The Global Reorganization of Knowledge Work: The Rise of India and China

1
The Global Reorganization of Knowledge Work The
Rise of India and China

• Martin Kenney
• UC Davis
• Rafiq Dossani
• Stanford University

2
Outline of Talk

• Introduction
• Moving up the value chain
• Global service economy
• India
• An example of the changing MNC services global
  footprint
• Entrepreneurship
• Consumers
• Summary

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An Inflection Point for the Global Economy

• No longer any fields guaranteed to workers in
  developed nations
• Taiwan/China in manufacturing
• India for services
• India is moving into judgement based work
• Patent writing
• Datamining

4
Shenzhen 1985, 1995, 2004
Kun Chen 2005
5
Bangalores Electronics City
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Technical Enabling Conditions and Business Drivers
Technical Enabling Conditions
Business Drivers
Any place that has two wires and a
sufficiently large relatively skilled labor force
at the right price can become part of the global
service economy
7
The Technical Enabling Conditions

• Separation of information from physical media
• So they need no longer be done in close proximity
  to customers
• Global availability of low-cost telecom bandwidth
  and computing power
• Y2K increased penetration of standards and
  standardized SW packages, e.g., SAP, Oracle,
  PeopleSoft available globally. Today, you can be
  certified anywhere.
• Increasing divisibility of services

8
Business Drivers

• Pressure to bring down costs
• Rivalry -- rivals have done it so must follow
• Acceptance of reengineering and outsourcing
  various services
• Experience w/offshore software production
• Today it is just part of doing business

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Moving Up the Value Chain
10
Mexico
China
India
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USPTO Patents per 10,000 Persons, 2004

• Taiwan -- 2.5835 (5,938)
• Korea -- .9145 (4,428)
• Japan -- 2.7436 (35,350)
• U.S. -- 2.850 (84,271)
• India -- .00336 (363)
• China -- .00457 (597)

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The Educational Levels of Web Posted Job
Descriptions for Intel, HP and Oracle, February
2005
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A Job at Intel India

• CAD Engineer Hardware Engineering is all about
  finding solutions. As a CAD (Computer Aided
  Design) Engineer with the Intel Hardware
  Engineering team, you'll work on teams designing,
  developing and implementing solutions. As part of
  Hardware Engineering at Intel, you'll have the
  opportunity to be involved from start to finish
  on the development of world-class
  innovations.ResponsibilitiesAs a CAD Engineer,
  you will be involved in developing new very large
  scale integration (VLSI) CAD tools and
  methodology solutions for design for testability
  (DFT) and test generation for high volume
  manufacturing of next generation microprocessor
  products. You will be responsible for
  development, deployment and maintenance of
  in-house fault simulation and test generation
  tools. This position will be based in Bangalore,
  India.QualificationsYou must possess a Ph.D.
  or Master of Science degree in Electrical
  Engineering or Computer Engineering with five to
  ten years of related work experience. Additional
  qualifications include Extensive knowledge of
  Digital Design and Design-for-test principles,
  digital circuit/fault simulation and automatic
  test pattern generation. Good working knowledge
  in developing CAD tools using C in a
  UNIX/Linux environment. Excellent experience
  in a related people management role would be an
  added advantage.

http//appzone.intel.com/jobs/uRequisition.asp?Pos
ting34339
Accessed April 9, 2004
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Services Offshoring Growth Areas

• Add segments of work within the existing
  functions
• Add analytical work
• RD/design
• Risk management
• Consultancy on process reengineering
• Software products in narrow segments

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The Global Service Economy
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Major Pathways for Services Offshoring
Line thickness represents size of flows
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India
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Remarkable Diversity of Organizations

• MNC in-house subsidiaries
• Agilent, HP, SAP, Morgan Stanley, HSBC
• MNC outsourcer subsidiaries
• IBM, Accenture, EDS
• U.S. startups
• Tensilica, Sierra Atlantic, Ketera
• MNC and domestic specialists
• Thomson, Evalueserve, Kale
• Domestic and NRI independents
• e4e, GTL, ICICI OneSource
• Indian IT subsidiaries
• Progeon, HCL BPO, Wipro BP, TCS

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ITES Exports from India, 2004-05
Call centers are declining as a share
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2005 -- Employment Growth
CAGR 29.8
18.5
37.0
Employee numbers 000s
Source NASSCOM 2005
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Employment for Global Operations in India by
Selected Large Non-Indian Software Firms
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An example of the changing MNC services global
footprint
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HPs Regional and Global Consolidation
Decentralized (1990-95)
Regional Consolidation (1996-99)
Off-Shore Global Consolidation (2000-03)
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HPs Global BPO Footprint with Regional
Specializations
Scale of Operations 4,700 professionals Presenc
e 56 local front-offices, 7 regional business
centers, 7 global business centers Language
capabilities Expertise in 30 languages
Main Global HubLow-Cost, Transaction Processing
Center(Bangalore Chennai)

• Activities
• Finance Accounting
• Billing
• Order rebates management
• Customer fulfillment
• Employee services payroll
• Procurement/SCM
• Reporting

• Workforce
• 3,800 FTEs, HP employees
• 2 years to scale
• Language fluency in English, French, German,
  Spanish, Japanese, Chinese

Support CentersSpecialized Language Transaction
Processing (Barcelona, Singapore, Guadalajara,
Dalian Costa Rica)

• Activities
• Country-specific regulatory transactions
• Customer support for exotic languages (e.g.,
  Serbo-Croatian, Chinese)
• Back-up and disaster recovery services

• Workforce
• 250 FTEs Barcelona 92 FTEs Singapore 380
  FTEs Guadalajara
• 60 FTEs Dalian
• 120 FTEs Costa Rica
• 1 year to scale

Onshore Centers (Colorado Springs Houston)

• Activities
• Call center support (A/P)
• Vendor refund escalation
• Tax reporting
• Mail room scanning

• Workforce
• 65 FTEs, contract labor
• 1 year to scale

Source Hewlett-Packard Working Council for
Chief Financial Officers research.
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HP BPOs Business Growth over the Last 5 Years
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Actual Transition of Projects at a Major US Firm
Product Development EDA, TM
ASIC Design
Professional Services Network Design
Collections
IT ADMS
Web Development
Finance Audit
COMPLEXITY
QA Product Development
ERP Reporting
CAD Support
Accounts Receivables
Biz Process Order Mgmt
Vendor Payables
Global Trade Logistics
Data Entry (Engineering Services)
Nov 01
Nov 04
Nov 03
Feb 02
Nov 02
Bold unplanned
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Entrepreneurship
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Small Silicon Valley Startups Now Have Indian
Operations

• Software upgrades, product extensions, technical
  writing
• Debugging and testing
• Remote support
• Semiconductor design
• Increasing number of firms using this model
• Startup team in Silicon Valley (1st 25
  employees)
• By 100 employees (50-50)
• After this (40-60)

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Entrepreneurship Growing Rapidly in China, India
Is Just Beginning

• Venture capital is growing in both nations
• China so far me-too firms but also some new
  business models (Focus Media)
• Some close to world class firms may emerge in
  India the next five years
• Already some acquisitions by U.S. firms of Indian
  firms
• So far only established Indian firms have exited
  on the U.S. market. Indian firms exit in India.

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The Location of the NASDAQ-Listed Chinese Firms
and Their Venture Capitalist Directors
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Consumers
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They Will Be the Worlds Largest Market for Many
Products

• China already is the largest market for cell
  phones, televisions, and soon PCs
• India is following but rapidly growing in
  significance
• Enormous new markets for steel, cement etc.
• E.g., Three countries, China, India, and the
  United States account for 60 of worldwide cable
  TV households.

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(No Transcript)
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Summary
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Strengths of Both Countries

• Enormous labor pools
• China has well-educated factory workers
• Both nations have large numbers of college
  graduates
• Low wages
• Increasing infrastructure investment in both
  nations
• China has enormous FDI inflows, India less, but
  is picking up rapidly
• Overseas Chinese and Indians transferring
  knowledge and investing

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Problems for Both Countries

• Income distribution
• China built on manufacturing which brought in the
  relatively uneducated (all Chinese had at least
  primary school and were literate)
• India built on services which does not integrate
  the uneducated (India has a large number of
  illiterates, not competitive with Chinese
  workers)
• China weak on English
• China -- the SOEs and bank difficulties

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Problems for Both Countries (cont.)

• India has weak infrastructure
• Chinese universities have superior research
  capabilities
• Chinese domestic market is large and growing
  rapidly. It is a focal market for some products.
  India not yet large enough
• MNCs do RD in China largely for domestic market.
  RD in India for global market so there may be
  more knowledge transfer
• IP rights more clear in India. Weak IP
  enforcement unclear effect on Chinese growth

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Issues

• Will this be a reprise of manufacturing?
• How fast? Some firms expanding at 30 per year
• In the firm there is a pyramid of activities --
  how much is not place dependent?
• For what is moveable, how much can be done in
  lower cost locations?
• If the middle of the pyramid relocates what
  happens to career paths in U.S.?
• If the reorganization of the pyramid is profound,
  what will be new business model?

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Concluding Thoughts

• The complexity and diversity of services
  offshoring
• We are at the elbow of the adoption S curve and
  this could be as important as the Internet in
  transforming our world
• We have only begun to see the new business models
  that service offshoring will create.
• Encouraging entrepreneurship in nations around
  the world
• The organizational and spatial footprint of the
  firm will be profoundly altered by service
  offshoring

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Thank You!
Is Latin America going to be largely irrelevant
in this new world?