Global business and outsourcing

If you happening to be flying Qantas anywhere in the world in the month of January, you can listen to an interview with me on the Qantas radio business channel, hosted by Peter Switzer. The interview was on the general theme of the future of the global economy and followed quite a few different tangents, but probably the most interesting part was about how we should feel about work being outsourced to China, India, and elsewhere around the planet. Work is becoming increasingly specialized, and technology allows business processes to be unbundled into small elements that can be easily integrated. Unless you are truly world-class at what you do, you can’t expect to do well in the long-term. The real value is often in coordinating how the pieces come together to create something new and valuable.

For example, many leading Indian technology services companies, such as Infosys, Tata Consultancy Services, and Satyam, have won contracts to run Chinese software development centers. These companies clearly have the expertise to do this. They weren’t chosen because Indian programmers are cheap, but because these companies know how to manage offshore software development centers. Yet why shouldn’t Australian, or Brazilian, or Singaporean companies do this? It is not an issue of cost, it is about effective project management and client liaison. Those organizations that have excellent capabilities at this level can create far more value than is possible by providing large numbers of inexpensive software developers. The problem is one of mentality. For example, there are any number of great software products developed in Australia and other mid-sized developed economies that are successful internationally. However I see very few initiatives being put together that deliberately draw on global best-of-breed suppliers, and create distinctive and high-value services and products from those inputs. This is where the smaller developed economies need to be playing. It is not about competing where you can’t compete, but about recognizing that value creation will cross boundaries, and positioning yourself effectively in that space.

[Update]: Just found out this is actually airing in February.