November - 2003 - issue > In My Opinion
Offshore Frights?
Vivek Paul
Friday, June 27, 2008
OVER THE PAST FEW months, we have heard statements like “technology does not matter”, that somehow investments in technology were yesterday’s news. The “globalization of service delivery and product development” will supposedly kill the innovation engine in the U.S. and that technical jobs are suddenly no longer a career choice for high schoolers. While improved performance by technology companies have belied some of these statements, much confusion and doubt still prevail.

And yet, the view from the inside could not be more diametrically opposed. In my role I have interactions with many CIO’s, Vice Presidents of Product Engineering and CEO’s at various companies and in various industries, and I see a great optimism about the future. Technology remains the single biggest driver of company productivity and we are nowhere close to the end of its potential. True, there have been unrealistic expectations from exaggerated promises made in the past, but that credibility gap had closed. Companies are only just beginning to see the potential of technologies that emerged recently—and the range is so breathtaking that many industries are transforming completely—from connecting employees to each other and to the company, to collaborative tools across extended teams; ubiquitous knowledge like retail inventory that talks to store systems to shop floor inventory that talks to manufacturing systems is growing.

But even more interesting is talking to a few leading edge venture capitalists and buyout firms. Not only are technology buyers re-emerging, but also we are poised on the cusp of major transformation where entire industries will go through a radical shift. Aiding this is a convergence of the forces of low telecommunication costs, the rising acceptance of web as a collaborative knowledge/commerce tool, and the availability of low cost service delivery at quality levels that are higher. This is especially so as companies take the wood block of their current operations and slice it, like so many Jenga blocks, into individual processes and begin to remove (outsource) the ones where they can benefit by having a specialist perform them.

Software product companies are going from “doing it all” to outsourcing globalization, installed base management, multiple OS support, etc., and also embracing new business models now that they are able to imbed a deeper level of customization and inbuilt services. The new age software product company looks totally different from the current ones. Financial services companies are realizing they are doing nothing more than arbitraging information and servicing clients—activities that can be dispersed and focused. New entrants are finding much lower barriers to entry and can gain competitive advantage quickly by focusing on a singular area like understanding risk.

Retailers are realizing that there is more money in understanding their customer purchase better and coordinating supply chains, than the physical transfer of goods. Value is shifting from manufacturers to distributors.

From a horizontal view, new processes are being outsourced with more speed and ease, engendering a new genre of companies offering these services. Human Resource Process outsourcing is one. Procurement management is another. We’re poised at the edge of a whole new wave of innovation – and I haven’t even talked about continuing breakthroughs in biotech, nanotech and semiconductors.

And all this talk about offshoring killing innovation? Silicon Valley companies are lasting longer—fetching more turns at bat for the same funding. Neither the VCs nor the management regret offshoring. Larger technology companies are redeploying their efforts back into innovation focused on competitive advantage.

Any change of this magnitude brings about a transition that is painful to a few. And the globalization of services is no exception. Nor can we ever discount the pain felt by a few in any way. But the focus has to be on how to ease this pain, not how to stop the train of progress.

The naysayers are out there talking about how the job loss is permanent, that there is one-for-one job transfer from the U.S. to other countries, and that the U.S. should take a protectionist stance of some sort. They ignore the experience of the auto industry in the U.S., which embraced globalization (painful as it was) and today has more employees than it did in 1974. The steel industry took a protectionist view and despite $30b in subsidies has seen production tumble from 145m tons in 1974 to 99m and there is no U.S. steel producer in the global top 10.

The U.S. has retained a competitive advantage against its global competitors precisely because this system embraces “creative destruction” and quickly reallocates human and monetary capital to where it is most productive. It is estimated that the financial services industry alone has saved $6b over the past four years and has created an additional 125,000 jobs as a result. U.S. CEOs and policy makers are acutely aware that job creation comes from successful enterprises and successful enterprises come from those most competitive.

There are some estimates that by 2010, there will be an estimated 5m+ worker shortfall, one million in IT alone, as the economy grows and as baby boomers begin to age. Unmet labor demand will cost the U.S. several trillion in cumulative output loss. The doomsayers about the future of U.S. technology are just plain wrong. So tell your highschooler that—if anything—the U.S. will need more technologists and to stay focused on those math and science courses. And demand of your congressman and city councilor a better education system, one that will produce the world’s best thinkers.

But what about the present and those hurt by this transition? There needs to be more focus on retraining. Industry, society and government need to come together on this initiative. Companies like Wipro have offered to share their quality methodologies and systems with customers so they can retrain their workforces. We need a lot more.

In this turbulence lies enormous potential and carries the message of “carpe diem” more than ever before.

Seize the day.

Vivek Paul is Vice Chairman of Wipro (NYSE: WIT) and CEO of its global information technology, product engineering, and business process services segment. This Prior to this, Paul ran GE’s Global CT Scanner business. He also ran GE’s medical equipment joint venture in India. He was part of the venture as a new start-up, set up local distribution (direct and indirect) and service networks, built design and manufacturing capability, leading to the venture becoming a leader in its served market, and a global source for ultrasound equipment. Paul has worked at Bain & Co., Boston and at PepsiCo, Purchase, NY. He has degrees in electrical engineering and a MBA.

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