Factor Mobility Theory in Information Technology Industry

Presented By :Bhuvan Chugh Aman chauhan Manoj kumar Jai krishna Sneha gupta Abhishek Bhandari Mayank shukla sumiti saurav

Factor Mobility
Factor mobility refers to the ability to move factors of production - labor, capital or land - out of one production process into another.

Advantages of Factor Mobility

Free factor mobility equalizes commodity prices even if no trade is allowed. More labour intensive firms. Immigrants bring human capital, thus adding to the base of a countrys skills and enabling competition in new areas. Likewise, inflows of capital to those same countries can be used to develop infrastructure and natural and other acquired advantages, thus enabling increased participation in the international trade arena.

Disadvantages of Factor Mobility

Countries lose potentially productive resources when educated people leave, a situation known as brain drain, but they may in turn gain from the remittances that citizens who are working abroad send home. Instability and great income inequality. Liable to lead to allocative and productive inefficiency due to lack of competition. No incentive for firms or individuals to be innovative; lack of profit motive; goods of poor quality and limited choice.

Types of Factor Mobility

Factor Mobility : between firms within an industry Example: When one steel plant closes but sells its production equipment to another steel firm. Factor Mobility : across industries within a country Example: When a worker leaves employment at a textile firm and begins work at a automobile factory. Factor Mobility : between countries either within industries or across industries Example: When a farm worker migrates to another country or when a factory is moved abroad.

Two forms of international factor mobility (IFM)

LABOR: worker migration (from low wage countries (developing countries) to high wage countries (developed countries).
CAPITAL: capital investment tend to flow from low to high return-to-capital countries: ~ FDI (foreign direct investment) long term investment into firms with the aim of permanently benefiting the advantages of being present in the foreign markets (mergers & acquisitions), ~ PI (portfolio investment) short term capital investment with the aim of maximizing the return-to-capital (financial investments).

Theory of Absolute Advantage

Theory of Comparative Advantage

PORTER DIAMOND ANALYSIS

Demand conditions Factor conditions

Porter Diamond Related and supporting industries

Firm strategy, structure and rivalry

We can use the porters diamond model to show the rise of Indian IT/BPO industry:
Demand Conditions : There has been a great demand from the US and other countries in the west for IT products and services in India. One of the reasons was the low cost of the same. We have a high availability of inexpensive and skilled labour force which has contributed to the growth of IT/BPO sector in India. Factor Conditions: The factor conditions in India have been favorable for the rise of the IT/BPO industry. Presence of skilled workforce and software professionals along with moderate capital requirement and operational cost has been an advantage for the industry. There has been great emphasis on engineering education in India. This has contributed a large number of IT professionals in India.

Related and supporting Industries: India has benefited from the excellent satellite connectivity and presence of telecom infrastructure. Internet penetration and usage has increased a lot in the past decade. All these have contributed to the growth of the industry.

 Firm strategy, structure and rivalry : Due to liberalized government

policies, entry barriers are almost nil in the software industry. This has lead to increase in number of firms working in this field. Increasing large number of IT/BPO companies are present in the market and thus make the market competitive.

Q.1 What is Indias competitive advantage in services?

The factors which contribute to Indias competitive advantage are:

Inexpensive Labor Highly skilled Workforce Acceptance of English among working class. High level of Importance given to Education Giant International Market Low political Risk Innovation and knowledge management Presence of cluster in Bangalore, Hyderabad , etc. Entrepreneurial skills

For the IT industry in Particular, India has competitive edge because of following factors :

Abundant, skilled , English speaking manpower. High- end telecom and Infrastructure which is at par with the global standards. A friendly tax structure. Proactive and positive policy environment 24 * 7 services

Q .2 What are the factor conditions in Latin America?

Latin America : An outsourcing destination

Many leading IT/BPOs venders such as TCS, Infosys, Wipro and Satyam are consolidating their operations in Latin America. Latin America has a large, established domestic consumer market. Offers good supply of skilled resources

A sophisticated BPO sector has already been serving variety of industries as financial services, retail and manufacturing.

 GDP exceeding expectation High opportunities Language Capabilities.

The factor conditions in Latin America are as follows:1. Land- Comparatively low real estate rate making it attractive, cost wise. 2. Labour /Human Resource : - Young population ( between 15-39) - Low wage rate - Higher unemployment and lower attrition - Available workforce

3. Capital - Not very mobile - Level of consumer Debt among the Latin American middle class is much less than that of developed countries. - Banking system can be regarded stronger and more stable
4. Infrastructure - Favorable Real estate rates - Brazil, Argentina and Uruguay have worked towards developing their infrastructure such as roads, electricity, etc.

5. Level of Technology Use of technology and scientific research is not very advanced. 6. Education Secondary school and higher education enrollment, technical education are major weaknesses. 7. Location - Less Travel time for U.S based clients - Similar Time zones - Quicker Implementation - Higher control over operations by clients - Ability to provider services in real time 8. Culture - cultural similarities - physical proximity - cultural values closely resemble - easier for customers to adapt to social environment of Latin America

Some other reasons for shift to Latin America

Similar time zones : Helps in easy and any time communication due to the same time schedule.

Attrition: Higher unemployment and lower attrition. Annual attrition rate in Latin America ranges from 15%-35% which is comparatively lower than in India. Regional stability : Political and Economic stability in countries like Argentina, Colombia, Chile.

Latin Americas Advantages over India (Asia)

Labor pool (quality and quantitative labor): knowledge full expertise. Cost attractiveness

Government policies (stability factor)

IT Infrastructure

Q.3 How are Indian IT companies leveraging factor conditions in Latin America?

1. Lower cost of operations 2. Low attrition rate reduces cost of hiring and training new employees. 3. Regional stability 4. Availability of skilled, technical and scientific manpower at lower rate. 5. Real time service to American clients 6. Time zone advantage

Thank You