Outsourcing: Solution Or Threat

August 20, 2004
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GRAND RAPIDS — Grand Rapids Business Journal partnered with Crain’s Detroit Business and the Michigan Chamber of Commerce during late July and early August to produce an online survey on the effects and perceptions of outsourcing.

Nationwide, the debate over outsourcing American jobs continues to grow. Historically, Michigan has been one of the country’s strongest exporters of industrial goods. Because of the state’s large capacity to export goods, the issue of outsourcing is especially controversial.

Statewide, roughly 50 percent of the participants fell into the CIO, CFO or CEO category, primarily representing the manufacturing, services and technology industries. Approximately 65 percent of respondents perceived outsourcing to be taking place “a lot more” than media or business people believe it is. Fifty-three percent of the companies indicated they outsource either outside of Michigan or outside of the United States. On average, 32 percent of companies outsource outside of Michigan, and 21 percent outsource outside of the country.

The decision to outsource for products and services outside of Michigan and the United States is mostly driven by costs, followed by qualified products and services that are available only outside of Michigan. Southeast Michigan companies were especially keen to name cost issues. Manufacturing and information technology were the most widely contracted services, with customer service the third most commonly contracted service. Accounting and sales were outsourced at minimal levels.

The effect of outsourcing on staff layoffs varied by region. Just over 30 percent of Southeast Michigan employers have laid off workers due to their competitors’ use of outsourcing, while only 9 percent of West Michigan employers had done so. Business leaders across the state agreed that Germany and Japan export the best products and services.

In West Michigan, outsourcing appeared to be less of a threat across the board. Only 43 percent of respondents outsource outside of Michigan or the United States combined, 10 percent less than the state, while the difference between the region and the state in the effect of outsourcing on layoffs differed by 21 percent. Only 14 percent of the companies that outsource say they experienced savings of over $90,000, while the bulk of the other respondents that outsourced reported savings of less than $20,000 — 7 percent reporting savings of $10,000 to $20,000, and 12 percent reporting $5,000 to $10,000.

Over 300 executives participated in the survey, primarily from West, Central and Southeast Michigan. There were 58 respondents from West Michigan. Strict scientific procedures were not adhered to in this survey. It is the first of a series of four surveys the Michigan Chamber of Commerce will use in its Michigan Chamber Foundation Future Forum on Sept. 16 and 17.

“This surveying process is to collect the economic wisdom of West Michigan and to take that wisdom and make it a discussion at this fall’s Michigan Chamber Future Forum,” said Joe Ross, director of communications and research for the Michigan Chamber Foundation.

Other surveys in the series include “Taking Control of Health Care Costs,” “Attracting Workers to Michigan: A City & Region Perspective” and “Workforce Trends: Competing for Jobs and Workers in the Global Economy.” The next two surveys are currently active, while the final survey will be released next week.    

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