Transcript No Slide Title

The Global Reorganization of
Knowledge Work: The Rise of
India and China
Martin Kenney
UC Davis
&
Rafiq Dossani
Stanford University
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
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
Shenzhen 1985, 1995, 2004
Bangalore’s Electronics City
Technical Enabling Conditions and
Business Drivers
Technical Enabling
Business Drivers
Conditions
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
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
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
Moving Up the Value Chain
USPTO Patenting by Year for Various Nations, 1963-2004
100000
Korea
Taiwan
Japan
USA
China
India
Mexico
10000
1000
100
10
19
63
19
66
19
69
19
72
19
75
19
78
19
81
19
84
19
87
19
90
19
93
19
96
19
99
20
02
1
China
India
Mexico
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)
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
Hyderabad
Technical Bachelors Masters PhD
0
0
0
2
9
1
63
16
0
0
62
35
Total
0
0
13
2
89
110
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
Services Offshoring Growth
Areas
• Add segments of work within the existing
functions
• Add analytical work
• R&D/design
• Risk management
• Consultancy on process reengineering
• Software products in narrow segments
The Global Service Economy
Major Pathways for Services Offshoring
Line thickness represents size of flows
India
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
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%
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
42
FY00
70
FY01
106
FY02
FY03
FY04
Employee numbers ‘000s
Source: NASSCOM 2005
FY05
Employment for Global Operations in India by
Selected Large Non-Indian Software Firms
Oracle
Microsoft
SAP
IBM
Veritas
Adobe
EDS
Cap Gemini
Symantec
Nationality Employment in
Global
% in
India (date)
Employment*
U.S.
6,900 (2005)
41,658
U.S.
1,250 (2004)
57,000
Germany 5,000 (2006)
38,802
U.S.
38,000 (2006)
369,277
U.S.
900 (2004)
17,250
U.S.
500 (2005)
3,142
U.S.
2,400 (2004)
117,000
France
2,000 (2004)
59,324
U.S.
0
5,300
India Locations
16.6
2.2
15.2
11.2
5.2
15.9
2.1
3.4
0
Bangalore, Hyderabad
Bangalore, Hyderabad
Bangalore
Bangalore, Delhi, Chennai
Pune
Delhi
Chennai, Delhi, Mumbai
Mumbai, Bangalore
N/a
An example of the changing
MNC services global footprint
HP’s Regional and Global Consolidation
Decentralized
(1990-95)
Regional Consolidation
(1996-99)
Off-Shore Global
Consolidation (2000-03)
HP’s 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
Activities
• Country-specific regulatory
transactions
• Customer support for exotic
languages (e.g., SerboCroatian, Chinese)
• Back-up and disaster
recovery services
Workforce
• 65 FTEs, contract labor
• 1 year to scale
Source: Hewlett-Packard: Working Council for Chief Financial Officers research.
Workforce
• 250 FTEs Barcelona
92 FTEs Singapore
380 FTEs Guadalajara
60 FTEs Dalian
120 FTEs Costa Rica
• 1 year to scale
HP BPO’s 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
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
Collections
IT ADMS
Web
Development
QA Product
Development
Biz Process –
Order Mgmt
Finance Audit
ERP
Reporting
Global Trade
& Logistics
Data Entry
(Engineering
Services)
Nov 01
ASIC Design
Feb 02
Nov 02
Nov 03
Bold = unplanned
Nov 04
Entrepreneurship
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)
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.
The Location of the NASDAQ-Listed Chinese
Firms and Their Venture Capitalist Directors
Japan
Hong Kong
3 → 5 firms
1
10
4
7
2
5
Beijing
1 → 13 firms
SF Bay Area
15
6
2
Singapore
1
4
1
1
Shanghai
4 → 13 firms
1
1
2
London
Taiwan
2
Other U.S.
6
Consumers
They Will Be the World’s 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.
Summary
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
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
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 R&D in China largely for domestic
market. R&D 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
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?
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
Is Latin America going to be
largely irrelevant in this new world?
Thank You!