areas as well as across the globe is required to play successfully in this arena.  But for companies that choose to take a leadership stance, there is much to be won.  A strategic approach to globalization can make the difference between being one of the leaders or being left behind.

Beth Gorell is an independent consultant who has worked in Silicon Valley since the mid-1980’s.  She specializes in strategic planning and execution, change management and channel strategy, and can be reached at gorell@saje-consulting.com.

The U.S. faces an immigrant “brain drain” that could deeply affect the future of our technology sector.

Multiple forces are encouraging immigrant IT professionals in the U.S. to return to their home countries, raising the question: Will we be able to get them back when we finally realize how much we need them?

Here are the major forces at work in this trend:

The Recession

The current economic downturn is playing a big part in sending skilled workers back home. Many outsourced IT workers are returning to their home locations due to cost pressures faced by their clients. If a client sends more work offshore, then the IT worker who returns home is still engaged. So there is a cost saving and no loss of knowledge. If, however, the client terminates the project altogether, they lose the knowledge of the resource and there’s no saying if the client can re-engage that same resource again when the market picks up.

Lures from Abroad

Thousands of skilled immigrant IT professionals are leaving the U.S. for greener pastures elsewhere. Human resources directors in India and China report that what was a trickle of returnees a decade ago had become a flood. Job applications from the U.S. have increased tenfold over the last few years. A recent Kauffman Foundation study found that:

• The most common professional factor motivating workers to return home is the growing demand for their skills in their home countries.
• Returnees also believe that their home countries provide better career opportunities than they can find in the U.S.

There is another lure for Asian immigrants: both India and China offer skilled workers incentives to return home. In China, for example, a “green passage” project started in 2007 gives returnees guaranteed university educations for their children, along with tax benefits.

Meanwhile, the dynamics of the global war for talent are rapidly changing. The recent unveiling of the EU ‘Blue Card’ program allows high-skilled workers from outside the European Union to work in multiple EU countries. Because they are affected by a more rapidly aging population than the United States, these countries are aggressively working to liberalize their high-skilled immigration laws.

Restrictive U.S. Immigration Policies

Another factor is a provision of the U.S. economic stimulus package that would restrict H-1B hiring at companies that have received funds from the Trouble Assets Relief Program (TARP) and have more than 15 percent of their workers on visas. The political motivation is the suspicion that some U.S. high-tech companies have reduced their workforces, but aren’t necessarily cutting H-1B visa holders or foreign nationals ahead of U.S. citizen employees.

Conclusion

Restricting the immigration of highly skilled workers has a negative impact on innovation. A recent University of Michigan study found that “when the federal government increased the number of people allowed in under the [H-1B] program by 10 percent, total patents increased by around 2 percent in the short run.

In the final analysis the war for talent is a complex workforce issue and there are no easy answers. The United States needs to be aware of the risks with restricting immigration if it hopes to keep up innovation, particularly in technology-related areas. Even if economic conditions force layoffs, companies will need to think ahead to a time when they may badly need extra technical help. Many experts agree that while we may not need all these workers in the U.S. during the recession, we will absolutely need them to help us recover from it.

We may be in the midst of a recession with increasing unemployment and fewer jobs, but it’s very likely to be a short-term phenomenon that will not have much of a long-term effect on talent shortages. Without dramatic action, the gap between demand and supply will very likely continue to widen.

I’ve written in previous posts about the war for talent. The aging of the U.S. population and other demographic factors which will negatively impact the supply of talent, particularly among highly educated and skilled knowledge workers. But these problems are likely to be exacerbated by our immigration policy.

Here’s why:

Competition from Europe

The European Union recently approved the Blue Card program, which was modeled on the United States’ Green Card. The Blue Card (named for the color of the EU’s flag) will allow skilled foreign workers to work and live anywhere in the EU’s 27 member countries.

Currently, 85% of global unskilled labor goes to the European Union and only 5% to the United States. In contrast, 55% of highly skilled immigrants head for the United States and only 5% to Europe. With the Blue Card, the EU hopes to dramatically change this imbalance.

Singapore, Japan, and Hong Kong have implemented similar programs, following the lead of Australia and New Zealand. The goals of all these programs are the same: to attract skilled talent. These countries are also foreseeing a war for talent, and although it has not been publicly stated they are actively trying to divert some of the talent that now flows to the United States.

The EU and other countries may well succeed because their criteria for handing out permanent residency permits and work visas are much more liberal than those in the United States, and the procedures will be simpler and more streamlined. Some even allow employers to hand out residency permits along with employment offer letters.

For jobs where a citizen is not available, an immigrant to the EU would only need to show a degree and three years of experience. Recognizing the need to attract young talent to Europe, immigrants under age 30 will have even easier requirements in qualifying for Blue Card status.

H-1B Visa program

Our system of providing work visas and residency permits leaves much to be desired. It can take 5 to 10 years to get a Green Card and the system heavily favors family ties instead of skills and experience. The process is convoluted, involving multiple government agencies and arcane procedures. The number of annual work visas is still only 85,000 despite clear evidence of a shortage of skilled workers. For example, the unemployment rate in computer- and mathematics-related occupations is about 2.1%, or full employment when allowing for people in transition between jobs. The number of visas was actually lowered from 195,000 in 2004, to the current level which is the same as what existed 15 years ago.

In testimony before Congress, Bill Gates argued for elimination of the cap on H-1B visas. But in pandering to groups like FAIR (Federation for American Immigration Reform) and other isolationists, Congress has chosen to do little about the problem.

The problem is mostly political. Anti-immigrant groups are opposed to any loosening of immigration standards, though they neglect to mention that immigrant workers make up barely 3% of the skilled labor force yet disproportionately contribute to the economy. A quarter of all Nobel prizes won by Americans have gone to immigrants, and a similar proportion of IT firms were started by Indians and Chinese.

A study by the National Foundation for American Policy found that the average S&P 500 company creates five new domestic jobs for each highly skilled H-1B visa employee it hires. By raising the H-1B cap, Congress would create more domestic jobs, allowing companies to fill vital positions and enable them to expand their operations at home instead of moving overseas.

The Future

There are glimmers of hope. Representatives Gabrielle Giffords (D-AZ) and Lamar Smith (R-TX) have introduced bills raising the cap for H-1B visas. These are the Strengthen United States Technology and Innovation Now (SUSTAIN) Act and the Innovation Employment Act.

The SUSTAIN Act would temporarily raise the cap to 195,000 for FY 2008 and FY 2009, while the Innovation Employment Act would initially raise the cap to 130,000 and allow the cap to increase the following year if it is reached.

Raising the cap is necessary, but more should be done to make H-1B visas flexible. Their number should reflect the economy’s need for high-tech workers, not arbitrary limits set by Congress.

But the prospects of satisfying the U.S. need for talent solely from increased immigration are not good. The EU hopes to attract 20 million skilled workers over the next two decades as a result of the Blue Card program. That may be overly optimistic but it will undoubtedly negatively impact the flow of talent to the United States.

Companies clearly cannot count on immigration to satisfy their need for talent. They will have to continue exploring other options, like utilizing the flexible workforce to meet their talent needs.

Relaxing the regulations around immigration is often cited as part of the long-term solution to the inevitable talent shortage. At the center of this discussion is the H-1B Visa program.

Applications for visas for highly skilled immigrants are expected to decline due to the current recession, but technology companies continue to maintain that foreign-born workers represent a crucial part of the talent pool they need in order to remain competitive.

The U.S. Citizenship and Immigration Service began accepting H-1B visa applications for the upcoming fiscal year 2010 on April 1^st.

This year there are 65,000 visas available for foreign workers who have the equivalent of a bachelor’s degree. There are an additional 20,000 available for those workers who have obtained an advanced degree from a U.S. university.

Last year, the USCIS received 163,000 applications during the first week of April. It was forced to use a lottery system to determine visa recipients. Although demand is expected to drop this year, most experts still predict that the visa demand will exceed supply.

The sour economic climate is also affecting the way many companies are using H-1B visas. Many of this years applications will be for employees who are currently working but were denied visas in previous lotteries, according to Robert Hoffman, vice president for government and public affairs for Oracle and co-chair of Compete America.

These workers are able to hold jobs by using an optional practical training designation, which provides a 12-month bridge between a student visa and an H-1B visa.

In other cases, companies like Microsoft are applying for H-1B visas for workers who are currently employed on L visas because they have transferred to the U.S. from a foreign location. “What you are seeing is the program being used to meet different needs this year than in previous years,” said Brad Smith, Microsoft general counsel.

As you would expect during this recession where millions of U.S. workers have lost their jobs, the H-1B visa program is under attack. For example, despite its enthusiasm for the H-1B visa program Microsoft plans to lay off as many as 5,000 employees, or 5 percent of its workforce. This only fuels the fire for critics. Similar cuts at many other companies are contributing to the backlash in Washington against H-1B visas, which detractors say deny opportunities to American workers and reduces salaries.

As part of the massive federal government stimulus package, Congress created additional H-1B visa rules for companies that receive federal bailout funding. These companies will be forced to meet a standard of proof showing that American workers are not available.

Although H-1B workers constitute a tiny portion of employees at U.S. companies, executives like Microsoft’s Smith fervently believe that their skills are critical to achieving product breakthroughs. At the root of the problem is the fact that the U.S. simply does not produce enough of its own scientists and engineers to meet the demand. For example, a 2006 study showed that 61 percent of computer science Ph.D. students in the U.S. were not citizens.

“We are going to need to continue to bring in that kind of extraordinary talent,” Microsoft’s Smith said. “We’re not talking quantitatively about a large number, but we are talking qualitatively about people who boost economic competitiveness.”

Most experts dispute the idea that a gain in H-1Bs is a loss for American workers. These are visas that work to complement the U.S. workforce. In fact, a study by the National Foundation for American Policy shows that for every H-1B position another five jobs are created.

At its root, the problem is one of talent supply and demand. One of the challenges in an economy as large and diverse as that of the United States, is that regardless of the overall employment level, there will always be localized imbalances. In addition to H-1B’s, many companies are able to find the specific talent they need by embracing the flexible workforce. For example, M Squared Consulting clients benefit from the deep bench of talent in the M Squared Consultant Network - we are able to rapidly bring proven industry and functional expertise to client engagements. This allows companies to focus on their core business while we find and manage the talent that is focused on delivering client results.

A recent survey, which yielded a list of the most dangerous places in the world for outsourcing, will have many U.S. executives examining the overall value proposition of outsourcing, and reevaluating their corporate strategies. The central issue is whether concerns like personnel safety and business continuity are more important than short-term cost savings.

The list was a result of a survey of 448 corporate development and outsourcing destination specialists, and was conducted by Black Book Research and Brown-Wilson Group. The survey ranked 50 of the largest established and emerging offshore locations-from the safest to most dangerous-based on threat of terrorism, crime, climate hazards, and other factors (locations in the U.S. and the U.K. were excluded).

The Most Dangerous 10
1. Jerusalem (Israel)
2. Mumbai (India)
3. Rio de Janeiro/Sao Paulo (Brazil)
4. Manila/Cebu/Makati (Philippines)
5. Delhi/ Noida/Gurgaon (India)
6. Kingston (Jamaica)
7. Kuala Lumpur (Malaysia)
8. Johannesburg (South Africa)
9. Bangkok (Thailand)
10. Bogota (Colombia)

The Safest 10
1. Singapore
2. Dublin (Ireland)
3. Santiago (Chile)
4. Krakow/Warsaw (Poland)
5. Toronto (Canada)
6. Prague/Brno (Czech Republic)
7. Budapest (Hungary)
8. Monterrey (Mexico)
9. Beijing (China)
10. Cairo (Egypt)

The recent terrorist attacks in Mumbai, along with the potential that the Obama Administration might propose policies which would penalize outsourcers with tax disincentives, have many U.S. executives rethinking their corporate offshore outsourcing strategies.

These developments could create challenges for several popular outsourcing locations, particularly in India. U.S. companies alone are expected to spend over $25 billion this year just on IT outsourcing contracts with vendors in India.

Ultimately, no amount of cost savings can be justified if personnel or business continuity are put in jeopardy. One likely outcome: the high risks involved with many of these offshore locations will influence companies to outsource to domestic vendors or in locations that are closer to home. Companies will also gravitate further towards utilizing the flexible workforce, which affords them on-demand expertise which can be deployed on a project or ongoing basis.

I’ve written often about the war for talent. There are many primary drivers to the upcoming talent shortage: the aging of the Baby Boomers, a smaller Generation X, and Generation Y simply not in the workforce long enough to gain the experience they need to immediately step into leadership or highly skilled roles.

One of the underlying causes to the projected shortage of knowledge workers is that we are simply not graduating enough engineers, scientists, and professionals in the U.S.

Many people think that the solution to our talent problem can be found in vast emerging markets like China or India.

Not so fast.

Wages are normalizing across global markets. Immigration is tricky. Setting up shop in foreign markets is not a trivial exercise, and as the recent terrorist attacks in Mumbai demonstrated, there are also significant safety concerns. Last, but certainly not least, there is also an issue about workforce quality.

The Chinese and Indian markets are vast and their populations are mind boggling when compared to the United States.

With just over 1.3 billion people (1,330,044,605 as of mid-2008), China is the world’s most populous country. With the global population at approximately 6.7 billion, China represents a full 20% of the world’s population. One in every five people on the planet is a resident of China.

China’s total fertility rate is 1.7, which means that, on average, each woman gives birth to 1.7 children throughout her life. (Note: The total fertility rate required to maintain a stable population is 2.1) Nonetheless, China’s population is expected to grow over the next few decades. This can be attributed to immigration and a decrease in infant mortality and a decrease in death rate as national healthcare improves. By the late 2010s, China’s population is expected to reach 1.4 billion. Around 2030, China’s population will peak and then slowly start dropping.

India, the world’s second most populous country is expected to surpass China in population in the next few decades. By 2040, India’s population is expected to be 1.52 billion. That same year, China’s will be 1.45 billion and India will become the world’s most populous country. As of 2005, India had a total fertility rate of 2.8, well above replacement value, so it is growing much more quickly than China.

Now back to the issue of workforce quality. China produces over 2.5 million college graduates, including 30,000 Ph.D.s and 650,000 engineers, every year. In 2005 India produced 200,000 engineering graduates (Note: This is about three times as many as the United States and two times as many as all of Europe). But the really astonishing statistic is that in 2005 India enrolled 450,000 students in four-year engineering courses, meaning that its output of engineers will more than double by 2009.

These are astonishing numbers, but it is clearly an issue of caveat emptor when it comes to hiring these graduates, for not all these degrees are equivalent to American or European degrees.

For example, graduates of the top Chinese schools are comparable with the best in the world. However, once you get a little further away the quality of education becomes highly questionable. Some experts estimate over two-thirds of the Chinese “engineers” are no better qualified than a “technician” in the U.S. This is a particular concern with private schools, most of which haven’t established their credentials but often partner with top state colleges to attract students. Even though there are rules from the Education Ministry that require these schools to issue diplomas under their own names (instead of the name of the better-known institution) violations are rampant.

Another issue is the educational philosophy. China’s system relies heavily on “memorization,” meaning that vital skills such as writing, creativity, public speaking, teamwork, and leadership are not taught well in most of China’s universities. A study by The Conference Board concluded that the “learning by rote” culture of the Chinese education system means its graduates often lack the practical experiences and softer skills required to be successful in the modern business world.

Despite these issues, the number of potential knowledge workers graduating from schools in emerging markets is simply too large for U.S. companies to ignore. The global war for talent is a complex issue and will require many creative approaches. There is no question that part of the solution will be leveraging talent from markets like China and India.

Struggling to find enough doctors, nurses and linguists for the war effort in Iraq and Afghanistan, the Pentagon will temporarily recruit foreigners who have been living in the United States on student and work visas, or with refugee or political asylum status.

Defense Secretary Robert Gates recently authorized the Army, Navy, Air Force and Marine Corps to recruit certain legal residents whose critical medical and language skills are “vital to the national interest,” officials said, using for the first time a law passed three years ago.

Though the military previously has taken recruits with green cards seeking permanent residency, Gates’ action enables the services to start a one-year pilot program to find up to 1,000 foreigners who have lived in the states legally for at least two years on certain types of temporary visas.

The new recruits into the armed forces would get accelerated treatment in the process toward becoming U.S. citizens in return for serving in the U.S. military.

What’s the urgent need? The Pentagon’s doctor and nurse corps remain 1,000 short of the numbers needed to treat armed forces patients. It is hoped that the program would fill the gaps. It also needs people with special language and cultural skills for a war on terrorism that has taken the armed forces across the globe.

There is some precedent here. The armed forces have used foreigners since the War of 1812 - over the years some 700,000 have served. There are now 29,000 non-citizens in uniform today. With roughly 8,000 more enlisting every year. The difference is that up until now U.S. citizenship was not part of the equation.

But because of the counterterrorism war begun after the Sept. 11, 2001, attacks on America, President George W. Bush signed an executive order making foreigners who join the military eligible to apply immediately for citizenship. They essentially go to the head of the line among citizenship applicants, having their cases processed in about three years as opposed to the usual five years it takes others.

These benefits, however, do not come without cost to the job-seeker. All recruits will have to pass the same physical, mental and aptitude tests required of all who join the armed forces. In addition, Health care workers will have to meet all medical professional criteria to practice, be proficient in English, and agree to enlist either for three years on active duty or six years as reservists. The linguists/culture experts will have to enlist for four years of active duty service.

As talent agents for some of the most seasoned and experienced professionals in the workforce M Squared Consulting has a unique view into the dynamics of the labor market. Given the current cycle of negative economic news and a steady stream of layoff announcements it seems odd to be talking about the war for talent. The reality is that the U.S. workforce is aging, there are already shortages of skilled labor (particularly in the sciences and professional ranks), and the problem will only grow over time. Today’s negative economic reality is merely masking the problem.

When we enter an economic recovery these problems will once again be brought to the forefront. One can’t help but wonder if the Pentagon’s approach to “importing” skilled labor, with the promise of expedited U.S. citizenship, will be one that we are forced to expand to the private sector.

Time will tell.

Over the last decade the production of many goods has moved steadily from the United States to Asia. The reasons are familiar: lower wages, a stable global economy, and rapidly growing local markets. These factors combined to make nations such as China and Malaysia favored manufacturing locations. Recently, however, the favorable economic winds that carried offshoring forward have turned turbulent. The new conditions are undermining some of the factors that made manufacturers across many industries, including those in high tech, move production from the U.S.

For executives managing global supply networks, the question now is whether or not conditions are moving toward a tipping point. Is this the moment to consider sharply scaling back offshore production plans and bring manufacturing back or closer to the United States? Is there a more measured response that better suits the new circumstances?

Before executives change their strategies, however, they must determine the total landed cost of each product produced offshore and better understand the shifting trade-offs between cost savings from offshoring (such as lower wages) and rising logistics charges.

Oil prices, and consequently the cost of shipping, have risen to heights few could have foreseen. Since 2003, crude oil has risen dramatically. The economics research institution CIBC World Markets estimates that in 2000, when oil prices were near $20 a barrel, the costs embedded in shipping were equivalent to a 3 percent tariff on imports. Today, that figure is 11 percent-meaning that the cost of shipping has more than tripled since 2000.

The oil spike not only affects exports from Asia but also sharply increases the price its manufacturers pay for raw materials. It now costs about $100 to ship a ton of iron from Brazil to China-more than the cost of the mineral itself. Wage inflation, coupled with a weaker dollar, adds to the challenge: in dollar terms, annual wage inflation in China has averaged 19 percent since 2003. An average production worker, paid $1,740 a year in 2003, makes $4,140 today. In Brazil the rate is 21%, in Malaysia its 8%, Mexico, 5%. By contrast, wage inflation in the United States has averaged only 3 percent. The wage differential between Mexico and China has also narrowed significantly. In 2003, Mexican workers made over twice what their Chinese counterparts did; today that gap has narrowed to 1.15 times. Combined, these trends are reshaping the competitive landscape for offshore manufacturing in a number of locales.

As an interesting side note to this discussion, wage inflation hasn’t been limited to production workers, it has also impacted knowledge workers. This dynamic has dramatically reduced the labor arbitrage benefits many U.S. companies enjoyed for knowledge work being done outside our borders. They can no long rely on cheaper wages overseas to solve their knowledge workforce talent shortages…in fact, many emerging market countries are now experiencing their own talent shortages.

Products that were once profitably made in areas around the world where the local costs were lowest are now moving into near-shoring areas-or in some cases may now be suitable for production in the United States. A midrange server, for example, made profitably in China three years ago, has slipped below the breakeven line because of higher wages and freight costs. The server now could be produced more economically at a plant closer to U.S. consumers (in Mexico, for example, where the mix of logistics and labor costs is much more favorable).

McKinsey Consulting recently studied the total landed cost for a midrange server, comparing scenarios in Asia and the United States. In 2003, manufacturing this product in Asia rather than the United States provided a 60 percent savings in labor costs. They indexed that labor savings to $100. When they calculated total landed costs, however, they found that 36 percent of those labor savings were offset by freight, shipping-related charges, inventory, product returns, and other hidden costs. That gave Asian production a $64 landed-cost advantage. Today, economic conditions have reversed the equation. After factoring in the higher labor and freight costs, McKinsey found that the former offshore savings have turned negative-a burden of an extra $16. The labor savings, $100 in 2003, are now only $45 because of wage inflation. In addition, freight costs have risen by $21 and product returns by an additional $4 because of higher oil prices.

As this example suggests, changing economic conditions may have undermined the supply chain advantage for many companies. This would be a great time to reevaluate the location of manufacturing facilities and overall supply chains. By taking the total landed-cost analysis to the next level of detail a company can determine if bringing some production back home or to near-shore locations will help counteract the higher costs of shipping and freight. At the same time, smart companies are also considering the long-term geographic distribution of demand for their products. In rethinking global supply chains, it is also vital to carefully evaluate the importance of time-to-market, the availability of skilled talent, the potential for further productivity gains, one-time transition costs, and tax implications.

There is no single best solution to this challenge. Each individual company must evaluate their situation to make an intelligent decision. I’ve heard the challenge referred to as “right-shoring” - literally determining the best location to produce your company’s goods or services.

To estimate the trade-offs more precisely, supply chain managers need a true picture of landed costs. These include the cost of raw materials, carrying inventory, managing product returns, and other hidden charges not typically considered in the simple trade-off between offshore wages and logistics described above.

As always, M Squared Consulting is here to help. We have experts in supply chain optimization who can help analyze the situation for our clients and determine the best strategy for moving forward.

Innovation and economic growth require talent. That simple truth is the underlying basis for the historic growth and success of the United States. Despite the current economic downturn, the foundations of a global talent shortage are already in place, and the effects will become more apparent as the economy rebounds.

While U.S. legislators seem to be asleep at the wheel, other countries are taking talent issues much more seriously. Many countries have liberalized their immigration policies for high-skilled talent. That presents a major challenge to America’s historic domination in innovation and attracting high-skill immigrants. Australia, Canada, and New Zealand are the most aggressive. They, correctly, believe that immigrants are a source of economic growth. As such, they have strong pro-immigration policies that value highly skilled immigrants.

For example, the Australian Parliament recently eased immigration laws with the stated goal of attracting more high-skilled labor. This was in recognition of the fact that past and future decreasing birth rates and increasing demand for skills will make skilled labor the quintessential scarce resource for the next fifty years.

Complacency about attracting high-skilled talent can have severely negative consequences. The Bureau of Labor Statistics projects a growth of 40%, or over 500,000 new IT-related jobs through 2016. Domestic supply is simply not enough to cover this need at current levels. The number of degrees granted across all IT-related categories is about 54,000 annually, and is trending downward. Adding to the supply shortage is the fact that the number of workers in the 55-and-older group (the Baby Boomers) will grow by 47% in the next eight years - approximately 5.5 times the 8.5% growth of the labor force overall, with many of them actively planning to retire.

While a disproportionate number of skilled immigrants still come to the U.S., the numbers that are staying in their home countries or are going elsewhere is increasing. Over the last five years, the U.S. attracted an average of 73,000 skilled immigrants annually, down from about 107,000 prior. While a large number, it is not enough to fuel the U.S. workforce demands. To put it into perspective, Canada attracted 56,000, Australia 20,000, and even tiny New Zealand managed to get 10,000.

The U.S. has had a confused approach to immigration and has done little to shift the balance towards attracting high-skilled talent. As a consequence, barely 22% of immigrants are high-skilled workers. Other countries typically seek to have the highly skilled workers comprise 50 percent or more of total permanent immigration. As a reference point, the most recent figure for Australia was 65 percent.

The Myths Surrounding Immigrant Labor

A big reason for lack of progress on changing immigration policies has to do with misinformation and myths surrounding immigrant labor. Special interest groups are motivated to prevent immigration for a number of selfish reasons. This protectionism prevents needed talent from entering the country.

What doesn’t get mentioned is the fact that immigrant workers make up less than 5% of the U.S. high-skilled workforce; in fields like IT, unemployment averages about 3% and wage growth has been consistent at about 3.9%. In fields like architecture and certain types of engineering, unemployment has averaged less than 2%.

These numbers undermine any claims that immigrant workers have negatively impacted employment or wages. The reasons a particular individual, despite being seemingly qualified, is struggling in finding employment is usually not because of a conspiracy among employers - it could be a case of misplaced expectations, a mismatch between the person’s skills and available jobs, an industry downturn, or just an ability to interview well.

For example, there are many extremely talented and highly qualified automotive engineers in Detroit who are out of work. This is not because their jobs were filled by lower-paid immigrants, but rather because their industry is in a tailspin, and they don’t have any other local employment options. The corollary to this example is at the low-end of the workforce where we are currently reinforcing an enormous (and expensive) fence along our border with Mexico to keep out migrant workers who enter the U.S. at great personal risk to do backbreaking and menial work that no Americans are willing to do.

Impact on Students

It isn’t just in attracting high-skilled immigrants that we’re losing out to other countries. The ability of the United States to attract foreign students is also deteriorating. The flow of students declined by about 70,000 per year after 2001, or some 25 percent, and rose elsewhere - in Australia, New Zealand, the U.K., and Canada. And this is likely to worsen as more countries wake up to the issue and decide to enter the fight.

One thing is certain, the U.S. is not the only country that needs talent to grow and innovate. The first order of business is for the U.S. to develop a coherent national policy in regards to talent. We need to develop more of our own via improved professional and skill-trades education, and we need to attract more highly-skilled immigrants.

Next, industry demands for more H-1B visas and green cards should be correlated with actual needs. That way we can be sure these talent gaps will be actively managed and matched by the U.S. government.

Ultimately, U.S. industry needs to face up to the challenge. There are many opportunities to redeploy talent (for example, re-training unemployed automotive engineers to work on green technology). There are also a large number of highly educated and skilled knowledge workers who desire greater flexibility in their work life, and still others who want to work part-time in retirement. There are also rapidly evolving talent-deployment models (like M Squared Consulting) that allow organizations to instantly access targeted expertise on a project basis rather than recruiting for full-time positions.

The Council of Institutional Investors (CII) is a nonprofit association comprised of public, union and corporate pension funds with combined assets that exceed $3 trillion. The member funds are major long-term shareowners with a duty to protect the retirement assets of millions of American workers.

The Council strives to educate its members and the public about good corporate governance, shareowner rights and related investment issues, and to advocate on its members’ behalf. As part of this mission they recently issued a statement regarding IFRS (International Financial Reporting Standards).

The Council of Institutional Investors shares the Securities and Exchange Commission’s (SEC) goal of a single set of globally recognized high quality financial reporting standards that meet the needs of all investors. But it is unclear whether the SEC’s proposal to switch from U.S. accounting standards to international standards starting in 2014 will achieve that goal. Many complex issues must be carefully evaluated and resolved as part of this momentous change in U.S. financial accounting and reporting.

“The Council supports continued cooperation between U.S. and international accounting standards setters to work toward convergence to a single set of high quality financial reporting standards that investors can rely on,” said Jeff Mahoney, CII’s general counsel. “We urge the SEC to make the switch when, and only when, international standards meet or exceed the high level of investor protection that current U.S. standards afford.”

The Council urges the SEC to ensure that there is a consensus among investors that the following milestones have been met before the commission replaces U.S. Generally Acceptable Accounting Principles (GAAP) with International Financial Reporting Standards (IFRS) as the lingua franca of financial statements:

• Information generated from the application of IFRS is at least as useful as that produced via GAAP.
• The application, auditing and enforcement of IFRS by U.S. companies, auditors and the SEC, respectively, are at least as rigorous and consistent as the application, auditing and enforcement of GAAP.
• The international standard setter is independent: It does not depend on voluntary contributions from companies or audit firms; has a full-time board and staff of experts; and its technical accounting decisions cannot be overridden by national or political bodies.
• The views and needs of investors are paramount to the international standards setter.
• The international standards setter has significant investor representation.

Nobody said this was going to be easy!

This much is clear: the issue of IFRS adoption is slowly gathering momentum and most of the commentary is positive. However, as this position statement by CII makes clear, there are many issues yet to be resolved. There is no question that as the regulatory agencies continue to define it and as U.S. companies begin to digest it, IFRS will drive a significant portion of the management consulting industry for years to come.