Tuesday, July 19, 2005

Textiles, Steel... IT?

Just got back from India yesterday, and I have a couple of observations to post about. As I find time over the next few days, I'll write about some of the things I noticed in Bangalore while visiting. All of these observations are based on anecdotal information, as I was there for a wedding, not research.

The first thing that struck me on my trip were two conversations I had within the first 48 hours. The first was with an old colleague in Singapore during my day-long layover, and the second with a relative of mine in Bangalore.

In Singapore, we were talking about how much the attitude of Singapore has changed recently. I mentioned that there seemed to be a much bigger push towards entrepreneurship and strategic management, visible even to a casual tourist, than I saw when I worked there a few years ago. The front display of every bookstore was dedicated to their bestsellers, but those best sellers were not by Crichton, Grisham, or Rowling - Instead, they were by Welch, Gladwell, Covey, etc. Tellingly, I went to 5 bookstores in the city, and EVERY ONE of them was sold out of "The World is Flat" by Thomas Friedman.

Naively, I believed this push was because Singaporeans felt they could benefit greatly from the more globalized economy. My colleague was kind enough to disabuse me of that notion quickly. It seems there's actually a sense of quiet dismay among the country's labor force. Many of the jobs that came to the country only over the past couple of decades are now being moved off shore.

Just a day later, I had arrived in Bangalore, meeting relatives I hadn't seen in 20 years, if ever. One of my distant cousins and I were chatting, and I found out that he recently started working at Siemens. He mentioned that he had been there for only 3 months, but was excited as he had moved from being a developer to more of an architect role. As we talked more, I found out that the reason he originally had to move was because the company he had previously worked for had relocated to Northern India. Apparently, competition for good developers had driven rates too high in Bangalore, and there were better opportunities elsewhere in India. What struck me most however, was what he said about the move. "We did all the hard work bringing it here. After that, moving it somewhere else was easy." The move from having an on-site, integrated development team in California, to an off-shored, spec driven development team in Bangalore is difficult. Processes have to be put in place, communications have to be improved, etc. However, once all of these have been set up, the move from having that off-shored development done in Bangalore to having it done somewhere even cheaper is much easier.

What does this mean? Well, for the foreseeable future, there will always be a oversupply of well educated people around the globe, who can do basic development work. That means even the "low cost" centers that exist now, will soon face pressures similar to what we see here now. Singapore, which was built on the back of outsourced manufacturing as it grew, is slowly seeing that pressure, as there are still high switching costs to moving a plant. Bangalore however, built on the information economy, is seeing these pressures arise only 5-8 years after really getting started!

Most industrialized nations today shared a few key development points. Textile and steel are two traditional examples of industries that most countries develop at some point. The theory is that these are industries that help a country develop the infrastructure and basic skill set to allow for the next level of advancement. However, the basic nature of these industries also means that they face competitive nature more rapidly than others, as evidenced by the state of American textile and steel today. IT development looks to be the next of these fundamental industries - a traveling aid for developing economies, not a viable final destination.