Local World

The past few weeks have brought a couple of notes about outsourcing IT services to China, with rather different perspectives.

McKinsey’s recent research note notes some key challenges: lack of employees with strong English skills and international project management capabilities, and poor intellectual property protection. But the note also highlights strengths, such as the large number of Japanese- and Korean-speaking employees, and expertise in high tech realms that could support outsourced R&D. They boldly state that:

…McKinsey research—including interviews with officials at many Chinese government agencies, executives at Chinese leading services providers, and managers at Chinese services-outsourcing parks—suggests that by implementing an aggressive strategy to develop the sector and cultivate talent, the country could capture opportunities worth $56 billion a year by 2015.

On the other hand, the Go East blog offers a few quotes from this year’s Black Book of Outsourcing report that are quite critical. The 2008 State of the Industry report notes that none of the China outsourcing firms made it to their top 50 global outsourcing firms list, and while some have received positive marks, “the level of client satisfaction has not been maintained over long periods as have other offshore suppliers.” They continue:

Customer-provided grades in work quality and staff dedication are extremely high but clients complain of several crucial issues keeping China outsourcing vendors from receiving top satisfaction scores. On top of a fragmented market, China still lacks outsourcing management talent, along with problems with intellectual property protection, differences in culture, poor English language skills, and sparsely found project management expertise especially in outsourcing. Having to tread carefully with these concerns is causing clients to reconsider these suppliers until more intrepid competitors substantiate successes in China.

Upon closer comparison, it seems to me that while their overall assessments have a very different tone, both groups see similar pros and cons. I’m guessing that part of this is about whether you are looking at China outsourcing as an industry, and can see the overall growth opportunity; or whether you are looking at it from a single company’s perspective, and are concerned about an individual client’s business risks.

What’s also interesting is that only a small part of either assessment is related to the specific content of the outsourced work (whether IT or BPO services). This affirms my view, that managing global projects requires a broad set of individual skills and organizational capabilities, beyond the specific project content-related skills.

When I talk about our consulting focus on global business strategies and processes, many of my friends and neighbors’ eyes start to glaze over. (Yes, I know I need to work on my elevator pitch!) But I think there’s another reason, which is that a lot of us believe we live and work in a local market, and changes in global businesses don’t really affect us. Sure, we all hear the drumbeat of increasing globalization, but in our day-to-day lives, it doesn’t really have much impact, does it?

Actually, it does. I really can’t think of a single business that isn’t affected in some way by changes in global businesses and economies. The local pizza parlor has to deal with competition from global fast food restaurant chains and the increasing costs of ingredients, a global economic trend. Meanwhile, our community supported agriculture farm sells out its shares faster every year - partly because they’re doing a fantastic job, and partly because people are increasingly concerned about the costs and problems of a global food system that typically transports food hundreds and thousands of miles.

The CEO of Harvard Pilgrim Health Care wrote in his blog recently about a new report on medical tourism from Deloitte. He then goes on to sketch out the impact on the United States health care industry in a number of dimensions: loss of revenue from both foreign patients traveling to the U.S. for care, and from American patients traveling to other countries for care; fewer foreign medical practitioners coming to the U.S. for their careers, and potential staffing shortages; and an increasing number of joint ventures between US and international health care providers. He ends with this statement:

So — is this [medical tourism] “bleeding edge” or “leading edge”? I don’t know. But it does raise interesting questions about whether or not health care in the future — which everyone’s always called a “local market” — will continue to operate that way down the road.

I think the answer is clear: health care is already both a local and a global market.  Local differences in culture, language, economics, infrastructure, political and regulatory environments, etc. are very significant, and health care in the US and Europe and Asia will continue to operate very differently.  At the same time, it is increasingly rare to find a truly local market, and even seemingly local businesses need to incorporate changing global environments in managing their operations.

In my post yesterday, I wondered at the lack of excitement about the new Massachusetts Life Sciences law. Today, the top article in the Boston Globe’s business section is about Maryland’s announcement of a similar plan. Apparently the Massachusetts law hasn’t gone unnoticed by other state governments, even if it’s barely caused a ripple locally. In fact, several states already have in place similar programs to boost investment in life sciences research and industry: California has a $3 billion program to support stem cell research, New York is investing $600 million in stem cell research, Texas has a $3 billion program to support cancer research, and Washington State plans to put $350 million into life science research.

It’s great to see state governments making long-term strategic investments that will help to build and support emerging business in the life science industry. Instead of continuing to bring out me-too legislative packages, though, I would like to see our states working together to develop a competitive global strategy. And where is our national leadership on this?

Addendum: The day after I wrote this, the Boston Globe ran another longer article about competition among the states for life sciences and biotech businesses. This article finally noted that ‘All three [states] also face competition from abroad, including Ireland, Singapore, and China. Swiss drug maker Novartis AG, for instance, decided late last year to build a drug manufacturing plant in Singapore, after initially considering Massachusetts as one of several potential sites.  “I think our ability to attract and retain the best and brightest talent in the world is being challenged by other parts of the world,” said Matthew Gardner, president of BayBio, which represents Northern California’s life sciences industry.’

Yesterday, Governor Patrick signed into law a $1 billion package for a 10 year plan to support the growth of the life sciences industry in Massachusetts. This seems, to me, like a huge deal, and a really important step for the future Massachusetts economy. Yet news coverage seems kind of muted (see, for example, this article at the Boston Channel) and I’m wondering why?

The law is not without controversy: it has ended up with a number of fixed spending commitments that seem oriented towards individual legislators’ constituencies (see this article in the Boston Globe), and other voices have argued that the money would be better spent on existing businesses. Yet infrastructure investments and government support have played a critical role in developing new competitive industries, contributing to overall economic development, in region after region. Regional differentiation and specialization is an essential to remain competitive in an increasingly global economy.

Although often overlooked in the emotional offshoring debates, the investments which the Indian national and state governments made in building the IT services industry are equally important as the region’s relatively low costs. India established the Indian Institutes of Technology, competitive technical universities whose graduates seeded the industry (and high tech industry worldwide); implemented a tax break for software businesses’ foreign revenue (due to expire in 2009); created special economic zones and opened up land for building IT campuses. Individual states and cities have offered attractive packages of land and tax breaks to encourage leading IT businesses to establish themselves in specific areas. The clusters of IT businesses then support a slew of other businesses, who serve both the IT businesses and their upwardly-mobile employees. (My former employer, Kanbay, since acquired by Capgemini, decided to build a new campus in one city over the other primarily because of a package offered by the local government.) If you have any doubt about the broader impact of such policies, you have only to look at the hot real estate market in the top 5 IT cities in India, or the intense traffic congestion in Bangalore.

So why isn’t there more of a reaction to this Massachusetts law? Is it hard for people to get excited about something that won’t have an immediate impact, but a more gradual effect over the next 5 - 10 years? Or is it a general distrust of government support for business, or flaws in this law, or am I simply missing some of the coverage? I welcome your insights.

Addendum:  For a thorough description of the Massachusetts law, I recommend this article at Bioregion News.

I’ve been a fan of Sandeep Sood’s wickedly funny comic “Doubtsourcing” for some years now. (He seems to be taking a breather right now, writing about big B’s campaign, but that’s another story…)

Yesterday his newsletter pointed me to an excellent short - and humorous - article in Forbes about outsourcing to India. If you work with people in other parts of the world, especially India, and you haven’t seen it yet, I urge you to check it out. Working from an anecdote about an all-too-common miscommunication with his virtual assistant, he draws some broad lessons on what it takes to make outsourcing to another country work.

Perhaps most significantly, Sandeep Sood refers several times to “global collaboration,” and not once to “offshoring.” I think it’s that mindset, the recognition that what you’re really doing is working with people in another country and culture, not sending work out, that underlies almost all successful global projects. Add to that basic understanding some detailed planning, a lot of structure, good virtual communication tools, and a large dollop of patience, humor and respect, and you can get some great results…and maybe even have fun in the process.

In addition to his commentary, there is a slide show on ten tips for outsourcing. These do not include the usual advice on contract negotiations and performance metrics! Last I checked, the link to one of them is not functioning, but you can get to the rest of the slides by manually tweaking the URL. They’re worth it.