Flattener #6, Offshoring
Either you get flat or you'll be flattened by China . . .
I don't know how many Chinese actually ever bought a copy of Mao's Little Red Book, but U.S. embassy officials in China told me that 2 million copies of the Chinese-language edition of the [World Trade Organization] rule book were sold in the weeks immediately after China signed on to the WTO.
[Excerpt from The World Is Flat, Chapter 2, "The Ten Forces That Flattened the World", p. 114 ff.]
China's joining the WTO [World Trade Organization] gave a huge boost to another form of collaboration - offshoring. Offshoring, which has been around for decades, is different from outsourcing. Outsourcing means taking some specific, but limited, function that your company was doing in-house - such as research, call centers, or accounts receivable - and having another company perform that exact same function for you and then reintegrating their work back into your overall operation. Offshoring, by contrast, is when a company takes one of its factories that it is operating in Canton, Ohio, and moves the whole factory offshore to Canton, China. There, it produces the very same product in the very same way, only with cheaper labor, lower taxes, subsidized energy, and lower health-care costs. Just as Y2K took India and the world to a whole new level of outsourcing, China's joining the WTO took Beijing and the world to a whole new level of offshoring - with more companies shifting production offshore and then integrating it into their global supply chains . . .
By joining the World Trade Organization in 2001, China assured foreign companies that if they shifted factories offshore to China, they would be protected by international law and standard business practices. This greatly enhanced China's attractiveness as a manufacturing platform . . .
I don't know how many Chinese actually ever bought a copy of Mao's Little Red Book, but U.S. embassy officials in China told me that 2 million copies of the Chinese-language edition of the WTO rule book were sold in the weeks immediately after China signed on to the WTO . . .
Here we get to the real flattening aspect of China's opening to the world market. The more attractive China makes itself as a base for offshoring, the more attractive other developed and developing countries competing with it, like Malaysia, Thailand, Ireland, Mexico, Brazil, and Vietnam, have to make themselves . . . This has created a process of competitive flattening, in which countries scramble to see who can give companies the best tax breaks, education incentives, and subsidies, on top of their cheap labor, to encourage offshoring to their shores.
Critics of China's business practices say that its size and economic power mean that it will soon be setting the global floor not only for low wages but also for lax labor laws and workplace standards . . .
But what is really scary is that China is not attracting so much global investment by simply racing everyone to the bottom. That is just a short-term strategy . . .
China's real long-term strategy is to outrace America and the E.U. countries to the top, and the Chinese are off to a good start. China's leaders are much more focused than many of their Western counterparts on how to train their young people in the math, science, and computer skills required for success in the flat world, how to build a physical and telecom infrastructure that will allow Chinese people to plug and play faster and easier than others, and how to create incentives that will attract global investors . . .
Most companies build offshore factories not simply to obtain cheaper labor for products they want to sell in America or Europe. Another motivation is to serve that foreign market without having to worry about trade barriers and to gain a dominant foothold there - particularly a giant market like China's . . .
. . . Either you get flat or you'll be flattened by China . . .
Over time, adherence to WTO standards will make China's economy even flatter and more of a flattener globally. But this transition will not be easy, and the chances of a political or economic crackup that disrupts or slows this process are not insignificant. But even if China implements all the WTO reforms, it won't be able to rest. It will soon be reaching a point where its ambitions for economic growth will require more political reform. China will never root out corruption without a free press and active civil society institutions. It can never really become efficient without a more codified rule of law. It will never be able to deal with the inevitable downturns in its economy without a more open political system that allows people to vent their grievances. To put it another way, China will never be truly flat until it gets over that huge speed bump called "political reform." . . .
If and when China gets over that political bump in the road, I think it could become not only a bigger platform for offshoring but another free-market version of the United States. While that may seem threatening to some, I think it would be an incredibly positive development for the world. Think about how many new products, ideas, jobs, and consumers arose from Western Europe's and Japan's efforts to become free-market democracies after World War II. The process unleashed an unprecedented period of global prosperity - and the world wasn't even flat then. It had a wall in the middle. If India and china move in that direction, the world will not only become flatter than ever but also, I am convinced, more prosperous than ever. Three United States are better than one, and five would be better than three.
Posted by Martha Rudolph at 05:56 PM | Comments (1)
Flattener #5, Outsourcing - Y2K
For all these reasons I believe that Y2K should be a national holiday in India.
[Excerpt from The World Is Flat, Chapter 2, "The Ten Forces That Flattened the World", p. 108 ff.]
And so with Y2K bearing down on us, America and India started dating, and that relationship became a huge flattener, because it demonstrated to so many different businesses that the combination of the PC, the Internet, and fiber-optic cable had created the possibility of a whole new form of collaboration and horizontal value creation: outsourcing . . . The Indian IT industry got its footprint across the globe because of Y2K . . .
. . . Then the dot-com boom comes along right in the wake of Y2K, and India is one of the few places where you can find surplus English-speaking engineers, at any price, because all of those in America have been scooped up by e-commerce companies. Then the dot-com bubble bursts, the stock market tanks, and the pool of investment capital dries up. American IT companies that survived the boom and venture capital firms that still wanted to fund start-ups had much less cash to spend. Now they needed those Indian engineers not just because there were a lot of them, but precisely because they were low-cost . . .
One of the great mistakes made by many analysts in the early 2000s was conflating the dot-com boom with globalization, suggesting that both were just fads and hot air. When the dot-com bust came along, these same wrongheaded analysts assumed that globalization was over as well. Exactly the opposite was true. The dot-com bubble was only one aspect of globalization, and when it imploded, rather than imploding globalization, it actually turbocharged it . . .
. . . So the Indians, who were doing a lot of very specific custom code maintenance to higher-value-added companies, started to develop their own products and transform themselves from maintenance to product companies, offering a range of software services and consulting. This took Indian companies much deeper inside American ones, and business-process outsourcing - letting Indians run your back room - went to a whole new level . . .
For all these reasons I believe that Y2K should be a national holiday in India.
Posted by Martha Rudolph at 05:52 PM
Flattener #4, Open-Sourcing -- The Free Software Movement
Some zealots even argue that the open-source approach represents a new, post-capitalist model of production.
[Excerpt from The World Is Flat, Chapter 2, "The Ten Forces That Flattened the World", p. 96 ff.]
. . . If everyone contributes his or her intellectual capital for free, where will the resources for new innovation come from? And won't we end up in endless legal wrangles over which part of any innovation was made by the community for free, and meant to stay that way, and which part was added on by some company for profit and has to be paid for so that the company can make money to dive further innovation? These questions are all triggered by the other increasingly popular form of self-organized collaboration - the free software movement. . .
The free software movement, however, was and remains inspired by the ethical ideal that software should be free and available to all, and it relies on open-source collaboration to help produce the best software possible to be distributed for free. This is a bit different from the approach of the intellectual commons folks, like Apache. They saw open-sourcing as a technically superior means of creating software and other innovations, and while Apache was made available to all for free, it had no problem with commercial software being built on top of it. The Apache group allowed anyone who created a derivative work to own it himself, provided he acknowledge the Apache contribution.
The primary goal of the free software movement, however, is to get as many people as possible writing, improving, and distributing software for free, out of a conviction that this will empower everyone and free individuals from the grip of global corporations. Generally speaking the free software movement structures its licenses so that if your commercial software draws directly from their free software copyright, they want your software to be free too . . .
In 1991, a student at the University of Helsinki named Linus Torvalds . . . posted his Linux operating system to compete with the Microsoft Windows operating system and invited other engineers and geeks online to try to improve it - for free. Since Torvalds's initial post, programmers all over the world have manipulated, added to, expanded, patched, and improved the GNU/Linux operating system, whose license says anyone can download the source code and improve upon it but then must make the upgraded version freely available to everybody else. Torvalds insists that Linux must always be free. Companies that sell software improvements that enhance Linux or adapt it to certain functions have to be very careful not to touch its copyright in their commercial products . . .
The free software movement has become a serious challenge to Microsoft and some other big global software players . . .
It will come as no surprise that Microsoft officials are not believers in the viability or virtues of the free software form of open-source . . .
Microsoft's first point is, How do you push innovation forward if everyone is working for free and giving away their work? . . .
"Microsoft would admit that there are a number of aspects of the open-source movement that are intriguing, particularly around the scale, community collaboration, and communications aspects," said Craig Mundie, the Microsoft chief technology officer. "But we fundamentally believe in a commercial software industry, and some variants of the open-source model attack the economic model that allows companies to build businesses in software. The virtuous cycle of innovation, reward, reinvestment, and more innovation is what has driven all big breakthroughs in our industry. The software business as we have known it is a scale economic business. You spend a ton of money up front to develop a software product, and then the marginal cost of producing each one is very small, but if you sell a lot of them, you make back your investment and then plow profits back into developing the next generation. But when you insist that you cannot charge for software, you can only give it away, you take the software business away from being a scale economic business." . . .
My bottom line is this: Open-source is an important flattener because it makes available for free many tools, from software to encyclopedias, that millions of people around the world would have had to buy in order to use, and because open-source network associations - with their open borders and come-one-come-all approach - can challenge hierarchical structures with a horizontal model of innovation that is clearly working in a growing number of areas. Apache and Linux have each helped to drive down costs of computing and Internet usage in ways that are profoundly flattening. This movement is not going way. Indeed, it may just be getting started - with a huge, growing appetite that could apply to many industries. As The Economist mused (June 10, 2004), "some zealots even argue that the open-source approach represents a new, post-capitalist model of production."
That may prove true. But if it does, then we have some huge global governance issues to sort out over who owns what and how individuals and companies will profit from their creations.
Posted by Martha Rudolph at 05:45 PM
Flattener #4, Open-Sourcing -- IBM and Apache
You have to stop here and imagine this. The world's biggest computer company decided that its engineers could not best the work of ad hoc open-source collection of geeks, so they threw out their own technology.
[Excerpt from The World Is Flat, Chapter 2, "The Ten Forces That Flattened the World", p. 82 ff.]
The word "open-source" comes from the notion that companies or ad hoc groups would make available online the source code -- the underlying programming instructions that make a piece of software work -- and then let anyone who has something to contribute improve it and let millions of others just download it for their own use for free. While commercial software is copyrighted and sold, and companies guard the source code as they would their crown jewels so they can charge money to anyone who wants to use it and thereby generate income to develop new versions, open-source software is shared, constantly improved by its users, and made available for free to anyone. In return, every user who comes up with an improvement -- a patch that makes this software sing or dance better -- is encouraged to make that patch available to every other user for free...
... IBM was trying to sell its own proprietary Web server, called GO, but it gained only a tiny sliver of the market. Apache proved to be both a better technology and free. So IBM eventually decided that if it could not beat Apache, it should join Apache. You have to stop here and imagine this. The world's biggest computer company decided that its engineers could not best the work of ad hoc open-source collection of geeks, so they threw out their own technology and decided to go with the geeks!...
... IBM saw the value in having a standard vanilla Web server architecture -- which allowed heterogeneous computer systems and devices to talk to each other, displaying e-mail and Web pages in a standard format -- that was constantly being improved for free by an open-source community. The Apache collaborators did not set out to make free software. They set out to solve a common problem -- Web serving -- and found that collaborating for free in this open-source manner was the best way to assemble the best brains for the job they needed done...
Today Apache is one of the most successful open-source tools, powering about two-thirds of the Web sites in the world. And because Apache can be downloaded for free anywhere in the world, people from Russia to South Africa to Vietnam use it to create Web sites....
At the time, selling a product built on top of an open-source program was a risky move on IBM's part. To its credit IBM was confident in its ability to keep producing differentiated software applications on top of the Apache vanilla. This model has since been widely adopted, after everyone saw how it propelled IBM's Web server business to commercial leadership in that category of software, generating huge amounts of revenue.
As I repeat often in this book: There is no future in vanilla for most companies in a flat world. A lot of vanilla making in software and other areas is going to shift to open-source communities
The striking thing about the intellectual commons form of open-sourcing is how quickly it has morphed into other spheres and spawned other self-organizing collaborative communities, which are flattening hierarchies in their areas. I see this most vividly in the news profession, where bloggers, one-person online commentators, who often link to one another depending on their ideology, have created a kind of open-source newsroom..."We've got an army of citizen journalists out there."...
Posted by Martha Rudolph at 05:40 PM
Flattener #3, Work Flow Software
Instead of everyone trying to control the fire hydrant nozzle, they made all the nozzles and hoses the same, creating a much bigger market that stretched across every neighborhood of the world. Then companies started to compete instead over the quality of the hose, the pump, and the fire truck. That is, they competed over who could make the most useful and nifty applications.
[Excerpt from The World Is Flat, Chapter 2, "The Ten Forces That Flattened the World", p. 75 ff.]
XML and SOAP created the technical foundation for software program-to-software program interaction, which was the foundation for Web-enabled work flow . . .
Once this technical foundation was in place, more and more people started writing work flow software programs for more and more different tasks . . .
The vast network of underground plumbing that made it possible for all this work to flow has become quite extensive. It includes all the Internet protocols of the previous era, like TCP/IP and others, which made browsing and e-mail and Web sites possible. It includes newer tools, like XML and SOAP, which enabled Web applications to communicate with each other more seamlessly, and it includes software agents known as middleware, which serve as an intermediary between wildly diverse applications. The nexus of these technologies has been a huge boon to innovation and a huge reducer of friction between companies and applications. Instead of everyone trying to control the fire hydrant nozzle, they made all the nozzles and hoses the same, creating a much bigger market that stretched across every neighborhood of the world. Then companies started to compete instead over the quality of the hose, the pump, and the fire truck. That is, they competed over who could make the most useful and nifty applications. Said Joel Cawley, the head of IBM's strategic planning unit, "Standards don't eliminate innovation, they just allow you to focus it. They allow you to focus on where the real value lies, which is usually everything you can add above and around the standard."
. . . All of these standards, on top of the work flow software, help enable work to be broken apart, reassembled, and made to flow, without friction, back and forth between the most efficient producers . . .
"Work flow platforms are enabling us to do for the service industry what Henry Ford did for manufacturing," said Jerry Rao, the entrepreneur doing accounting work for American from India. "We are taking apart each task and sending it around to whomever can do it best, and because we are doing it in a virtual environment, people need not be physically adjacent to each other, and then we are reassembling all the pieces back together at headquarters [or some other remote site]. This is not a trivial revolution. This is a major one. It allows for a boss to be somewhere and his employees to be someplace else." These work flow software platforms, Jerry added, "enable you to create virtual global offices - not limited by either the boundaries of your office or your country - and to access talent sitting in different parts of the world and have them complete tasks that you need completed in real time. And so 24/7/365 we are all working. And all this has happened in the twinkling of an eye - the span of the last two or three years."
Posted by Martha Rudolph at 07:49 PM | Comments (1)
Flattener #2, 8/9/95, When Netscape went public
The broad overinvestment in fiber cable is a gift that keeps on giving.
[Excerpt from The World Is Flat, Chapter 2, "The Ten Forces That Flattened the World," p. 57 ff.]
What Netscape did was bring a new killer app -- the browser -- to this installed base of PCs, making the computer and its connectivity inherently more useful for millions of people. This in turn set off an explosion in demand for all things digital and sparked the internet boom, because every investor looked at the Internet and concluded that if everything was going to be digitized -- data, inventories, commerce, books, music, photos, and entertainment -- and transported and sold on the Internet, then the demand for Internet-based products and services would be infinite. This led to the dot-com stock bubble and a massive overinvestment in the fiber-optic cable needed to carry all the new digital information. This development, in turn, wired the whole world together, and, without anyone really planning it, made Bangalore a suburb of Boston . . .
In the years before the Internet became commercial . . . scientists developed a series of "open protocols" meant to make everyone's e-mail system or university computer network connect seamlessly with everyone else's . . . These protocols were (and still are) known by their alphabet soup names: mainly FTP, HTTP, SSL, SMTP, POP, and TCP/IP. Together, they form a system for transporting data around the Internet in a relatively secure manner, no matter what network your company or household has or what computer or cell phone or handheld device you are using . . .
. . . Netscape wanted to make sure that Microsoft, with its huge market dominance, would not be able to shift these Web protocols from open to proprietary standards that only Microsoft's servers would be able to handle . . .
It turned out that the value of compatibility was much higher for everyone than the value of trying to maintain your own little walled network. This integration was a huge flattener, because it enabled so many more people to get connected with so many more other people . . .
. . . Booms and bubbles may be economically dangerous; they may end up with many people losing money and a lot of companies going bankrupt. But they also often do drive innovation faster and faster, and the sheer overcapacity that they spur -- whether it is in railroad lines or automobiles -- can create its own unintended positive consequences.
That is what happened with the Internet stock boom. It sparked a huge overinvestment in fiber-optic cable companies, which then laid massive amounts of fiber-optic cable on land and under the oceans, which dramatically drove down the cost of making a phone call or transmitting data anywhere in the world . . .
It was actually the coincidence of the dot-com boom and the Telecommunications Act of 1996 that launched the fiber-optic bubble. The act allowed local and long-distance companies to get into each other's businesses, and enabled all sorts of new local exchange carriers to compete head-to-head with the Baby Bells and AT&T in providing both phone services and infrastructure . . .
. . . So when the dot-com bust came along, there was just way too much fiber-optic cable out there . . .
It was a disaster for many of the companies and their investors . . . , but it turned out to be a great boon for consumers. Just as the national highway system that was built in the 1950s flattened the United States, broke down regional differences, and made it so much easier for companies to relocate in lower-wage regions, like the South, because it had become so much easier to move people and goods long distances, so the laying of global fiber highways flattened the developed world. It helped to break down global regionalism, create a more seamless global commercial network, and made it simple and almost free to move digitized labor -- service jobs and knowledge work -- to lower-cost countries . . .
The broad overinvestment in fiber cable is a gift that keeps on giving . . .
"Every layer of innovation gets built on the next," said Andreessen, who went on from Netscape to start another high-tech firm, Opsware Inc. "And today the most profound thing to me is the fact that a fourteen-year-old in Romania or Bangalore or the Soviet Union or Vietnam has all the information, all the tools, all the software easily available to apply knowledge however they want."
Posted by Martha Rudolph at 05:18 PM
No more top-down anything
"It is about things that impact some of the deepest, most ingrained aspects of society right down to the nature of the social contract."
[Excerpt from The World Is Flat, Chapter 1, "While I Was Sleeping," p. 44 ff.]
As uberblogger Glenn Reynolds likes to say, blogs have given the people a chance to stop yelling at their TV and have a say in the process . . .
. . . [O]ld hierarchies are being flattened and the playing field is being leveled. As Micah L. Sifry nicely put it in The Nation magazine (November 22, 2004): "The era of top-down politics -- where campaigns, institutions and journalism were cloistered communities powered by hard-to-amass capital -- is over. Something wilder, more engaging and infinitely more satisfying to individual participants is arising alongside the old order."
. . . [W]e are entering a phase where we are going to see the digitization, virtualization, and automation of almost everything. The gains in productivity will be staggering for those countries, companies, and individuals who can absorb the new technological tools. And we are entering a phase where more people than ever before in the history of the world are going to have access to these tools -- as innovators, as collaborators, and alas, as terrorists . . . Everywhere you turn, hierarchies are being challenged from below or transforming themselves from top-down structures into more horizontal and collaborative ones.
"Globalization is the word we came up with to describe the changing relationships between governments and big businesses," said David Rothkopf, a former senior Department of Commerce official in the Clinton administration and now a private strategic consultant. "But what is going on today is a much broader, much more profound phenomenon." It is not simply about how governments, business, and people communicate, not just about how organizations interact, but is about the emergence of completely new social, political, and business models. "It is about things that impact some of the deepest, most ingrained aspects of society right down to the nature of the social contract," added Rothkopf. "What happens if the political entity in which you are located no longer corresponds to a job that takes place in cyberspace, or no longer really encompasses workers collaborating with other workers in different corners of the globe, or no longer really captures products produced in multiple places simultaneously? Who regulates the work? Who taxes it? Who should benefit from those taxes?"
If I am right about the flattening of the world, it will be remembered as one of those fundamental changes -- like the rise of the nation-state or the Industrial Revolution -- each of which, in its day, noted Rothkopf, produced changes in the role of individuals, the role and form of governments, the way we innovated, the way we conducted business, the role of women, the way we fought wars, the way we educated ourselves, the way religion responded, the way art was expressed, the way science and research were conducted, not to mention the political labels we assigned to ourselves and to our opponents . . .
Whenever civilization has gone through one of these disruptive, dislocating technological revolutions -- like Gutenberg's introduction of the printing press -- the whole world has changed in profound ways . . . The faster and broader this transition to a new era, the more likely is the potential for disruption, as opposed to an orderly transfer of power from the old winners to the new winners.
To put it another way, the experiences of the high-tech companies in the last few decades who failed to navigate the rapid changes brought about in their marketplace by these types of forces may be a warning to all the businesses, institutions, and nation-states that are now facing these inevitable, even predictable, changes but lack the leadership, flexibility and imagination to adapt -- not because they are not smart or aware, but because the speed of changes is simply overwhelming them.
Posted by Martha Rudolph at 04:59 PM
Homesourcing to housewives in Salt Lake City
Homesourcing to Salt Lake City and outsourcing to Bangalore were just flip sides of the same coin . . .
[Excerpt from The World Is Flat, Chapter 1, "While I Was Sleeping," p. 36 ff.]
I had heard that JetBlue had outsourced its entire reservation system to housewives in Utah . . . David Neeleman, the founder and CEO of JetBlue Airways Corp., has a name for all this. He calls it "homesourcing." . . .
"We had 250 people in their homes doing reservations at Morris Air," said Neeleman. "They were 30 percent more productive -- they take 30 percent more bookings, by just being happier. They were more loyal and there was less attrition . . .
"We will never outsource to India . . . The quality we can get here is far superior . . . [Employers] are more willing to outsource to India than to their own homes, and I can't understand that. Somehow they think that people need to be sitting in front of them or some boss they have designated. The productivity we get here more than makes up for the India [wage] factor."
A Los Angeles Times story about JetBlue (May 9, 2004) noted that "in 1997, 11.6 million employees of U.S. companies worked from home at least part of the time. Today, that number has soared to 23.5 million -- 16% of the American labor force. (Meanwhile, the ranks of the self-employed, who often work from home, have swelled during the same period -- to 23.4 million from 18 million.) In some eyes, homesourcing and outsourcing aren't so much competing strategies as they are different manifestations of the same thing: a relentless push by corporate America to lower costs and increase efficiency, wherever that may lead."
That is exactly what I was learning on my own travels: Homesourcing to Salt Lake City and outsourcing to Bangalore were just flip sides of the same coin -- sourcing. And the new, new thing, I was also learning, is the degree to which it is now possible for companies and individuals to source work anywhere.
Posted by Martha Rudolph at 04:55 PM | Comments (2)
The challenge from Dalian, China
[Excerpt from The World Is Flat, Chapter 1, "While I Was Sleeping," p. 34 ff.]
"I've taken a lot of American people to Dalian, and they are amazed at how fast the China economy is growing in this high-tech area," said Win Liu, director of the U.S./EU projects for DHC, one of Dalian's biggest homegrown software firms, which has expanded from thirty to twelve hundred employees in six years. "Americans don't realize the challenge to the extent that they should."
Dalian's dynamic mayor, Xia Deren, forty-nine, is a former college president. (For a Communist authoritarian system, China does a pretty good job of promoting people on merit. The Mandarin meritocratic culture here still runs very deep.) Over a traditional ten-course Chinese dinner at a local hotel, the mayor told me how far Dalian has come and just where he intends to take it. "We have twenty-two universities and colleges with over two hundred thousand students in Dalian," he explained. More than half those students graduate with engineering or science degrees, and even those who don�t, those who study history or literature, are still being directed to spend a year studying Japanese or English, plus computer science, so that they will be employable. The mayor estimated that more than half the residents of Dalian had access to the Internet at the office, home, or school.
". . . In the past one or two years, the software companies of the U.S. are also making some attempts to move outsourcing of software from the U.S. to our city . . . We are approaching and we are catching up with the Indians. Exports of software products [from Dalian] have been increasing by 50 percent annually. And China is now becoming the country that develops the largest number of university graduates . . .
". . . It is like building a building. Today, the US., you are the designers, the architects, and the developing countries are the bricklayers for the buildings. But one day, I hope we will be the architects."
Posted by Martha Rudolph at 04:51 PM
The globalization of innovation
[Excerpt from The World Is Flat , Chapter 1, "While I Was Sleeping," p. 29 ff.]
Every new product -- from software to widgets -- goes through a cycle that begins with basic research, then applied research, then incubation, then development, then testing, then manufacturing, then deployment, then support, then continuation engineering in order to add improvements. Each of these phases is specialized and unique, and neither India nor China nor Russia has a critical mass of talent that can handle the whole product cycle for a big American multinational. But these countries are steadily developing their research and development capabilities to handle more and more of these phases. As that continues, we really will see the beginning of what Satyam Cherukuri, of Sarnoff, an American research and development firm, has called "the globalization of innovation" and an end to the old model of a single American or European multinational handling all the elements of the development product cycle from its own resources. More and more American and European companies are outsourcing significant research and development tasks to India, Russia, and China.
Posted by Martha Rudolph at 04:49 PM
What goes around, comes around
[Excerpt from The World Is Flat, Chapter 1, "While I Was Sleeping," p. 28 ff.]
I spent an evening at the Indian-owned "24/7 Customer" call center in Bangalore . . .
When you look around at 24/7's call center, you see that all the computers are running Microsoft Windows. The chips are designed by Intel. The phones are from Lucent. The air-conditioning is by Carrier, and even the bottled water is by Coke. In addition, 90 percent of the shares in 24/7 are owned by U.S investors. This explains why, although the United States has lost some service jobs to India in recent years, total exports from American-based companies -- merchandise and services -- to India have grown from $2.5 billion in 1990 to $5 billion in 2003. So even with the outsourcing of some service jobs from the United States to India, India's growing economy is creating a demand for many more American goods and services.
What goes around, comes around.
Posted by Martha Rudolph at 04:45 PM
Outsourcing the News
And can we actually disaggregate the work of a journalist and keep part in London and New York and shift part to India?
[Excerpt from The World Is Flat, Chapter 1, "While I Was Sleeping," p. 15 ff.]
Any activity where we can digitize and decompose the value chain, and move the work around, will get moved around . . .
[Tom Glocer, the CEO of Reuters news service] is a pioneer in the outsourcing of elements of the news supply chain. With 2,300 journalists around the world, in 197 bureaus, serving a market including investment bankers, derivatives traders, stockbrokers, newspapers, radio, television, and Internet outlets, Reuters has always had a very complex audience to satisfy. After the dot-com bust, though, when many of its customers became very cost-conscious, Reuters started asking itself, for reasons of both cost and efficiency: Where do we actually need our people to be located to feed our global news supply chain? And can we actually disaggregate the work of a journalist and keep part in London and New York and shift part to India?
Glocer started by looking at the most basic bread-and-butter function Reuters provides, which is breaking news about company earnings and related business developments, every second of every day. " . . . The core competency there is speed and accuracy," explained Glocer. "You don't need a lot of analysis. We just need to get the basic news up as fast as possible. The flash should be out in seconds after the company releases . . ."
Those sorts of earnings flashes are . . . a basic commodity that actually can be made anywhere in the flat world. The real value-added knowledge work happens in the next five minutes. That is when you need a real journalist who knows how to get a comment from the company, a comment from the top two analysts in the field . . .
The dot-com bust and the flattening of the world forced Glocer to rethink how Reuters delivered news-whether it could disaggregate the functions of a journalist and ship the low-value-added functions to India.
Posted by Martha Rudolph at 04:28 PM
The three great eras of globalization
The thing that gives [the third great era of globalization] its unique character...is the newfound power for individuals to collaborate and compete globally.
Excerpt from The World Is Flat, Chapter 1, "While I Was Sleeping," p. 9 ff.
[T]here have been three great eras of globalization. The first lasted from 1492 -- when Columbus set sail, opening trade between the Old World and the New World -- until around 1800... [This first great era of globalization] was about countries and muscles... The second great era...lasted roughly from 1800 to 2000... [T]he key agent of change, the dynamic force driving global integration, was multinational companies. These multinationals went global for markets and labor, spearheaded first by the expansion of the Dutch and English joint-stock companies and the Industrial Revolution. In the first half of this era, global integration was powered by falling transportation costs, thanks to the steam engine and the railroad, and in the second half by falling telecommunication costs -- thanks to the diffusion of the telegraph, telephones, the PC, satellites, fiber-optic cable, and the early version of the World Wide Web... [A]round the year 2000 we entered a whole new era... [T]he thing that gives it its unique character...is the newfound power for individuals to collaborate and compete globally. And the lever that is enabling individuals and groups to go global so easily and so seamlessly is not horsepower, and not hardware, but software -- all sorts of new applications -- in conjunction with the creation of a global fiber-optic network that has made us all next-door neighbors.
Posted by admin at 10:58 PM
The world is flat
What Nandan is saying, I thought, is that the playing field is being flattened...Flattened? Flattened? My God, he's telling me the world is flat!?
Excerpt from The World Is Flat, Chapter 1, "While I Was Sleeping," p. 6 ff.
Excerpt from The World Is Flat, Chapter 1, "While I Was Sleeping," p. 6 ff.
"Outsourcing is just one dimension of a much more fundamental thing happening today in the world, Nilekani explained [Nandan Nilekani, CEO, Infosys Technologies Limited, Bangalore, India]. "What happened over the last few years is that there was massive investment in technology, especially in the bubble era, when hundreds of millions of dollars were invested in putting broadband connectivity around the world, undersea cables, all those things." At the same time, he added, computers became cheaper and dispersed all over the world, and there was an explosion of software -- e-mail, search engines like Google, and proprietary software that can chop up any piece of work and send one part to Boston, one part to Bangalore, and one part to Beijing, making it easy for anyone to do remote development. When all of these things suddenly came together around 2000, added Nilekani, they "created a platform where intellectual work, intellectual capital, could be delivered from anywhere. It could be disaggregated, delivered, distributed, produced, and put back together again -- and this gave a whole new degree of freedom to the way we do work, especially work of an intellectual nature...And what you are seeing in Bangalore today is really the culmination of all these things coming together." ...What Nandan is saying, I thought, is that the playing field is being flattened... Flattened? Flattened? My God, he's telling me the world is flat!
Posted by admin at 10:43 PM