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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 - PowerPoint PPT Presentation
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The Global Reorganization of Knowledge Work: The Rise of India and China
Martin Kenney
UC Davis
&
Rafiq Dossani
Stanford University
Outline of Talk
IntroductionMoving up the value chainGlobal service economyIndiaAn example of the changing MNC services global footprintEntrepreneurshipConsumersSummaryAn Inflection Point for the Global Economy
No longer any fields guaranteed to workers in developed nationsTaiwan/China in manufacturingIndia for servicesIndia is moving into judgement based workPatent writingDataminingShenzhen 1985, 1995, 2004
Kun Chen 2005
Bangalores Electronics City
Technical Enabling Conditions and Business Drivers
Technical Enabling
Conditions
Business Drivers
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 servicesBusiness Drivers
Pressure to bring down costsRivalry -- rivals have done it so must followAcceptance of reengineering and outsourcing various servicesExperience w/offshore software productionToday it is just part of doing business
Moving Up the Value Chain
Mexico
China
India
USPTO Patenting by Year for Various Nations, 1963-2004
1
10
100
1000
10000
100000
19631966196919721975197819811984198719901993199619992002
Korea
Taiwan
Japan
USA
China
India
Mexico
USPTO Patents per 10,000 Persons, 2004
Taiwan-- 2.5835 (5,938)Korea-- .9145 (4,428)Japan-- 2.7436 (35,350)U.S.-- 2.850 (84,271)India-- .00336 (363)China-- .00457 (597)The Educational Levels of Web Posted Job Descriptions
for Intel, HP and Oracle, February 2005
Sheet1INTELNoneTechnicalBachelorsMastersPhDTotalShanghai10961559144Beijing1076115Bangalore1173911210179HPNoneTechnicalBachelorsMastersPhDTotalShanghai62729145Beijing502528058Bangalore153624234156ORACLENoneTechnicalBachelorsMastersPhDTotalBeijing000202Bangalore916316089Hyderabad00623513110Sheet2Sheet3A 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.http://appzone.intel.com/jobs/uRequisition.asp?Posting=34339
Accessed April 9, 2004
Services Offshoring Growth Areas
Add segments of work within the existing functionsAdd analytical work R&D/designRisk managementConsultancy on process reengineeringSoftware products in narrow segmentsThe Global Service Economy
Major Pathways for Services Offshoring
Line thickness represents size of flows
India
Remarkable Diversity of Organizations
MNC in-house subsidiariesAgilent, HP, SAP, Morgan Stanley, HSBCMNC outsourcer subsidiariesIBM, Accenture, EDSU.S. startupsTensilica, Sierra Atlantic, KeteraMNC and domestic specialistsThomson, Evalueserve, KaleDomestic and NRI independentse4e, GTL, ICICI OneSource Indian IT subsidiariesProgeon, HCL BPO, Wipro BP, TCSITES Exports from India, 2004-05
Call centers are
declining as a share
Chart1Call centersClaims processingAnalytics and content developmentRelationship and risk management15002800670165Sheet1Customer care (low-risk): $1500 mData and claims processing: $2800 mAnalytics and content development: $670 mustomer care, vendor management, HR management: $165 m1500Call centers15002800Claims processing2800670Analytics and content development670165Relationship and risk management165Sheet1Sheet2Sheet32005 -- Employment Growth
CAGR 29.8%
Employee numbers 000s
Source: NASSCOM 2005
37.0%
18.5%
Employment for Global Operations in India by
Selected Large Non-Indian Software Firms
Sheet1NationalityEmployment inGlobal% in IndiaLocationsIndia (date)Employment*OracleU.S.6,900 (2005)41,65816.6Bangalore, HyderabadMicrosoftU.S.1,250 (2004)57,0002.2Bangalore, HyderabadSAPGermany5,000 (2006)38,80215.2BangaloreIBMU.S.38,000 (2006)369,27711.2Bangalore, Delhi, ChennaiVeritasU.S.900 (2004)17,2505.2PuneAdobeU.S.500 (2005)3,14215.9DelhiEDSU.S.2,400 (2004)117,0002.1Chennai, Delhi, MumbaiCap GeminiFrance2,000 (2004)59,3243.4Mumbai, BangaloreSymantecU.S.05,3000N/aSheet2Sheet3An example of the changing MNC services global footprint
HPs Regional and Global Consolidation
Decentralized
(1990-95)
Regional Consolidation
(1996-99)
Off-Shore Global Consolidation (2000-03)
Source: Hewlett-Packard: Working Council for Chief Financial Officers research.
HPs Global BPO Footprint with Regional Specializations
Main Global Hub
Low-Cost, Transaction Processing Center
(Bangalore & Chennai)
Activities
Finance & AccountingBillingOrder & rebates managementCustomer fulfillmentEmployee services & payrollProcurement/SCMReportingWorkforce
3,800 FTEs, HP employees2 years to scaleLanguage fluency in English, French, German, Spanish, Japanese, ChineseSupport Centers
Specialized Language Transaction Processing (Barcelona, Singapore,
Guadalajara, Dalian & Costa Rica)
Workforce
250 FTEs Barcelona 92 FTEs Singapore 380 FTEs Guadalajara60 FTEs Dalian
120 FTEs Costa Rica
1 year to scaleActivities
Country-specific regulatory transactionsCustomer support for exotic languages (e.g., Serbo-Croatian, Chinese)Back-up and disaster recovery servicesOnshore Centers
(Colorado Springs & Houston)
Activities
Call center support (A/P)Vendor refund & escalationTax reportingMail room & scanningWorkforce
65 FTEs, contract labor1 year to scaleScale of Operations: 4,700+ professionals
Presence: 56 local front-offices, 7 regional business centers, 7 global business centers
Language capabilities: Expertise in 30 languages
HP BPOs Business Growth over the Last 5 Years
Data Entry (Engineering Services)
CAD Support
Vendor Payables
Accounts Receivables
Product Development EDA, T&M
ASIC Design
Biz Process Order Mgmt
Professional Services Network Design
QA Product Development
IT ADMS
Web Development
Collections
Finance Audit
Nov 01
Nov 04
Nov 03
Feb 02
Nov 02
Global Trade
& Logistics
ERP Reporting
COMPLEXITY
Actual Transition of Projects
at a Major US Firm
Bold = unplanned
Entrepreneurship
Small Silicon Valley Startups Now Have Indian Operations
Software upgrades, product extensions, technical writingDebugging and testingRemote supportSemiconductor designIncreasing 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 nationsChina 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 yearsAlready some acquisitions by U.S. firms of Indian firmsSo 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
Beijing
1 13 firms
Other U.S.
6
Shanghai
4 13 firms
Taiwan
2
Hong Kong
3 5 firms
SF Bay Area
15
Singapore
Japan
London
1
7
10
6
2
2
4
4
5
1
1
2
1
1
1
Consumers
They Will Be the Worlds Largest Market for Many Products
China already is the largest market for cell phones, televisions, and soon PCsIndia is following but rapidly growing in significanceEnormous 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 poolsChina has well-educated factory workersBoth nations have large numbers of college graduatesLow wagesIncreasing infrastructure investment in both nationsChina has enormous FDI inflows, India less, but is picking up rapidlyOverseas Chinese and Indians transferring knowledge and investingProblems for Both Countries
Income distributionChina 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 EnglishChina -- the SOEs and bank difficultiesProblems for Both Countries (cont.)
India has weak infrastructureChinese universities have superior research capabilitiesChinese domestic market is large and growing rapidly. It is a focal market for some products. India not yet large enoughMNCs do R&D in China largely for domestic market. R&D in India for global market so there may be more knowledge transferIP rights more clear in India. Weak IP enforcement unclear effect on Chinese growthIssues
Will this be a reprise of manufacturing?How fast? Some firms expanding at 30% per yearIn 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 offshoringWe are at the elbow of the adoption S curve and this could be as important as the Internet in transforming our worldWe have only begun to see the new business models that service offshoring will create.Encouraging entrepreneurship in nations around the worldThe organizational and spatial footprint of the firm will be profoundly altered by service offshoringThank You!
Is Latin America going to be
largely irrelevant in this new world?
1
10
100
1000
10000
100000
19631966196919721975197819811984198719901993199619992002
Korea
Taiwan
Japan
USA
China
India
Mexico
USPTO Patenting by Year for Various Nations, 1963-2004USPTO Patenting by Year for Various Nations, 1963-2004
242
360
416
490
588
697
348
254
180
106
70
42
FY00FY01FY02FY03FY04FY05
IT Software and Services
ITES-BPO
NationalityEmployment in Global % in India Locations
India (date)Employment*
OracleU.S.6,900 (2005)41,65816.6Bangalore, Hyderabad
MicrosoftU.S.1,250 (2004)57,0002.2Bangalore, Hyderabad
SAPGermany5,000 (2006)38,80215.2Bangalore
IBM U.S. 38,000 (2006)369,27711.2Bangalore, Delhi, Chennai
VeritasU.S. 900 (2004)17,2505.2Pune
AdobeU.S. 500 (2005)3,14215.9Delhi
EDSU.S.2,400 (2004)117,0002.1Chennai, Delhi, Mumbai
Cap GeminiFrance2,000 (2004)59,3243.4Mumbai, Bangalore
SymantecU.S. 05,3000N/a
242
360
416
490
588
697
348
254
180
106
70
42
FY00FY01FY02FY03FY04FY05
IT Software and Services
ITES-BPO
Call centers
29%
Claims processing
55%
Analytics and
content
development
13%
Relationship and
risk management
3%
0
1000
2000
3000
4000
5000
6000
7000
8000
FY00
FY01
FY02
FY03
FY04
FY05
Headcount
Guadalajara
Bangalore
Chennai
Singapore
Barcelona
Costa Rica
AR, Global Service Accounting
Operations,
GL Consolidation, Bank
Operations, Sales
Compensation, Claims &
Rebates
P&G Accounts Payables,
2
nd
Commercial Account
Warranty Claims, Payroll
P&G Accounts Payables
Contract Administration
Employee
Reimbursements,
Contract Administration
Master Data Maintenance,
Rebates, Sales
Administration, Global
Service Accounting
Operations, Workforce
Development,
Financial Services
Bank Operations,
Treasury and Tax
Accounting, Order
Management, CRC
Accounts Payables,
T & E
Accounts Payables,
Accounts
Receivables, Intra
Corporate, Field
Inventory & Revenue
Accounting, Fixed
Assets
Accounts Payables,
Consolidation, T & E
Planned:
Employee Services,
Procurement,
Full Suite of
F&A services
Dalian
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