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Uday Karmarkar, about off-shoring strategies

«The "geography" of services is linguistic and cultural»

There's a new geography of services. We are riding a tidal wave of "industrialization" of services. Globalisation and automation is transforming the sector. Some segments of service jobs are at risk in all developed countries and the claims against outsourcing and off-shoring are huge in politics. Although, we have no choice but to confront these economic facts in the ground. To survive - and even take profit from this reality - service firms must define an "industrialization" strategy, recommends Professor Uday Karmarkar, from UCLA. The linguistic and cultural footprints can be of help. While still miniscule in absolute terms, global trade in data and knowledge is growing rapidly. This trade will occur primarily between countries with linguistic and cultural similarities. The greatest opportunities for this strategy will be in linguistic groups whose wealth distribution is highly bimodal, explains professor Uday. And in a two way: outsourcing and insourcing.

Interview by Jorge Nascimento Rodrigues, editor of Gurusonline.tv. Illustration by Paulo Buchinho, December 2004

Forthcoming book in 2005
Article at Harvard Business Review: "Will You Survive the Services Revolution?", HBR, June 2004 edition (artigo por encomenda)

CV
Uday Karmarkar is LA Times Professor of Technology and Strategy. He is also Research Director of the Center for Management in the Information Economy, at the Anderson School of Management, at UCLA, in Los Angeles. He has a Ph.D in Management Science from Sloan School of Management, at MIT, and a B-Tech in Chemical Engineering, in 1968, at the Indian Institute of Technology, Bombay (Mumbai), India. He is director of several start-ups companies engaged in sectors such as eCRM, ERP, on-line and desktop learning systems, data mining software, etc.

E-mail of contact: ukarmark@anderson.ucla.edu
Personal Website: http://personal.anderson.ucla.edu/uday.karmarkar/

What's going on in that "services revolution" you refer in your HBR article, with the increasing "export" of services jobs: a corporate cabal against high and middle knowledge intensive jobs, or the loss of service competitiveness in developed countries in North America and the European Union?

There is no "corporate cabal" or collusion going on; rather it is the opposite - the force of competition between firms that makes it necessary to look for the most effective way of delivering goods and
services. This has happened with trade goods, with manufacturing and now is starting with services. The EEC and the US do have to make sure that the manufacturing story is not repeated. Many managers were "asleep at the wheel" and did not believe that Japan could compete with them; many in Europe are still asleep. Fortunately, the service picture is a little different, in that it is harder for external firms to enter - but think about what is happening in Europe with telecom and financial services.

So Europe may be helped and not "menaced" by this globalization of services. But it may still happen that although euro companies do quite well, the jobs still shift.

What are the main ingredients of the services revolution? From your point of view, what changes will be most profound?

The underlying factors are technology and competition. The major visible strategies are automation, outsourcing, "off-shoring", service redesign, and self service. A significant consequence is new
global competition, at the level of links in the information chain, and functions. Services will be re-bundled and reorganized in many cases. Amazon and eBay are good leading examples of one layer of a service being taken over by a new form, but there are many others on the way.

Europe is "menaced" by the off-shoring services revolution in telecom and financial areas?

In Telecom, some European countries are taking the lead in globalization of telecom (e.g. Telefónica, Deutsche Telecom, Orange, Vodaphone, etc.); in financial services too, there are many global Euro
companies (Credit Suisse, ING, ABN AMRO, Banco Santander). So Europe may be helped and not "menaced" by this globalisation. But it may still happen that although euro companies do quite well, the jobs still shift. I.e. companies doing well is not the same as employees doing well. In other business sectors (e.g. business services, content management) outsourcing/off-shoring can indeed be a menace, or at least something to be managed.

Doing the "industrialization" of services "right" is not the correct perspective; it is more a matter of timing it right (not too early and not too late). There is not much choice in terms of doing - it has to be done. Just that in some case, late can mean losing, but in most cases a little late is not a big problem.

For each of the four possible "industrialization" strategies you refer, can you give examples of companies or groups that did it right?

Many examples from many industries: automation and self service have already changed banking and financial services (starting with ATM's and credit cards, going to on-line formats). Outsourcing again
is widespread in financial services, and is spreading to many areas of business services (ranging from payroll and accounting to tele-selling and market intelligence). Globalisation is rapid in transaction and
commodity sectors like banking and telecommunications. Doing it "right" is not the correct perspective; it is more a matter of timing it right (not too early and not too late). There is not much choice in terms of doing - it has to be done. As for exactly the right time, I don't know that any better than anyone else. Just that in some case, late can mean losing, but in most cases a little late is not a big problem.

Can you give examples of service sectors that did the "industrialization" strategies at the right time?

Often the companies that do it well are new entrants. For example the successful B2C dot.coms who used self service and web based automation (including Amazon, eBay, Expedia, and many others). Among incumbents, Schwab, Wells Fargo. Among the telecoms, NTT DoCoMo (in Japan). Old examples: ATMs, bar code, vending machines, auto ticket machines, self serve gas pumps, etc.

With the Web revolution (work at distance is no more a serious problem) and the "commoditization" of the IT wave (as Nick Carr said recently in his book), the middle class careers in North Western developed countries are at bay? What will be the political consequences of this shift?

Large political consequences, because the affected people are not blue collar workers in factories who are invisible to many of us. They are white collar workers who are our neighbours (or even
ourselves). The media are also affected, and so will be ready to talk about it. And of course, it makes for a good political platform. But the real problem is helping people (and firms) to make the transition
that is required. We have been through this with manufacturing in the US.

What kind of jobs in high and middle intensive knowledge will survive locally?

Those that require interaction, networking, knowledge of language and culture, that are regulated, and that require physical services (like medicine). Anything that can be done remotely is at risk - so if you imagine that you can do your job with a laptop by the beach, it could be done elsewhere by someone else.

Will survive locally those services that require interaction, networking, knowledge of language and culture, that are regulated, and that require physical services (like medicine). Anything that can be done remotely is at risk - so if you imagine that you can do your job with a laptop by the beach, it could be done elsewhere by someone else.

One of the interesting conclusions of your article is the mapping of the services migration - globalisation in BPO and high and middle knowledge intensive jobs are language oriented…

While it is not a hard rule, the "geography" of services is linguistic and cultural. Language barriers are more relevant that oceans, mountains, and political boundaries with customs officials. So one can migrate to a different world by learning a language. In technical subjects, the language may be Java, fluid dynamics, or CAD/CAM. A very creative option is to target a country (like India or Russia) and to work at developing a special relationship with them over time. I doubt that most countries will do this, but I can cite some examples. Some Israeli companies have hired foreign talent to work for them based in Cyprus. There are a couple of examples of Indian engineers based in the West Indies (easy access to the US).

In your paper you mentioned the three main world languages - English, Spanish and the Chinese. The globalisation of services follows the language footprints of the English and Spanish-speaking countries. You didn't mention the French and the Portuguese speaking world. Why?

I didn't forget Portuguese or French. It is just that the distribution of demand and supply is different in different worlds. In English there are 300 million wealthy people and perhaps 100 million very poor (but capable) people. In Spanish, there are 40 million wealthy people, and 300 million who are less wealthy. So the pattern of what is demanded and what can be supplied will be very different.
Portuguese has its own pattern where Brazil may outweigh Portugal for both demand and supply. Unfortunately, ex-colonial masters are often reluctant to work with their colonies. So one of the big failures in the English world is that the UK could not yet capitalize on their primary contacts with India - it may happen yet, but the contacts with the US may be winning.

Can you detail more global services examples - than the famous Bangalore Case, in India - of taking profit in the language footprints?

Many examples even in the English case. The largest call-center operator for the US till 2002 was Australia (today India). The largest supplier of content management services for US is Ireland (tomorrow?). Many companies in the US looking at the Hispanic market (the world's second biggest language), go to Chile for help; many Spanish firms outsource to Latin American countries. France goes to Mauritius and North African ex-colonies. Germany to Poland and Czech, Sweden to Estonia.

Even China in certain emergent regions are challenging the idea of linguistic concentration. As Singapore did with the English, Chinese strategists are doing the same. Can China turn in the second half of the 21st century a big global player in the information-based service trade?

Very much so in technical areas, not so much in service areas. Even in the US, one can see that new immigrant Chinese are more visible in manufacturing and technology than in services. One has to also remember that many technical (like imbedded software) and B2B services(like commercial banking) follow manufacturing and China will capture those. Automation in services is also a possibility since hardware is involved (e.g. ATM's, or intelligent home appliances). But as China is successful in manufacturing, and as its standard of living rises, it will not want to provide low-end services.

What should also be remembered, is that the developing countries themselves also present large and growing markets for all kinds of services.

Globalisation of careers of western high and middle knowledge jobs will be a serious trend? This high and middle rank people has to adapt to "global mobility"? Can they have career opportunities in the geography of off-shoring?

Think about which English, French, Portuguese and Spanish people went to the colonies to make their fortunes? They were the adventurers and the less comfortable. If someone already has a good job in a wealthy country, why move? The modern adventurer is the business entrepreneur and the manager from a start-up company. But remember that the people in the "colonies" are not helpless or backward
natives any more. And going from the US to China or India just leads to a high cost person in a low cost country. What is much more likely is a two way flow. There is already a huge brain drain from India, China and the Philippines to the US and other countries. So the picture will be complicated. What should also be remembered, is that the developing countries themselves also present large and growing markets for all kinds of services.

Are you preparing a book about this matter? What will be the next steps in your research in this matter?

Yes I am in the process of writing a book. We are developing extensive research into these topics, and are working with research partners world-wide. The research includes a survey of current business practices and also investigations of changes in major sectors like financial services, media and entertainment, retailing, consumer appliances and business services. Our research partners already confirmed are in Italy, Germany, Sweden, France, Spain, India, Korea, Japan, Chile. In discussion: UK, China and Argentina. To come: Russia, Indonesia, Thailand. We have no partners in Brazil and Portugal.


© Gurusonline.tv, 2004

 
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