The relative importance of the emerging economies as an engine of new demand growth and spending power may shift more dramatically and quickly than expected.
It is important to realize that emerging economies have enhanced infrastructure to deliver services in any geography based on a concept of real value based virtual organizations. Capital flows might move further in the favour of emerging economies prompting major currency realignments. As today’s advanced economies become a shrinking part of the world economy, the accompanying shifts in spending could provide significant opportunities for global companies.
Outsourcing, a product of Globalization has become a supercharged issue, thanks to fears of job loss, but as New York Times foreign affairs columnist Thomas Friedman points out, people need to be aware of the consequences of a flat world. There is no such thing as an American job. And you're going to have to get over that. As we all know, the human experience is constantly being repeated throughout time. America is going through dramatic change. We are exporting much manufacturing, design, engineering and innovation which further decreases the costs of goods which we import.
In fact, we may be risking the loss of the innovation distinction as we have experienced a lot of “irresponsible optimism” during the recent boom years. Perhaps Americans are too much of dreamers to be responsible all the time. A gradual decline in American Innovation and Invention spirit could affect our global leadership. The erosion began when US Corporations outsourced manufacturing. Today many US companies are little more than a brand name selling goods made in Asia. Many computer, electrical, and electronics engineers, who were well paid few years ago, are unemployed and can not find work. Some would say that a country that does not manufacture doesn’t need as many engineers, as much of the work is being outsourced. If we do not act, America may be transforming to third world economy. Falling pay and rising prices of foreign goods will squeeze US living standards.
Yet, the world is currently seeing some incredible success stories on offshore outsourcing due to a selection of quality vendor, degree of trust and openness factor, acceptance of virtual organizations, collaborative teamwork, and values driven success and motivation. Outsourcing is set to dramatically lower cost and increase profitability
Three-quarters of U.S. companies outsourced some or all of their information technology activities in 2004, and that percentage is likely to increase this year. While a smaller percentage of companies are outsourcing those activities offshore (32%), half of them have cut full-time jobs as a result. But companies need to be able to assess the risks and benefits of each country they're considering as an outsourcing destination.
The relative importance of the emerging economies as an engine of new demand growth and spending power may shift more dramatically and quickly than expected.
It is important to realize that emerging economies have enhanced infrastructure to deliver services in any geography based on a concept of real value based virtual organizations. Capital flows might move further in the favour of emerging economies prompting major currency realignments. As today’s advanced economies become a shrinking part of the world economy, the accompanying shifts in spending could provide significant opportunities for global companies.
India is currently the most competitive and popular technology outsourcing destination in the world in 2005. However, China will be the No. 1 technology outsourcing country by the year 2015. Like in manufacturing, China will become the locomotive for growth – this time in IT-related services - boosting world economic output and productivity. The world economy will certainly benefit from China’s lead function – but what will happen with all those workers, IT-engineers, and managers losing their job in the US and in Europe? Places like Singapore and Israel will continue to specialize in R&D outsourcing. Russia will eventually evolve as a major R&D outsourcing giant. The political and economic dimension is still not entirely thought through by policy makers around the world. One thing is true, however – we are currently witnessing a sea-change of how future division of labour will look like. The developed nations of the West provide capital and opportunities for the developing nations of the East. The old working class in the West is disappearing. Only higher education might be a sustainable solution for the former underdogs.
Having said the above, in America we "write the script" of our life and can easily pave our own path and be whatever we want to be. Americans have control over their destiny. Immigrants from India, China and Russia move to the US for 2 reasons - greater opportunity for education; and vastly greater pay. America has and always will be the leader of globalization (even if it is a global phenomenon), and that people in other countries want to move towards an American way of life (or to America) or want to preserve their way of life against it. We in America have a lot of things going for us to transform and become major change agents in a new global support economy driven by Globalization. Since the day of the Franklin radio, light bulbs and Franklin stove, Americans have identified themselves as the fountainhead of innovation and invention around the world. We in America are very flexible and creative people. America is the place that people don’t want to leave. We have a head start in Outsourcing and Innovation. Change will always happen here in America and happen here first.
America might be over for those who don't see the future but for American youth and for those immigrants arriving at the airports and their children, it is the land of the opportunity, that's why they are coming and that's why they aren't going anywhere else soon. We feel, however, that there is no deep reasoning yet of what globalization and offshoring means for our businesses and economies. We call on politicians, economists and entrepreneurs to conceptualize the future world economic paradigm – which will most likely represent a very flat world.
As for America, We need more sweat equity, more time back at the drawing board, quality driven testing, and core research in tubes, and more attention to our real future: our children and education. Culturally the world still travels here to create their ultimate dreams. It’s the mysterious culture of America pulls one along “which ultimately creates our dreams and aspirations. We know there will be a future. But we don’t know what it will be. What we do know is that it will happen in the United States.
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Mark Minevich is a Principal at Going Global Ventures. Dr. Frank-Jürgen Richter is the President of Horasis and former Director of World Economic Forum. The authors just released the Global Outsourcing Report for the CIO Insight.
