Tuesday, August 29, 2006

Is the World Flat?

I believe that India can become a strong economic power only through driving, controlling and dominating technology. To be able to do that, India has to be in the driving seat, be able to make decisions on direction of technology and be in a vantage position to foresee and deliver technology to the markets of the world. We need to do what Western Europe has done during Industrial Revolution, and what the USA and Japan have done in the Electronic, Automobile and Manufacturing sector in 20th Century. We have a unique opportunity here. Opportunity knocks once. Shall we embark on this adventurous ride or shall we miss it once again to be mere spectators and followers?

My previous article on ‘Why Infosys cannot become a product-making company’ was just a small part of the bigger problem-statement India has to deal with. India has to create its own technology ecosystem. To be in the driving seat one has to deliver the technology, goods and associated services from here in India.

Why I stress on such an ecosystem to be here in India?

Take examples of companies like Intel, Cisco, Siemens, Boeing, Toyota, and Tata. An ecosystem exists around each of them. The ecosystem consists of many other smaller or bigger companies that depend on each other. The larger ecosystem consists of academic and research institutes feeding these companies with new technologies and experts, a huge customer base in government deals or consumer markets, etc. Boeing in order to build planes supports and promotes ancillary industries- steel and aluminum, heavy electrical, communication equipment, chemical, tools, and so many others. Boeing by itself may be able to employ only 150,000 employees, but this industry in turn is helping many other industries.

Right now, some of these technology and product making companies use the services of many Indian companies- dealing with each of them independently to get the work done. The following picture illustrates this. Each of these Indian companies completes the project to enable this technology driver to make a product or develop technology. What an Indian company ends up is getting revenue for this project and also the experience of technology. Unless this experience is used to promote the same technology or product here in India, it is completely useless. This experience of working on a technology is extremely valuable and needs to be tapped into to generate maximum benefit. That can be done by creating similar technology and product making companies in the ecosystem which can generate the maximum value out of this experience.

Who is driving the technology in this picture? Who knows where and what will happen in three years from now. How many of the senior management at TCS and Satyam will be able to say with confidence what they will be working on and what they will be delivering three years from now? If indeed they know this, did they make the decisions or was the decision handed over to them from their client?

Thomas L. Friedman in his famous book titled The World is Flat has described the changes that are taking place in our world owing to fast communication and travel, bringing together diverse people of different countries (like India and China) to work together driving economic activity.

However, Friedman looks at it from an American (and West) perspective. His motivations are driven by what is good for America and the West. In some respects, his views seem to reflect that what is good for America is good for rest of the world too. Outsourcing and off-shoring are ‘in’ things. By stating this, he is preparing Americans and the western world to wake up to this new world order, embrace it, faster than what they hoped, and to take advantage of this new world order to perpetuate their economic dominance. In this new world order, countries like India and China may not be dominated like in colonial times, but will be ancillary partners supporting the plans of the western world helping them perpetuate their economic dominance.

Yes, the world is flat- it is flat for the western world, which drives the technology and the markets. For the followers and servicing organs like India and China, the world is still round. It is still complex, the boundaries still remain. Travel is still difficult and a good customer service is still far away. The cultural, political, religious issues continue to dominate the economic issues. May be, for a person living in Fremont (California), Bangalore is as near as Spokane (Washington), but for an Indian living in Tumkur, Bangalore is as far as Spokane. For most Indians the world order has not changed. Except for introduction of plastic (through sachets) and cellular phones to his village, the new globalization has not brought an American closer to him, the way it brought an Indian closer to an American. When an American picks up the phone to report a problem on his DELL laptop, he may be speaking to a considerate and American-accented Indian sitting in Bangalore, but when an Indian picks up the phone to report a problem with his water system, he is talking to a rude and apathetic operator. Not much has changed for this Indian the way it has changed for an American.

While it is extremely important for Americans and Western economic powers to wake up to this new flat-world order, recognize it and understand it so as to exploit and benefit from it, it is easy for Indians and Chinese to get misled by this interpretation into believing that the equations that hold good for an technology driver are also valid for him. That is not the case. While servicing these technology drivers in what is seen by them as a flat-world he is benefiting from it in a very narrow scheme of things. By not reaching the same level of being in the driving position he is losing out on the bigger scheme of things. This new flat-world order continues to keep the western powers at the helm using some select few developing countries as supporting and ancillary partners. It does not however bestow upon these select few developing countries the role of a leader. An Indian and Chinese should not get carried away by the interpretation of this new flat-world order into believing that he is an equal partner. He should not quickly conclude that he has an equal role to play in his respective segment (services- software or manufacturing). An inherent hierarchy of control still exists.

Many Indians, living in India and US, seem to like this new interpretation that indeed they are all on the level-playing field. This illusion seems to make them happy and they seem to join the bandwagon to champion this notion further. This is convenient for them because without having to be the leaders, they get the label as equal partners. This notion (of flat-world) is supported by everyone in the current industry. Software services organizations in India are happy, the new entrepreneurs promoting similar software services industry are happy. The VCs who promote this industry in India are happy. According to them- “In this flat world, India has a role to play. China has a role to play. We are all playing our roles. What is wrong with that?”

Take one consequence of this flat-world- Outsourcing of BPO has positive and negative fallout. While it is enabling many a youth to make a quick buck who otherwise would never been able to dream of making such money, it is also creating a youth which is confused, having the lowest sense of professional ethics, and seems to bring in a social structure which the Indian family is not used to. The question remains- is this a sustainable business? Outsourcing is a good stepping stone to something more sustainable, tenable and long-lasting. But what is that? Are we moving in that direction?

The world is flat, but the world is flatter for some than others.

I do not agree that the World is Flat for everyone. I think it is flat for those countries and companies who are in the driving seat. For all those countries and companies who are followers, the world is still round. Having multiple locations (in different countries) for a services company like Infosys, Wipro or TCS is not going to make this world flat for them. If indeed they believe this, they are fooling themselves. Putting offshore units in China or Vietnam is not going to take them anywhere. Boundaries exist in these parts of world which still stand.

R&D organizations should be made of closely knit groups. All my experiences working on multiple R&D locations (in different countries) were major disasters. The projects kept on getting delayed running into years and many of them seriously failed. Only those locations which kept their entire R&D team for a technology or product closely knit were able to deliver with success.

A software services company like TCS might be bagging many contracts from different companies in various domains. How many other companies in India get benefited from these contracts? How many other companies and industries does TCS spawn, help, aid or promote? How many companies depend on contracts that Infosys brings home? The outsourcing business is a like a pipe between the technology provider and the services company. It flows between the driver and the follower but no ecosystem get created. The technology provider at the driving seat decides who he will partner with for outsourcing. Such collaborations do not create an ecosystem in India. Once the cost-arbitrage is compromised, this technology provider may choose another partner for outsourcing and that could very well be in another country. For all we know he may even choose to stop this outsourcing business altogether.

Outsourcing across continents and countries is a gap filling exercise. New technology, like internet, has given us tools to try out different experiments and that’s what we are doing. The problems associated with long-distance and different locations will soon dominate and this whole exercise will be reexamined.

Champions of Indian services industry may look at examples like IBM, Accenture, EDS, etc, as role models. How many companies can you create out of India which can emulate them? Ten? Twenty? But that is not enough for us to become an economic powerhouse. NASSCOM predicts Indian IT-ITES will be a mere $70B industry by 2009. Is that good enough? We need to be thinking of making it a $500B industry. We need to be thinking of making technology producers and product makers in India who can earn large monies. We need a Nokia, a Boeing, a Toyota, a Oracle, a Apple, and a Dell. To conveniently skip this process terming it risky is a lackadaisical approach. Satisfying ourselves saying that we are services only will not allow us to scale as a nation. We need more technology drivers.

By employing 1 million engineers we may be able to take it to $40B. Using the present model of services, by employing 5 million engineers we may be able to take it to $200B in the next ten (or twenty) years. Now, Compare with this. Google with 6,000 employees is a $6B company. Nokia with 40,000 employees is a $40B company. With 1 million engineers we should be aiming at making $1 trillion. That’s when this country will be a developed nation.


Shashi Tharoor: Imperfections in Friedman's Flat World

Infosys: Think Flat Blog


Rajiv said...

i was reading this..


Rajiv said...

we'll infosys stil thinks world is flat.


WizardofID said...

very very well put. I could not have put it much better. The world is flat only when there are equal opportunities for everyone all around. India is not even trying to flatten/ level it's home. We still have such huge economic disparities.

I agree the internet has brought the world closer, and opened up more opportunities to those who have the resources in the first place to harness them. But we, as a country are not getting anywhere until we develop a products mindset. We need to control the last mile to the consumer. Find out what people want and make that and better.

Our auto chaps viz M&M and Tata's are doing a lot more for the local ecosystem than any of the software cos. We need more like them, more people building locally and internationally relevant products - cookers, microwaves, washing machines, cycles, cars, etc.

Samir said...

Great article. It is all about what we want to be --- what we set our expectations to be. Many Indians would be happy to be serving their white masters Americans, and do jobs for them. If we consider that as our standard, yes, outsourcing and companies such as Infosys have done a great job. While if we look at Larry Page, and Bin and wonder --- why are we not there yet, all we get is a lot of restlessness and discontent. Only when that discontent drives us, we will be somewhere. A whole country needs to be inspired probably the same way Gandhi inspired the country during the freedom movement.

Thanks again for the great article.