The world’s factory might swallow your job too

Over the weekend I sat with a friend who works as a carpenter, and he told me an interesting story. It has a direct parallel in IT.

… Look at that piece over there. I needed bearings for it. Guess what one bearing costs. No idea? Listen. A Swedish bearing would have cost me eighty crowns. A Czech one would have cost forty. I bought a Chinese one that came to five crowns with a bulk discount. How could I pass that up when I needed five hundred?

China is known as the world’s low-cost factory, able to make practically anything very cheaply. Now it’s also an attractive destination for IT outsourcing. China means more than a cheap, readily available workforce. It means a cheap, available and fairly skilled one.

What might that mean for us? One fine day the boss could turn up at our desks and tell us bluntly, “Franta, Pepa, Jarda, we’re done here. Development is going to China. Find yourselves another job.” China isn’t the only threat, of course. Other fast-moving countries in the region include India and Vietnam.

Here are a few things you might not know about China.

Pay for technicians and engineers in China is rising at the same rate as it did in the US during the dot-com boom. That is surely one reason why far fewer Chinese specialists leave for better opportunities in the US or elsewhere. Foreign companies find it worthwhile to move manufacturing and R&D to China or India, hire locally and offer steadily improving conditions. Even with rising pay, local employees remain attractive to foreign companies because pension and health insurance costs are lower in Asian countries as well.

China spent 1.31 percent of GDP on science and research in 2003. The substantial progress in the past year suggests it will probably reach 2.2 percent by the end of this decade. By comparison, next year’s Czech budget (2006) expects research and development spending of just 0.6 percent of GDP.

China has overtaken most new EU member states in total research and development spending. It has even overtaken the EU as a whole in the share of that spending coming from the business sector.

Three hundred million Chinese people are younger than fourteen. Universities also turn out millions of graduates each year. There were three million last year alone, compared with about 1.9 million in the US. All of them need work, so the number of new jobs is also rising quickly, by eight million a year.

Put plainly, Europe is losing its ability to compete with the “world’s factory.” It’s already fairly common for IT companies to outsource to China. US IT workers were the first to feel the impact. It’s interesting to see outsourcing change what’s expected of IT specialists.

… Demand is shifting from purely technical knowledge to a wider range of skills, from management, business and finance to communication, especially negotiation. Forrester Research therefore expects European companies to invest more in training in these areas over the next two years.

Thinking it through, I see several factors that will determine our competitiveness. First, can we get used to learning throughout our lives? Each of us can influence that directly. Second, will employer contributions come down? Third, will investment in science, research and education rise sharply?

Sources

• Lupa.cz — IT Professionals Will Be in Demand (Again)
• Lupa.cz — China, Europe and Competitiveness
• Lupa.cz — Looking East