Tech’s Next Global Challenge

Corporate America, beware: They’re coming. Previously known as members of the Third World, handfuls of developing economies are turning the tables on the developed worlds of North America, Western Europe and Japan, churning out businesses that seek global competition–not just traditional outsourcing contracts.

Businesses from India, China and many other less developed nations are stepping onto the global stage, taking advantage of lessons learned from spending years as the industrialized world’s service providers. Sound familiar? It’s happened before. Early 20th century America took on European powers and won. Post-World War II Japan revved its manufacturing engine to become an industrial leader.

But this time is different. “We haven’t seen a trend this huge in ages,” says Harold L. Sirkin, a senior partner and global head of the operations practice at Boston Consulting Group, a global management consulting firm.

Roughly six years ago, Sirkin and fellow BCG partners James W. Hemerling and Arindam K. Bhattacharya began theorizing about the future of global outsourcing. Their years of collaboration, travel and observation are detailed in Globality: Competing With Everyone From Everywhere for Everything (Business Plus, June 2008). The vividly detailed tome describes the latest shift in globalization from a one-way street of Western domination to an increasingly competitive global playing field, where businesses from once-discounted nations are solidifying their standing.

Despite the great challenges this shift presents for old-world multinational corporations, Sirkin, who previously headed the firm’s global IT and e-commerce practices, sees a compelling opportunity for IT departments to play a large role in managing global operations, provided CIOs and their C-level colleagues acknowledge that the pressure is on.

Sirkin spoke recently with CIO Insight Online Editor Brian P. Watson, who edited and condensed their conversation.

CIO INSIGHT: What’s the difference between globalization and globality?

Harold Sirkin: We think about globalization as multinational companies from the first world [capitalist, technologically advanced and with a high standard of living]: North America, Western Europe and Japan. As companies in those parts of the world continued to face cost pressures, they recognized a tremendous opportunity to take advantage of low-cost labor in the developing world and produce products from there, taking 20 percent to 30 percent out of the cost structure.

In the course of these outsourcing deals, some interesting side effects occurred. Companies in the developing world that were smart and forward-thinking realized they were getting two things out of this relationship in addition to cash flow. The first was scale: They kept getting larger because, if they were good at what they were doing, more companies would outsource to them. Second, they gained the knowledge of what’s required to serve the Western markets.

All of a sudden, these companies wanted to take control of their own destiny. A lot of them decided that they would build their own relationships with organizations in the developed world. They began to sell their own products domestically and in the American, Western European and Japanese markets. There was a huge advantage to doing this, because the companies were able to keep more of the profits and be in control of their own destiny.

It used to be a one-way street dominated by companies from the developed world. Now it’s a two-way street, where you have organizations competing from the developed world and the developing world: India, China, Russia, Eastern Europe, Brazil and other parts of South America, as well as Southeast Asia, Turkey and Egypt–between 13 and 18 countries that account for 3.5 billion people, or half the world’s population.

That’s the distinction between globalization and globality: It’s a fundamentally different competitive environment, and we see all sorts of effects of this change. It involves competing with everyone from everywhere for everything–and the everything becomes very important.

We see oil prices going up because we have 1 billion people who were living in abject poverty now getting better jobs and becoming consumers. That means the demand for food goes up, because you’re adding hundreds of billions of calories to the world’s food demand. The demand for oil goes up because they can afford not to walk and buy a low-end motorcycle.

One billion people are moving from poverty to consumerism, and our systems are not geared to produce or deal with that much more energy demand. In essence, early-stage shortages are occurring.

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