Good Economics?

Addressing International Business During the Current Financial Situation

November 3, 2009

By Pamela McLaren

As director of the Center for the Study of Emerging Financial Markets and a professional member of the International Association of Outsourcing Professionals, Joseph Greco keeps a close watch on the global situation as it affects trade, business development and opportunities for outsourcing. He recently discussed the current global economic situation and what it means for American businesses.

Q. How has the current worldwide economic situation affected international trade and businesses entering this field?

For the U.S., the year 2008 for foreign trade was one of the slowest over the last 20 years and 2009 is not expected to be any better according to the International Monetary Fund. On the bright side, the depreciation of the U.S. dollar has given foreign buyers of U.S. exports more purchasing power. As a consequence, U.S. exports are enjoying record levels of sales worldwide. This presents a golden opportunity for small firms who want to export U.S. goods.

Q. How has the current economic situation affected outsourcing offshore?

Because profit margins have been squeezed as a result of a decline in global demand, U.S. firms are finding that offshore outsourcing is more relevant than ever. In many cases, firms must outsource to keep up with their competitors who already are doing so. As for outsourcing professionals, they are finding their long-term contracts of 10 to 15 years have contracted to 3- to 5-year terms as client firms seek the best bargains.

Q. Is the situation and its effects better or worse for American companies vs. companies in Europe or Asia operating in the global arena?

According to Tom Friedman, the author of “The World is Flat,” globalization has increased its intensity over the last 10 years and it’s not confined to any region — not Asia, North America nor Europe. We have witnessed a truly global recession that has been significant in its impact everywhere with the exception of China (See related story, Outsourcing to China).

Q. Certain factors recently have shown that things like unemployment and falling housing prices may be leveling out. Do you see anything like that happening now for international trade and outsourcing?

Let’s take international trade first. Reports from major shipping lines such as Maersk report an upswing in sales for the second quarter of this year. That’s the good news. Estimates for the third quarter were not as good, but leading authorities, such as the International Monetary Fund, forecast a positive increase overall for trade figures in 2010.

As for outsourcing offshore, there has been a steadily growing trend, accelerated by the economic slowdown, to outsource business processes that would have been unheard of 10 years ago. China is still king of the manufacturing business process, but outsourcing offshore, and not necessarily to China, has grown in other business processes such as accounting, call centers, human resources and knowledge processes. More and more, we are seeing specific forms of knowledge processes going offshore, such as the conversion of two-dimensional blueprints into three-dimensional computer files. Lately, legal process outsourcing has exploded as processing centers for scanning legal forms for completeness, accuracy and key words have been created in India and elsewhere.

Q. Do you expect it to get better within the next year?

Yes. It may be a gradual return to previous levels found in 2006, but I firmly believe the global economy will rebound, led by the U.S., as well as the Chinese, economy. Remember, the Chinese government threw billions of stimulus dollars into its economy to pick up the slack left by a decline in foreign manufacturing orders. As a result, China is enjoying the highest GDP growth this past year (8 percent) found anywhere in the world and is on target to continue the same strong growth for 2009.