The Price of Economic Nationalism

Last April, I blogged about how Boeing (NYSE:BA), for the first time, was outsourcing more than half the structure of its 787, pieces of which were being manufactured in six different countries. Over the past year, this outsourcing initiative has helped Boeing streamline operations and acquire a slew of new orders for the "Dreamliner" jet, re-establishing the company as the number one commercial aircraft company.

Contrast this with the experience of its competitor, Airbus that has suffered delays on its A380, will have to spend heavily to design, from scratch, a competitor to the 787, and suffers from incurring costs in pricey euros while generating revenues in cheap dollars, in which jets are bought and sold. Airbus is also paying a heavy price for economic nationalism that renders it difficult for the firm to mitigate process inefficiencies and reduce costs through competitive measures as bringing in in new partners and outsourcing work outside Europe. For example, French president Jacques Chirac emphasized that restructuring efforts must maintain "absolute equilibrium" in employment and technology. Given the conflict between the roles of the government as owner and regulator, Airbus will always find it more difficult than Boeing to enhance efficiency and trim costs:

Airbus has some 57,000 workers and another 30,000 employees of contractors under its wing. Half the job losses will hit the latter group while Airbus itself will lose 5,000, mainly in Germany and France where most production happens. Strict European labour laws and political sensitivities dictate that the cuts will come through natural attrition. The bulk will be split roughly evenly between Germany and France (though Britain and Spain will share the pain). But before any ink was dry union leaders were already threatening to block reforms. (The Economist, Feb 2007)

And the difference is evidenced in the difference in the stock price of these companies. Perhaps, this discipline of international financial markets is what will ultimately prevail over economic nationalism. Meanwhile, it's more evidence that outsourcing creates financial value.

Counting the Savings

This report by the Boston Consulting Group suggests that offshoring hitherto considered a cost saving tool for transaction intensive business processes, is fast evolving into a powerful organizational lever for business transformation:

Although 65% of India’s 180,000 outsourcing services work force is involved in transaction-intensive services like call-center support or check processing, the industry as a whole helps its clients save $1.5 billion annually, according to a recent research paper, “Offshoring: Beyond Labor Cost Reduction,” by the Boston Consulting Group (BCG). (India’s outsourcing services industries employed about 415,000 people as of March 2006, according to India’s National Association of Software and Services Companies). GE alone saves more than $350 million annually after offshoring about 900 different processes to India, according to the paper, which was written by analysts in BCG’s New Delhi offices.

It would be interesting to look at whether these savings translate into more transformative measures of performance such as innovation, customer satisfaction, market share or profitability.

Bridging the Digital Divide

The benefits of technological advances and globalization have not yet touched the lives of many of India's people. A quarter of the population still lives below the poverty line and the Internet penetration rate is a little over 3%. Consequently, innovations that pop in this space have the potential to generate maximal fizz or profits.

One such innovation that only recently caught my eye is India Post's ePost service that allows email to be delivered as snail mail and vice versa. Delivery times in the former case average a day compared with about a week by snail mail. And the profits? The launch of corporate e-post, which is being promoted as an inexpensive and effective means to reach the hitherto unconnected masses. An article in this Indian daily suggests that corporate customers can "print their messages including text and picture on official letterheads and send them simultaneously to up to 9,999 addresses in one go".

Yes, if the digital divide must be bridged and the empowering benefits of the Internet must be enjoyed by all, so must the perils of corporate spam.

The Machine is Us

One of the coolest and most inspiring videos on Web 2.0 - I have a ten page long introduction to Web 2.0 in my research article on the use of blogs in academic research. Wish I could use this instead.

The academic community will need to soon rethink this whole business of traditional publishing in journals. Yea, I'll stop there.