There's more to offshoring

From The Statesman

Looking for the next big little thing?

Cyber Age/ ND Batra

The venturesome fear that they might miss out on the next big little thing, a Google, the self-organising information universe; Skype, a conversation-sharing website bought by e-Bay; or MySpace, a social network, acquired by NewsCorp. Money is seldom a problem; it is a consequence of one’s activities. Money doing nothing or being in the wrong place is a problem. Venture capitalists are on the lookout for newer applications, which they can bet on. If Kolkata becomes as friendly as Shanghai, investors will flock there.

On a recent visit to Bangalore, chief executive Derk Haank of the German publishing company Springer Science + Business Media said: “We constantly review each of our tasks and ask ourselves why this is being done in Germany or New York. We ask if we can do it in India?“ Hunting for talent and brainpower is one of the biggest challenges for business leaders today. For political leaders, the biggest challenge is to attract foreign direct investment that creates jobs and wealth by presenting their states as investment-friendly.

Even die-hard Communist leaders like Buddhadeb Bhattacharjee of West Bengal need to wonder why the state is falling behind in spite of so much talent and brainpower. Why should Germany’s Springer go to Chennai instead of Kolkata? For most businesses, however, the best strategy is to look for an application, a technology, an idea or a business method that creates a new “marketspace”, that never existed before, and establish overwhelming market dominance as long as they can, until, of course, a newer one appears and makes it obsolete.

But a company doesn’t have to invent a unique application; instead it should be on the lookout for it and adopt it. This is one of the reasons that the US companies are offshoring their businesses abroad because offshoring, including R&D, is an extension of brainpower. If we network the world’s best brains, the rate of killer applications should increase dramatically because networking allows sharing and building upon each other’s ideas. But that also means that the rate of obsolescence will increase, leading to a state of turbulence. Controlled turbulence could be a source of self-renewal and creative destruction. File sharing in creative expression, for example, in music recording, is generating turbulence that might necessitate new business models, if law suites against illegal sharing don’t work well.

The Internet is challenging old business models. Businesses, however, flourish in a stable environment. Regardless of however one looks at Microsoft Corp and its market domination, Windows operating system has provided a universal standard and created desktop stability. But some times, a killer application could be replaced with a clone without adverse effects or disruption. For example, Microsoft’s Internet Explorer improved upon Netscape’s innovation, Navigator, which reached a critical mass and lost its dominance.

Killer applications have a short life span. Lindows and other open source innovations would soon challenge Windows. Google might cast a shadow over Microsoft. Nicholas Negroponte in the Introduction to Unleashing the Killer App (Larry Downes and Chunka Mui, 1998) wrote: “The primary forces at work in spawning today’s killer apps are both technological and economic in nature.” Semiconductors have “shifted the world’s economy from an industrial to an information base in a little over a quarter century”. Gordon Moore predicted that every 18 months, computing power will double at constant cost and his law has held its sway. The same has been true of the bandwidth which is becoming faster and cheaper.

Miniaturisation and speed have gone hand in hand with the power of networks, whose value increases dramatically with each additional node. From toys to public buildings, inexpensive digitisation has begun to penetrate everything. But all that began with development of the transistor which became the building block of integrated circuit and the tiny chip that now runs the digital universe. Whatever is digitised could be networked and shared. In theory, every human activity can be digitally designed and built with an Internet connection which would make every networked thing both a consumer and a supplier of information. This would make the global supply-chain system of information an inexhaustible source of further value-added information on which Google seems to be betting so much of its future. Networked databases could profile the whole earth.

Offshoring reduces transactions costs, but do firms really “exist only to the extent that they reduce transaction costs more effectively,” ask the authors, Downes and Mui. Core and the ring – a dynamic and stable core of top executives and a fluid and flexible ring of disposable employees, such as outsourced contractors or offshored workers – is the emerging shape of a modern business. And from this point of view, a firm becomes a “complicated web of well-managed relationships” with business partners and customers digitally spread. Not brick and stones, only digits shall rule. That’s the future. The authors state that killer applications are discovered more than invented. “To unleash killer apps, you must learn to see them coming and be prepared to put together whatever laboratories, partnerships and new business models are needed to make quick use of them. Before someone else does.”

That’s how you go from incremental to exponential change, as it happened when telegraph reached a critical mass in 1843, making possible the rise of the first network of collaborative information gathering and distribution. The world has never been the same.