Is This Really Globalization?By Lawrence Walsh | Posted 2008-03-10 Email Print
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If solution providers that offshore operations for talent wait long enough, they may find their investments turn into new sales opportunities.
Lester Pierre’s Wall Street office looks just like you would imagine a Wall Street office to look. Think Gordon Gekko’s executive suite, except about a quarter the size and updated with widescreen color monitors hanging over his desk instead of green monochrome thin clients.
From this vantage point looking down the cavernous alley that is the financial nerve center of the world, Pierre’s solution provider business, Wall Street Network, boasts some of the biggest and most important trading companies in Manhattan. But for the growth of his business, he is looking east—Far East—to India.
Someday soon, Pierre plans to open a shop for software development and engineering somewhere in the Asian subcontinent, leveraging the seemingly inexhaustible supply of comparably inexpensive talent.
"If you want to be competitive, you have to look to India for inexpensive talent," says Pierre, whose company does about $6 million annually in gross revenue and counts nearly 40 full-time employees.
Pierre isn’t alone in his dreams of expansion. A quick review of solution provider business cards and Web sites finds more U.S.-based channel companies opening offices in such far-flung places as India, Nepal, China, Thailand, Romania, Russia and Ukraine.
Like many other American solution providers, Pierre uses words like globalization to describe his ambitions, since it looks and feels a lot like what Thomas Friedman describes in his book The World Is Flat, a global infrastructure that equalizes access to markets and talent. But it’s a far cry from true globalization. In fact, it’s more offshoring, since Pierre has no plans for sales and marketing in the host market. He simply wants the talent to refine raw resources and ship finished products back to the U.S. market.
This is not an uncommon trend. While big vendors such as Microsoft and IBM are matching American solution providers with their foreign counterparts to spur the growth and internationalization of the channel, an increasing number of U.S. solution providers are simply looking elsewhere for talent that’s less expensive than in their domestic market.
"Globalizing is probably the wrong word. You have global delivery capability or offshoring delivery capability," says Jack McDonald, chairman and CEO of Perficient, an Austin-based software integrator and reseller. "To do offshoring on a subcontract basis and just throw [projects] over the wall, it’s just too risky. You need to own it or procure it on an exclusive basis."
McDonald has a lot of experience leveraging the global IT talent network. In 2005, Perficient bought a Macedonian software development company with nearly 150 low-cost employees. Since then, Perficient has expanded its global footprint, with nearly 25 percent of its 1,500 employees located in Eastern Europe or China. The solution provider is also actively recruiting engineers and consultants in India for work in the United States under H1B visas.
Low-cost IT talent is one of the best reasons for offshoring, but why not sell into those markets at the same time? The major U.S. distributors—Ingram Micro, Tech Data and Synnex—have global infrastructures, so there is support. The answer is simple: There is no market for the advanced solutions in the host countries.
While touring China last month, I spoke with a number of business and media people about the Chinese economy, its fantastic growth and the state of their technology. They openly acknowledge that the Chinese economy, in general, is about three years behind the West in terms of implementation and maturity of technology. Basically, they said that their appetite for business intelligence software, custom business applications and advanced hardware infrastructure is less than the U.S. market’s.
However, they caution, their appetite for growth is insatiable. A common refrain uttered by Chinese business decision-makers was "designed and proven in the West, adopted later in China." The same could be said of other developing economies.
"Developing countries have raw skills. They’re not innovative. They’re not enterprising and commercialized," says Faisal Hoque, CEO and founder of BTM Corp., a Connecticut-based management solutions provider focusing on business technology management. "The things they can produce, there is no market for them in the local market."
The global economy is changing rapidly. The dollar is no longer the global currency in the post-World War II halcyon days, and many economists are predicting that its strength as an international bellwether may never return. The Euro and Chinese Yuan are gaining greater appeal in global markets, and even some shops in Manhattan are accepting Euros. Likewise, as emerging markets mature, their newfound wealth will translate into a middle class with discretionary income. This will create a need for more sophisticated applications and infrastructure.
As emerging markets gain strength and the U.S. economy weakens, it will make U.S. goods and expertise more competitive in the global marketplace. When that happens, U.S. solution providers with a beachhead in India, China and Russia may find themselves in a tremendous position to exploit new sales opportunities that are currently unthinkable.
"The long-term effect will mean increased sophistication of the markets, and they will require more sophisticated technology to meet their needs," Hoque said.
We may sweat the slowing U.S. economy today, and many may criticize the exodus of U.S. jobs to other parts of the world, but good things may come to those who wait for new opportunities to emerge.
Lawrence M. Walsh is the editor of Baseline magazine and a regular columnist to Channel Insider. Share your thoughts with Larry on globalization and overseas channel opportunities at email@example.com.