2006: The Year of Living GloballyBy Stan Gibson | Posted 2006-11-22 Email Print
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News Analysis: Globalization goes beyond outsourcing as IBM and others plant operations in India, China and Russia.
Trade across international boundaries isn't new. Multinational corporations aren't new. Yet, it seems, globalization is new.
Although international commerce has been going on since the beginning of civilization, what's different now is instant communication between scattered locations that makes an office on the other side of the world look like it is next door.
That enables Hewlett-Packard, for instance, to set up an accounts payable operation for Procter & Gamble in Bangalore, India, to process invoices from French perfume makers to be paid from British bank accounts.
The global nervous system that makes this web of relationships possible is the result of the bandwidth glut celebrated in Thomas Friedman's best-selling book, "The World is Flat."
Fiber optic pipelines overbuilt during the dot com boom, and dark after the dot com bust, have been lighted up with the world's data.
"The broad overinvestment in fiber cable is a gift that keeps on giving," wrote Friedman.
But the global fiber network wasn't all. Two huge countries with giant populations, India and China, jettisoned socialist economic policies in favor of market economies.
All in all, the new globalization is enabling economic development in once-backward nations that the architects of yesteryear's federal foreign aid policies could only dream about.
The number one outsourcing destination, India, is undergoing growing pains as it strives to implement what can be called "India 2.0," moving from up-and-comer to established player on the global stage.
At the Nasscom software industry conference in Bangalore in February, 2006, Indian outsourcers such as Tata Consultancy Services, Wipro and Infosys said they planned on opening offices not only in North America, but in Germany, the United Kingdom, and other European and Asian countries.
In India 2.0, Indian firms will no longer merely offer the same work at half price, but will create intellectual property through world-class research and development.
The Indians believe they can do it. At one moment during the Nasscom convention, the crowd of perhaps 1,000 Indian IT industry leaders was asked whether an Indian company will eventually attain the highest market capitalization of any worldwide IT provider. Nearly all present raised their hands.
Indeed, most Indian industry leaders believe their destiny is to accomplish in technology what Japan has done in the auto industrywrest world leadership from an old U. S. guard.
In what is surely a sign of strength, the Indians are acutely aware of their own vulnerabilities, wage inflation and high employee turnover.
As a result, they're looking over their shoulders at other nations with low wages and eager workforcesChina, of course, and now Vietnam.
Trying to get ahead of the wave, Indian outsourcers Infosys and Tata Consultancy Services have led an Indian surge into China. Wipro, meanwhile established in June, 2006, a business process outsourcing office in Vietnam.
At Nasscom, another weakness that might surprise many foreigners emerged. Many of the big Indian firms aren't happy with the Indian educational system.
Although Indian colleges and universities churn out tens of thousands of engineering and computer science graduates annually, Indian companies only hire a tiny fraction, claiming that many others are insufficiently prepared to join the work force.
Indian companies are recommending curriculum changes and in some cases donating money to correct the problem.
If India is the number one outsourcing destination, China is without question number two, and seen by some as having greater potential in the long run. Former chairman of the United States Federal Reserve Board, Alan Greenspan, said in a Boston speech, "The single greatest force in the new global economy is China."
Microsoft, which has a major development office in Hyderabad, India, has moved into China significantly as well, establishing an MSR (Microsoft research) office in the Haidian area of Beijing.
The software giant has tasked the office with a major strategic push for the company: search technology.
IT organizations are increasingly calling on Chinese partners to carry out development work. To do so, they have found special care must be taken to guard intellectual property, which is a relatively new concept in the Chinese legal system.
"It's probably the most overhyped issue. I have never had that problem, but perception is reality," said Walter Fang, vice president and chief technology officer of Neusoft Group, a software house based in Shenyang, China.
U. S. companies that have outsourced successfully to Chinese providers have done so gradually, building trust by starting with small projects.
The Chinese government is taking a number of steps to encourage the growth of the country's technology industry, from the building of software parks such as that in the northern coastal city of Dalian, to the establishment of the so-called "Sea Turtle" program, which encourages Chinese expatriates to return to their homeland as technology entrepreneurs.
Next Page: Is this the Chinese century?
In December, 2005, BEA Systems held its annual BEAWorld conference in Beijing, an occasion that BEA CEO Albert Chuang took to express pride in his heritage and high hopes for China's future.
BEA wants to help move China "from an economy based on manufacturing to one based on intellectual property. China leads the world in manufacturing, and now it is time for China to become a global IT leader," said Chuang.
Rather than exporting manufactured goods only, "China will soon be exporting high-value technology," Chuang said.
With the 2008 Olympics in Beijing just around the corner, we can expect further expressions of belief that we may be at the dawn of the "Chinese Century."
While Indian and Chinese firms flex their muscles on the world stage, big established players aren't standing idly by. IBM played the globalization card in a big way in 2006, boosting its India workforce to approximately 40,000, and holding its analysts' briefings in Bangalore.
In March, 2006, IBM designated its India development offices as key workshops for building Web services software, which will be implemented in SOA (service-oriented architecture) deployments in industries such as financial services, retail and manufacturing.
On November 14, 2006, IBM combined globalization with new media when it hosted a worldwide announcement from Beijing using a private IBM-purchased island in the Second Life virtual world on the Internet. IBM CEO Samuel Palmisano appeared as an avatar: "Sam IBM."
IBM, long a multinational corporation, is letting customers piggyback on its own business process operations for human resources, accounts payable, supply chain and procurement.
Customers with operations in the same countries where IBM already has facilities can outsource their business processes to IBM, which performs customers' processing chores at its own facilities.
But globalization is not just a story about big companies. While the largest Indian firms are approaching $3 billion in annual revenueInfosys said it expects to pass that mark in fiscal 2007Russian firms are tiny by contrast, with none having revenues of greater than $60 million.
But there's plenty of scientific expertise in Russia, the legacy of the science-focused educational system developed during the Soviet era.
Not missing a beat, the peripatetic Palmisano was in Moscow in June, 2006 to open IBM's development lab in Russia. IBM, like many others, is aiming to take advantage of programming skills that regularly launches Russian programmers to the top in international competitions.
Russian outsourcing customers say their providers excel at product development carried out by small teams, in contrast to the Indian approach which often brings a host of programmers to bear on an application development assignment.
Notwithstanding the can-do attitude and economic boost that globalization is delivering to developing nations, in July the world received a stark reminder that the new globalization takes place against the troubling backdrop of global terror.
On July 11, 2006, at least 200 commuters were killed by terrorist bombings in Mumbai, India, a key outsourcing hub.
One of the fears voiced by many outsourcing customers is that of political instability or global terror. The attacks caused customers to re-check their outsourcing providers' disaster recovery and backup plans. But after the bombs exploded, no outsourcer's data was lost, although several outsourcing firms in Mumbai cancelled their night shifts.
TCS, with 16,000 employees in 16 Mumbai-area locations, including its headquarters, activated its backup center in Chennai on the opposite side of the Indian subcontinent.
Within days, Indian outsourcers and their customers had returned to business as usual. Major customers like Louis Rosenthal, managing director for group shared services for IT at the large Dutch bank ABN AMro, said there would be no retreat in their plans for continuing to pursue a global IT and business strategy.
"We didn't stop doing business in New York City or London after similar incidents, and we'll continue with our technology program in India," said Rosenthal.
At Outsource World in Manhattan in October, Egyptian call center and tech support firms were in evidence, in addition to the usual assortment of Chinese and Indian outsourcers.
Managing the relationship was the top topic of how-to sessions, as nearly 50 percent of outsourcing deals end in failure.
"Companies are just beginning to understand the importance of contract governance. It's not brain surgery; it's basic, but it requires discipline," said Claude Marais, a partner at outsourcing advisor TPI in Atlanta and former head of outsourcing at General Motors and Coca-Cola.
He said the best approach is to create a basic contract framework that can be applied to many outsourcers globally. "We're shifting from 'think global, act local,' to global collaboration," he said, adding that customer teams must include members with a mix of legal, procurement and clerical skill.
At Outsource World, John Elliott, senior managing director at Bear Stearns in New York City, summed up the desires of many outsourcing customers, and perhaps the most important driving force behind globalization: "We want access to the right talent at the right time at the right price."
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