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Indian engineers work a 35-hour services, albeit with poorer-quality research and development laboratory day.” Forty-hour workweeks are outcomes. Hence it is common for work are being transferred to Asian common in many parts of Asia, and the well-known Indian outsourcers, head offices. This provides the benefit coupled with an expectation to work for example, to themselves outsource of large-scale work, but more impor- late, the average employee in these their own work. tantly has the advantage of shifting companies puts in 55 to 60 hours Building on those cost advantages, work to low-cost sites. To illustrate the every week. (The Western norm is a many Asian companies will use some of benefits, consider the Asian-owned 35-hour workweek.) The concept of the following tactics to achieve success: chemicals manufacturer that used work-life balance and the accompa- ❙ Outsource technology to provide access to its nying angst is a relatively unknown ❙ Contract with Asian head office business analytics team, phenomenon in many parts of Asia. branches of vendors weekly sales, operations and manu- In addition to the differential in ❙ Send Asian headquarters’ staff facturing production data of its U.S. work hours, the wage gap provides on project assignments plants. The head office analytics team a cost advantage for many Asian ❙ Use the Jugaad management was able to develop a much-needed employers. Although Asian salaries style — an improvisational style sales and operations plan at one-third have grown rapidly in the past of innovation driven by scarce of the cost quoted by its U.S. subsid- decade, the gap is still large at middle resources and attention to a iary. And by throwing more low-cost management and below. For example, customer’s immediate needs resources at the project, the delivery a data entry operator’s fully loaded ❙ Use reverse innovation. timeline was shortened to three weeks salary in India is $4,000 annually compared to the planned 12 weeks. compared to a similar role in the Outsource Figure 1 shows labor arbitrage United States at $30,000 annually. Upon acquiring Western companies, (difference in labor costs) generally For specialized roles like a computer many Asian owners will rapidly ranges from 50 percent (through a programmer the cost differential is assess work that can be centralized supplier given a tightly negotiated approximately 10 times. Many Asian at the head office. Work that is not contract) to 65 percent (through a companies will aggressively increase required to be done physically in captive operation). Savings are lower this cost gap by outsourcing their the West such as payroll, HR and if the operation that is offshore was own project-based work to bottom- finance administration, accounts originally located in a low-cost region feeder companies in Asia — these are payable/receivable, customer service like Canada or the U.S. Midwest. companies that aggressively strip out centers, call centers and IT support costs in terms of real estate, training, are obvious candidates. As many of Contract with Asian technology and employee benefits the Asian labor markets have matured Branches of Vendors and offer only project-based pay. and technology has improved, more Some of the large costs businesses Operating with razor-thin margins, intelligent tasks like regulatory filings, incur are for management informa- these companies offer low-cost legal analysis, business analytics, and tion systems. By contracting for these systems at the vendors’ Asian branches, some Asian companies Figure 1 | Savings Achieved Across 24 Offshore Case Studies shave off up to 75 percent of the cost. This figure shows the percentage of cost savings achieved by 24 offshore cases in 2004 after The vendors are able to provide these accounting for all direct and indirect costs including implementation. cost savings since they are competing in markets that need a lower price 10 level, and their labor costs are signifi- cantly lower than what their own Western head offices can afford. 7 Send Asian HQ Staff on Project Assignments Given the abundant supply of educated 3 3 candidates and the lower wages, it is easier for some Asian companies to 1 send their home-country headquarters’ 20-29 30-39 40-49 50-59 60+ staff on short- or long-duration project assignments. In the short-duration Source: Everest survey of 25 leading suppliers. assignments of up to 12 months, the employees continue to be paid in30 | workspan may 2011
using the their home countries at the low salary levels while staying economically in Use Reverse Innovation According to an October 2009 article groups at company-rented apartments. in the Harvard Business Review, Asianinherent Such employees come on visitor- or business-meeting visas to the United companies engage in the practice of translating innovations created for theJugaad style, States, Canada and Europe. For assignments longer than a year, developing world to the industrialized world, dubbed “reverse innovation” by some Asian companies apply for General Electric CEO Jeffrey Immelt.employees nonimmigrant visas even if similarly skilled talent is available locally. To illustrate, consider the inexorable rise in Western health-care costs andactively They get employees who are used to thinking and operating in a low-cost its negative impact on employees, companies and government expen- methodology, working longer hours, ditures. At a macro level, this sectorlook for and who have fewer demands on work-life balance and compensa- provides tremendous opportunities for reverse innovation. In May 2009,opportunities tion issues, provide HQ insight into the subsidiaries operations and are General Electric announced that during the next six years it would deeply obliged to the employer for spend $3 billion to create at least 100to cut corners the opportunity to work in the West and the future potential to grow and health-care innovations that would substantially lower costs, increaseon time return to their home country. access and improve quality. Two prod- ucts it highlighted at the time — a Follow Jugaad $1,000 handheld electrocardiogramand cost in Management Style The Hindi term Jugaad roughly trans- (ECG) device and a portable PC-based ultrasound machine that sells for asevery project lates as “overcoming harsh constraints by improvising an effective solution little as $15,000 — are revolutionary, and not just because of their small using limited resources.” Writing in size and low price. They’re alsoimplementation the Harvard Business Review, authors Navi Radjou, Jaideep Prabhu and extraordinary because they origi- nally were developed for markets inand task Simone Ahuja note that this spirit is alive and kicking in fast-growing emerging economies (the ECG device for rural India and the ultrasound emerging economies like India, China, machine for rural China) and areexecution. Brazil and South Africa. Using the inherent Jugaad style, now being sold in the United States. A January 2011 Globe & Mail employees actively look for oppor- article discussed the opportunity tunities to cut corners on time and to learn from the developing world cost in every project implementa- to decrease health costs in the tion and task execution, improving developed world. This benefit was productivity at their plants and in highlighted by Princeton University their office operations. With what economist Uwe Reinhardt and former can be viewed as lax internal and British National Health Service CEO external enforcement of regulations in Nigel Crisp. For example, during the some parts of Asia, cutting corners in past 20 years, Aravind Eye Hospital practice contrary to the documented in India has performed more than process is easy. For example, it is 3 million cataract surgeries. It has a not uncommon for IT departments in staff of 3,000, with 200 eye surgeons India to replace employee computers each performing 2,500 procedures a only when they fail and not based on year. Aravind developed an inexpen- their documented policy of a three- sive ocular lens for the procedure, year replacement. (Sometimes there is and surgeons can go from patient an audit, ethical, long-term health and to patient much quicker because safety or environmental downside to those patients have been prepared these actions, but such a discussion for surgery by other team members. falls outside the scope of this article.) At a total of 300,000 cataracts a year, may 2011 workspan | 31
Aravind performs about as many ❙ Challenge your vendors to find cataract surgeries as are done in all solutions to reduce costs. Go to of Canada, at a cost of $80 compared the market to find alternate options to $700 in Canada. In a comparison Avoid so you can negotiate better. And with Britain, Aravind’s costs were remember, the market is global just 1 percent of the total British costs knee-jerk like your competition is global. for cataract surgery, and its clinical outcomes were comparable or better. reactions of Conclusion Other examples of game-changing In a global business world, the Asian innovations from India include a layoff and hiring, competition is next door. Learning psoriasis treatment (price reduction: what helps these employers succeed from $20,000 to $100), the Jaipur which typify will help you prepare your company prosthetic foot (from $12,000 to $28) to compete. To paraphrase Sun and the hepatitis vaccine (from $20 a boom-bust Tzu, Know Your Competition. Many to less than $1). Asian companies have a hunger for cycle, erode growth and their acquisition spree Taking Action at Your Company in recent times shows that they have How can your business improve and employee loyalty the resources to fulfill their dreams. better compete against some of the Western expectations of work-life distinct advantages and approaches and impact balance, pay, benefits and work highlighted above? A number of environment reflect our aspirations for companies headquartered in the the quality a better life, but we should not lose West have already implemented sight of the need to compete globally. some of these approaches, such as of products Trade and brand barriers are not long- outsourcing and off shoring their term solutions. Western companies can transactional work and instead and customer continue to build on their strengths focusing on cutting-edge technology of innovation in new products, and innovating new products/ service. processes and technologies, produc- processes in the West. In addition, tivity improvement and removing HR leaders can help create and foster unnecessary costs. In all these areas, a culture focused on winning by HR leaders have the opportunity to taking the following actions: ❙ Keep costs competitive by building initiate, enable and support through ❙ Educate the workforce on global a structured and fair pay and their practices and programs and competition and its impact on the benefits programs. In examining become true business partners. company’s future. Encourage greater compensation costs, look at your focus on improving productivity national and global competition and Rajiv Burman is a senior strategic HR consul- through higher performance in the impact of labor costs on your tant and has more than 20 years experience in all HR programs: hiring, training, company’s products and profitability. HR leadership roles in a number of global multi- pay, incentives and recognition. ❙ Sustain the company by building nationals in North America and Asia. He can be Create a sense of urgency. a long-term focus, loyalty to the reached at firstname.lastname@example.org. ❙ Implement programs such as Kaizen, company and its mission. Avoid Total Quality, Continuous Improve- knee-jerk reactions of layoff and Web Extra For more information about ment, Lean Manufacturing and Six hiring, which typify a boom-bust the Jugaad management style, log on to Sigma. Engage the entire work- cycle, erode employee loyalty www.worldatwork.org/workspan and click force, rather than the management and impact the quality of prod- on Web Extra. group alone, in solving problems, ucts and customer service. reducing costs and improving ❙ Eliminate waste in processes productivity. Celebrate employee and inefficiencies. Revise the resources plus engagement and teamwork. focus from wealth creation for For more information, books and ❙ Improve retention by involving a few to building a sustainable education related to this topic, log on to www.worldatwork.org and employees through clarity on company and community. use any or all of these keywords: the company’s mission, vision ❙ Engage with the government to ❙❙ Global + competition and values, supporting informal identify skill upgrade programs ❙❙ Productivity relationships and investing in and incentives for research and ❙❙ Cost reduction. their long-term careers. development and training.32 | workspan may 2011