2006: The Year of Living Globally

News Analysis: Globalization goes beyond outsourcing as IBM and others plant operations in India, China and Russia.

Trade across international boundaries isnt new. Multinational corporations arent new. Yet, it seems, globalization is new.

Although international commerce has been going on since the beginning of civilization, whats different now is instant communication between scattered locations that makes an office on the other side of the world look like it is next door.

That enables Hewlett-Packard, for instance, to set up an accounts payable operation for Procter & Gamble in Bangalore, India, to process invoices from French perfume makers to be paid from British bank accounts.

The global nervous system that makes this web of relationships possible is the result of the bandwidth glut celebrated in Thomas Friedmans best-selling book, "The World is Flat."

Fiber optic pipelines overbuilt during the dot com boom, and dark after the dot com bust, have been lighted up with the worlds data.

"The broad overinvestment in fiber cable is a gift that keeps on giving," wrote Friedman.

But the global fiber network wasnt all. Two huge countries with giant populations, India and China, jettisoned socialist economic policies in favor of market economies.

All in all, the new globalization is enabling economic development in once-backward nations that the architects of yesteryears federal foreign aid policies could only dream about.

The number one outsourcing destination, India, is undergoing growing pains as it strives to implement what can be called "India 2.0," moving from up-and-comer to established player on the global stage.

At the Nasscom software industry conference in Bangalore in February, 2006, Indian outsourcers such as Tata Consultancy Services, Wipro and Infosys said they planned on opening offices not only in North America, but in Germany, the United Kingdom, and other European and Asian countries.

In India 2.0, Indian firms will no longer merely offer the same work at half price, but will create intellectual property through world-class research and development.

The Indians believe they can do it. At one moment during the Nasscom convention, the crowd of perhaps 1,000 Indian IT industry leaders was asked whether an Indian company will eventually attain the highest market capitalization of any worldwide IT provider. Nearly all present raised their hands.

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Indeed, most Indian industry leaders believe their destiny is to accomplish in technology what Japan has done in the auto industry—wrest world leadership from an old U. S. guard.

In what is surely a sign of strength, the Indians are acutely aware of their own vulnerabilities, wage inflation and high employee turnover.

As a result, theyre looking over their shoulders at other nations with low wages and eager workforces—China, of course, and now Vietnam.

Trying to get ahead of the wave, Indian outsourcers Infosys and Tata Consultancy Services have led an Indian surge into China. Wipro, meanwhile established in June, 2006, a business process outsourcing office in Vietnam.

At Nasscom, another weakness that might surprise many foreigners emerged. Many of the big Indian firms arent happy with the Indian educational system.

Although Indian colleges and universities churn out tens of thousands of engineering and computer science graduates annually, Indian companies only hire a tiny fraction, claiming that many others are insufficiently prepared to join the work force.

Indian companies are recommending curriculum changes and in some cases donating money to correct the problem.

/zimages/4/28571.gifIs India losing its wage edge? Click here to read more.

If India is the number one outsourcing destination, China is without question number two, and seen by some as having greater potential in the long run. Former chairman of the United States Federal Reserve Board, Alan Greenspan, said in a Boston speech, "The single greatest force in the new global economy is China."

Microsoft, which has a major development office in Hyderabad, India, has moved into China significantly as well, establishing an MSR (Microsoft research) office in the Haidian area of Beijing.

The software giant has tasked the office with a major strategic push for the company: search technology.

IT organizations are increasingly calling on Chinese partners to carry out development work. To do so, they have found special care must be taken to guard intellectual property, which is a relatively new concept in the Chinese legal system.

"Its probably the most overhyped issue. I have never had that problem, but perception is reality," said Walter Fang, vice president and chief technology officer of Neusoft Group, a software house based in Shenyang, China.

U. S. companies that have outsourced successfully to Chinese providers have done so gradually, building trust by starting with small projects.

The Chinese government is taking a number of steps to encourage the growth of the countrys technology industry, from the building of software parks such as that in the northern coastal city of Dalian, to the establishment of the so-called "Sea Turtle" program, which encourages Chinese expatriates to return to their homeland as technology entrepreneurs.

Next Page: Is this the Chinese century?