The Hindu Business Line : The new world order in services

Recent studies have consistently shown that the age, talent and attitude to serve and succeed in several developing countries surpass those in developed economies by orders of magnitude, primarily because the need to succeed is that much higher.

Shailesh F. Shah

Some of the best minds in managing pensions can be found in Chile. The best accountants in the world are considered to be in India. Counsellors in Israel and India can help solve legal issues in Kentucky and Arkansas. The Philippines has among the best animators on the planet. Amazing behavioural patterns in China and India are teaching the world how to improve the persistency of insurance policy holders.

The consistent process-oriented behaviour of the people of South-East Asia can spawn several services companies. Pushed a little, institutes of technology, design, sciences and mathematics in India can become research talent sources, particularly in designing engineering solutions. There have been hundreds of instances, in the past couple of years, where patients have flown in from developed economies for surgery in India.

It is becoming increasingly apparent that the services sector is going to be the most critical economic driver in the foreseeable future. More than 65 per cent of the $43 trillion the world created in value last year came from services — that is almost $28 trillion. That some of the best minds in large volumes are available elsewhere in the world other than where a service is being consumed is becoming increasingly apparent.

That technology and communications make virtual delivery of services a reality is also known. What is not being fathomed is that over 25 per cent of these $28 trillion can be consumed anywhere and delivered from anywhere. That is a tidy little $7 trillion in 2006 value.

Quality game

Manufacturing moved from the State of New York to Oklahoma when it became cheaper. It subsequently moved to Brazil and Mexico and has been moving for years. The world is today in awe of the volume and quality game China can play.

Similarly, back in the 1950s, the telephone operators that patched calls in New York moved up the State before moving to Nebraska and today to the Philippines and India. From voice assistance to managing plant floors across the world, services is naturally much more mobile than manufacturing will ever be. As developing countries start to participate in the global trade of services, they begin by leveraging their base – cost arbitrage. From the examples above, it is clear that it is time to recognise where the best talent pools lie, where the opportunity for value creation is significantly higher and where the quality, responsiveness and productivity of the service provided will create new standards.

Most important, innovation from these quarters will change the way services get provided. Several countries in Africa, Asia, the West Asia and Latin America are landlocked and have limited opportunity for industrial growth related diversification. The services sector represents a viable alternative if invested in correctly.

Expansion in the services sector has improved job opportunities in India and China. It has helped to roll back poverty. Recent studies have consistently shown that the age, talent and attitude to serve and succeed in several developing countries surpass those in developed economies by orders of magnitude, primarily because the need to succeed is that much higher.

Comparative advantage

University graduates in these developing economies account for more than twice the number in developed economies. Such economies will soon exercise their comparative advantage if they haven’t already. These young graduates will play an increasingly important role in a new wave of global professional development.

Obvious takeaways — improved living standards in emerging economies, their need for infrastructure and a comparatively homogenous work culture is emerging. In the last 25 years, the number of people living on less than a dollar a day has halved and will diminish further at a much faster pace and the number of people that have joined the work stream of virtual delivery in services has spawned at least five times as many ‘earning opportunities’ in the economies they emanate from.

Technology — computers and communications are the single most critical conduit to allow services to be delivered from anywhere and consumed anywhere. The Internet, smart portable computers, fibre optics, audiovisual media, and communication protocols have all made the value-added participation occurring simultaneously everywhere in the world.

As mobility improves, automation improves and communications bandwidth gets larger, multi-location virtual meetings are becoming a reality. Equally real is watching a Japanese classic film downloaded in less than six minutes at a price that may seem difficult to fathom.

Global mobility in manufacturing has created a wealthier Brazil, Russia, India and China. Global mobility in services can actually make Jeffrey Sachs’ dream of a world rid of poverty in a generation true. Ours may be the last generation that witnesses extreme poverty. This would be one of the best ‘extinctions’ the world has ever seen.

However, there are a few realities that must be managed. As the aging European Union, Japan, the US, and the other developed economies live longer and can work longer too, new careers must come to happen. Switzerland, the US, France, Germany and Japan remain among the best research countries on the planet. How can they leverage their laboratories? How can the nation spend on creating new job opportunities?

It is often said that the business of entertainment, sport, recreation and travel will skyrocket as people live longer after they retire. This is true. But they will want to be productive for longer as well. And one cannot ignore the fact that they will need jobs, and even more so as several of these jobs get automated or move to pools of talent elsewhere in the world.

Maximising value

This new world order in services can become the new source of inequality and insecurity. Jobs will move from declining sectors to ones in agreement with changes offered by comparative advantage. Transfer of resources to increased productivity and utilisation will enable better lives but will improve several standards across the world.

Education, knowledge, human development processes, quality assurance frameworks and networked innovation will be essential elements to leverage a better connected world.

However, each of these areas will undergo sea changes in the way they get offered. One will have to capitalise on technology to maximise value.The economic value of virtual services will drive entrepreneurs to distant lands and create opportunities as exciting as what the manufacturing sector did over the last several decades.

Several institutes are conducting research on this new-found reality. What India has achieved in IT services is just a tip of the glaciers of Alaska.

The Massachusetts Institute of Technology offers free courses along with six leading publications to more than 600 institutions in developing economies. Networked innovation will allow over 200 companies from around the world to create cheap, energy-efficient and greener vehicles. It is a baby step in the changing paradigms of design and development.

Geographic barriers

The emerging world of opportunities is creating yet another challenge. The war for talent is becoming intense as opportunities abound. Newer ideas and opportunities are as much a need in developing economies. Newer opportunities are bringing the Chinese to work in Australia while Americans seek job opportunities in India and China (the numbers are very different however).

What has resulted is quite amazing — companies such as Huawei and Haier are becoming serious players in the markets they serve.

Infosys and Satyam have achieved top ten value status among their peers in IT and BPO services. As they get to serve the largest and best on the planet, the level of services globalisation increasingly becomes a reality. The economic divide between the haves and the have-nots will narrow considerably in our life-time.

Geographic barriers will also collapse. As services become as mobile as they can be, cultural diversity will be understood and respected better. India is well-positioned to make the best of this opportunity. Will we be able to help eradicate dire poverty in the next two decades? Our entrepreneurs will tell!

(The author is Chief Strategy Officer, Satyam Computer Services.)