Transcript Innovation in Services -

Shenzhen 1985
Shenzhen 1995
Shenzhen 2005
Offshored Services,
Innovation, and Knowledge
Intensity*
Martin Kenney
UC Davis & Berkeley Roundtable on the International
Economy
&
Rafiq Dossani
Stanford University
*Keynote presentation at the Innovation in Services
Conference, Manchester, UK, June 15-18, 2006.
The Story Is No Longer...
• about domestic markets
• confined to call centers, simple software
coding, or data entry
• about only large MNCs, small knowledgeintensive firms are rapidly building
capabilities abroad
• about India alone (Martha shows)
It Is Also About...
• high value-adding capabilities being
developed in low-wage economies
• interesting entrepreneurial initiatives in
developing nations
• interesting entrepreneurial initiatives in the
developed nations to use low cost “think”
workers
• MNCs creating global centers of excellence
offshore
• new business models (virtual receptionist)
• global knowledge networks
– Different mix-and-match (in-house/external)
The Discussion of Whether
Knowledge-Intensive Services
Will Be Relocated to
Developing Nations Is Over
And That Is Why This Conference
Is So Exciting and the Reason We
All Came -- We Are Studying a
Major Shift the Organization and
Geography of Value Creation
Blinder (2006) claims that it will be a new Industrial
Revolution. Will it be like China in manufacturing,
was that an industrial revolution
Consider the Issues With Which Our
Work Intersects
• The boundaries of the firm
• The reorganization of the firm (e.g., Sako
2005)
– Vertical disintegration
– Dismantling the Chandlerian firm’s staff function
• Changing location of work
– Division of labor
• Changing organization of work
• What does information technology enable
The Enabling Conditions -- We All
Know
• Increasingly accessible workers in developing
nations
• Standardized platforms & now open source
• Digitization
–
–
–
–
data and info fluidized
increasing volume
plummeting transfer and telecom costs
copying and use costs zero w/t state protection
• Corporate reengineering and outsourcing
domestically becomes normal practice
Patents as a Measure of
Knowledge Creation
One Measure of Where Is Knowledge Being Created:
Patenting by Year for Various Nations, 1963-2004
100000
Korea
Taiwan
Japan
USA
China
India
Mexico
10000
1000
100
10
China
02
20
99
19
96
19
93
19
90
19
87
19
84
19
81
19
78
19
75
19
72
19
69
19
66
19
19
63
1
India
USPTO Patents per 10,000
Persons, 2004
•
•
•
•
•
•
Taiwan
Korea
Japan
U.S.
India
China
-- 2.5835 (5,938)
-- .9145 (4,428)
-- 2.7436 (35,350)
-- 2.850 (84,271)
-- .00336 (363)
-- .00457 (597)
India as an Exemplar
2005 -- Employment Growth
CAGR
29.8%
IT Software and Services
ITES-BPO
697
588
18.5%
490
416
360
348
37.0%
254
242
180
70
42
FY00
FY01
Source: NASSCOM 2005
106
FY02
FY03
FY04
FY05
Employee numbers ‘000s
Remember US Work Force is 130 million
Employment for Global Operations in India by
Selected Large Non-Indian Software Firms
Nationality Employment in
India (date)
Oracle
U.S.
6,900 (2005)
Microsoft
U.S.
2,500 (2005)
SAP
Germany 5,000 (2006)
IBM
U.S.
53,000 (2006)
Veritas
U.S.
900 (2004)
Adobe
U.S.
500 (2005)
EDS
U.S.
5,000 (2005)
Cap Gemini France
2,000 (2004)
Comp Assoc US
1,000 (2006)
Global
% in India Locations
Employment*
41,658
16 Bangalore, Hyderabad
57,000
4 Bangalore, Hyderabad
38,802
15 Bangalore
369,277
14 Bangalore, Delhi, Chennai
17,250
5 Pune
3,142
16 Delhi
117,000
4 Chennai, Delhi, Mumbai
59,324
4 Mumbai, Bangalore
16,000
6 Hyderabad
Sales for IBM GS, TCS and Infosys
50000
45000
40000
35000
30000
25000
20000
15000
10000
5000
0
Infosys (+1yr)
TCS (+1yr)
IBM GS Sales
31.6% CAGR
23.4% CAGR
2001 2002 2003 2004 2005
6.3% CAGR
Source: Various Annual Reports
Profitability of Infosys, TCS, IBM, 2003-2005
8000
7000
6000
Infosys profit
(+1yr)
TCS profit (+1yr)
5000
4000
3000
IBM profit
2000
1000
0
2003
2004
2005
Source: Various Annual Reports
27.5% CAGR
15.3% CAGR
6.6% CAGR
ITES Exports from India, 2004-05
Call centers are
declining as a share
Relationship and
risk management
3%
Analytics and
content
development
Call centers
13%
29%
Claims processing
55%
EvalueServe
By the year 2010, several new KPO
services will become prominent in the
global offshoring space …
8%
9%
12 %
29%
12 %
12 %Integration and
18 %Management
Data Search,
Biotech and Pharma
Engineering and Design (incl. VLSI, Highway Design, etc.)
R&D (excl. Biotech, Pharma & VLSI, etc.)
Remote Education and Publishing
Animation and Simulation Services (incl. Analytics)
Others incl. Market Research and Intellectual Property
Source: Evalueserve 2005
The Indian IT Services Landscape
Direction of Evolution
High Value
High Volume
Network Infrastructure
Management
R&D Services
Processing
Services (80Bn)
IS consultingPackaged S/W support &
Integration
Application development,
maintenance and outsourcing (60Bn)
Technology & Domain IP
Current Strength
System Integration
Network Consulting and
Implementation
IS Outsourcing (110 Bn)
Training & Education ($50Bn)
H/w support and
Installation (120Bn)
Future growth Focus
Leveraging current strengths to grow and move up the
value chain
BPO maturing and moving up the
value chain
High
Embryonic
Growth
Mature
Aging
IT
Outsourcing
Call Centers
Maturity
Engineering
Accounting
HR Admin
Insurance
Claims
• Specialized players emerging
• Complexity quickly increasing
• From captives to third-party
• “Double Sourcing”
Tech Support
Knowledge
Processes
Low
Time
Source: Alok Agarwal/Evalueserve 2005
Case Studies
MNC A -- Regional and Global
Consolidation
Decentralized
(1990-95)
Regional Consolidation
(1996-99)
Off-Shore Global
Consolidation (2000-03)
India as the global
center of excellence
MNC A Global BPO Footprint with Regional
Specializations
Scale of Operations: 4,700+ professionals
Presence: 56 local front-offices, 7 regional business centers, 7 global business centers
Language capabilities: Expertise in 30 languages
Main Global Hub
Low-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 Centers
Specialized Language Transaction Processing (Barcelona,
Singapore, Guadalajara, Dalian & Costa Rica)
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: Working Council for Chief Financial Officer
Activities
• Country-specific regulatory
transactions
• Customer support for exotic
languages (e.g., SerboCroatian, 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
MNC A -- Business Growth over the
Last 5 Years
8000
Planned:
Employee Services,
Procurement,
Full Suite of
F&A services
7000
Headcount
6000
5000
4000
3000
Accounts Payables,
Accounts
Receivables, Intra
Corporate, Field
Inventory & Revenue
Accounting, Fixed
Assets
Accounts Payables,
Consolidation, T & E
2000
1000
Bank Operations,
Treasury and Tax
Accounting, Order
Management, CRC
Accounts Payables,
T&E
Employee
Reimbursements,
Contract Administration
Master Data Maintenance,
Rebates, Sales
Administration, Global
Service Accounting
Operations, Workforce
Development,
Financial Services
0
FY00
Guadalajara
FY01
Bangalore
FY02
AR, Global Service Accounting
Operations,
GL Consolidation, Bank
Operations, Sales
Compensation, Claims &
Rebates
P&G Accounts Payables,
2nd Commercial Account
Warranty Claims, Payroll
P&G Accounts Payables
Contract Administration
FY03
Chennai
Dalian
FY04
Singapore
FY05
Barcelona
Costa Rica
MNC B -- Actual Transition of Projects
at a Major US Firm
Product
Development
EDA, T&M
Professional
Services
Network Design
COMPLEXITY
CAD Support
Accounts
Receivables
Vendor
Payables
IT ADMS
Biz Process –
Order Mgmt
Finance Audit
ERP
Reporting
Global Trade
& Logistics
Data Entry
(Engineering
Services)
Nov 01
1,300 employees
Collections
Web
Development
QA Product
Development
ASIC Design
Center
Feb 02
Nov 02
Nov 03
Bold = unplanned
Nov 04
The Educational Levels of Web Posted Job Descriptions
for Intel, HP and Oracle, February 2005
INTEL
None
Shanghai
Beijing
Bangalore
Technical Bachelors Masters PhD
10
9
61
55
1
0
7
6
11
7
39
112
Total
9
1
10
144
15
179
HP
None
Shanghai
Beijing
Bangalore
Technical Bachelors Masters PhD
6
2
7
29
5
0
25
28
15
3
62
42
Total
1
0
34
45
58
156
ORACLE
None
Beijing
Bangalore
Technical Bachelors Masters PhD
0
0
0
2
9
1
63
16
Total
0
0
2
89
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.
Responsibilities
As 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.
Qualifications
You 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.
Accessed April 9, 2004 http://appzone.intel.com/jobs/uRequisition.asp?Posting=34339
An Example of Offshore KIS
• EvalueServe
– Business Information & Market Research
– Industry and Value Chain Analysis
– In-Depth Analysis of Customer Segments, Products,
Channels, Technologies
– Competitive Intelligence and Benchmarking
– Monitoring and Customized Newsletters
– Primary Research Surveys of Industry Participants and
Experts
Software As a Service
• Why own software and pay consultants to
maintain it, when you can buy it as a service
– Salesforce.com
– Jotspot.com (uses programmers globally)
Questions
• How much KIS can be created in LDCs?
– What are the limits and can we create theories that
will tell us what they are?
• How does interpersonal knowledge creation
across national boundaries work?
• Will a global wage be set for work?
• How do networks of intermediaries (these are
also KIS) get created to facilitate globalization
(Howells and others here at UM)?
• How is the increasingly encompassing open
source movement going to affect KIS?
Questions
• With digitization, value created from the digital
realm itself
– Music mashups
– Myspace
– Web mashups
• What is the proper stance toward IP to
maximize global value creation?
• How will entrepreneurs innovate new value
propositions?
Thank You