Carpe Diem

Deloitte Report: Outsourcing Provides 25% ROI

While outsourcing is generally recognized as a strategy for producing cost savings, few surveys to date have utilized a large enough sample of respondents to provide an accurate estimate of the actual amount of these savings. Deloitte Consulting has attempted to overcome this by surveying a group of 300 executives who are actually involved with outsourcing services worldwide.

Our findings were striking — fully 83% of all respondents reported that their projects had met their ROI goals of slightly above 25%! Despite this apparently positive result we believe that the true potential of outsourcing is still not being fully achieved, hence the title of our report, “Why Settle For Less?

Carpe Diem

Ignore the Obituaries, The U.S. Reign Will Endure

The U.S. economy continues to be positively awe-inspiring compared with the competition. The value of U.S. imports in 2006 was roughly the same as the entire GDP of France. The U.S. is the world’s largest exporter; indeed, if all U.S. exporters seceded from the country, they would have the eighth-largest GDP in the world, larger than the entire economy of Canada.

The economy of Brazil is about the size of the economy of Texas (see map above, click to enlarge). The economy of India is about the size of the economy of America’s Plains states. The economy of Venezuela is about the size of the economy of Alabama.

The U.S. share of the value of global-equity trading is more than 40%. The total value of trading on the New York Stock Exchange in 2006 was greater than all of Europe’s combined. While the Sarbanes-Oxley corporate-governance law may have made the U.S. a less-attractive locale for new issues, the NYSE was still the world leader in total new capital raised in 2006.

Foreign Capital Magnet

The U.S. is still the place that foreign capital wants to be and is the largest receiver of foreign direct investment. Nine of the top 50 transnational financial corporations are American, including the top two (Citigroup Inc. and General Electric Capital Corp.). Thirteen of the top 50 non-financial transnational corporations are American, including four of the top eight: General Electric, General Motors Corp., Exxon Mobil Corp. and Ford Motor Co.

From a
Bloomberg commentary by Kevin Hassett
Carpe Diem

Government’s Role in the Housing Problem

Thomas Sowell, on the subprime credit crisis:

The government has brought on the housing problem, partly by highly restrictive building policies, which have caused housing prices to skyrocket artificially.

From today’s Seattle Times, confirmation of Sowell’s point:

An intriguing new analysis by a University of Washington economics professor argues that home prices have, perhaps inadvertently, been driven up $200,000 by good intentions.

Between 1989 and 2006, the median inflation-adjusted price of a Seattle house rose from $221,000 to $447,800. Fully $200,000 of that increase was the result of land-use regulations, says Theo Eicher — twice the financial impact that regulation has had on other major U.S. cities.

Bottom Line: Of the $226,800 increase in Seattle house prices from 1989 and 2006, $200,000, or 88%, of the increase was the result of land-use regulation (see chart above, click to enlarge).

Carpe Diem

Econ Lightened Up: We’re All Freakonomists Now

Until recently economics was considered a subject without much popular appeal, but a new generation of economists has dragged into the heart of our messy everyday lives.

Tim Harford’s “Logic of Life: Uncovering the New Economics of Everything” is the latest addition to the growing body of work attempting to popularize the subject of economics. Read more here.

Also recommended:

Discover Your Inner Economist: Use Incentives to Fall in Love, Survive Your Next Meeting, and Motivate Your Dentist, by Tyler Cowen

Armchair Economist: Economics & Everyday Life, by Steven E. Landsburg

Freakonomics: A Rogue Economist Explores the Hidden Side of Everything, Steven Levitt and Stephen Dubner

Carpe Diem

Real Retail Sales Suggest Slowdown, Not Recession

The chart above shows the 6-month moving average of the series for real retail sales, adjusted for inflation by the St. Louis Federal Reserve using the CPI, through December 2007. Several comments on this recent CD post mentioned that retail sales were not adjusted for inflation, and the graph above is in response to those comments.

1. Note that the CPI for January won’t be released for another week, so it won’t be possible to adjust January retail sales until then. But the strong January increase in retail sales following a decline in December suggests that real retail sales in January will probably look good, unless inflation comes in much higher than expected.

2. Note also that real retail sales were negative during the last recession. Although real retail sales growth of +1% at the end of 2007 certainly suggests an economic slowdown, it wouldn’t signal a recession unless, and until real retail sales growth approaches zero or went negative.

Carpe Diem

Legal Process Outsourcing: Savings Up to 70%

Financial Post: Billable-hour rates for lawyers are skyrocketing.

One U.S. firm recently broke the sacrosanct $1,000-per-hour barrier and it can cost anywhere from $500 to $800 an hour for top Canadian legal talent. Salaries of associates and student interns — those who do the legal grunt work — are escalating, hitting $100,000 and up.

Solution? “Legal Process Outsourcing” (LPO) to India.

A 1,500-hour project would costs $375,000 if carried out in Canada or the U.S. by a $250-an-hour junior lawyer. In India, the same job would be $50 an hour for a total project cost of $75,000 –a savings of $300,000. Estimates of the savings from LPO range from 30% to 70%.

Common LPO activities in India include litigation and corporate commercial services including legal research, document review and drafting, contract management, lease abstracting, and due diligence. The 10-hour time difference means lawyers can leave their office at night and return to a finished memorandum the next morning.

Employment in LPOs is projected to grow to 32,000 next year, 40,000 by 2010, and 82,000 by 2015, according to a new survey.

Carpe Diem

Trade Deficit Down, QIV GDP May Double to 1.1%

NEW YORK (CNNMoney.com) — The gap between the nation’s imports and exports narrowed in December, according to a government report today, leaving the gap for the year sharply lower and ending a five-year streak of record annual trade deficits (see chart above).

A weak dollar during the year lifted exports, which allowed the 2007 trade gap to narrow by 6.2% to $711.6 billion, even as imports continued to increase due to the record price for oil imports during the year.

WASHINGTON (AP) — Ian Shepherdson, chief U.S. economist at High Frequency Economics, said that the smaller December trade deficit will help to boost overall economic growth from the final three months of last year from the initial estimate of a mere 0.6% expansion. He predicted trade and a better reading on inventory stockpiles would boost growth in the gross domestic product to 1.1% when the figure gets revised later this month.