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Tuesday, December 13, 2005

Offshoring Is Not Just Cost Advantage Or Centered On Ricardian Logic

The perceptions about offshoring are yet to change even amongst the cognoscenti. A recently released analyst report berated organizations for using consultants from offshore doing high end process consulting. Just saw an agency news – IBM plans to adopt this offshoring model for providing similar services. Someone told me that ten /fifteen years from now Asia would lose out to Africa on offshoring as costs in Asia would go up and by then Africa would be seen in a better light. Laughbale as these are – keep hearing so many such rubbish statements dished out quite regularly. Roger Martin has come out with a good perspective on what really constitutes the building and toning of offshore organizations – He sees that India's leading companies haven't just read the design and innovation manual but also embraced and internalized it.(Hat Tip: Sriram) Each is dedicated to finding, developing, and empowering creative talent. Each believes that deep user understanding is the fuel that powers creativity and innovation. Each has a CEO with a bold approach to transforming the future. Each prototypes and refines new services until users are delighted - and then starts all over again. The employees at these globally oriented businesses are not, by any stretch of the imagination, huddled over their workstations, entrusting all creativity, design, and innovation to their "First World" competitors. Indian companies along with cost advantage are readying to compete at design and innovation. He is spot on when he declares that the Ricardian logic emphatically fails to apply. To ward off Indian and Chinese competitors,in the design & innovation race, he rightly advises that knowing reality is the first step - they had better start by rejecting the notion of an apparent trade-off between low cost on one hand and design and innovation on the other. They need to think "and" - not "or" - and get to work designing.
Commenting on the progress being made by China & India, JSB & JH state,the most striking observation was the deep sense of urgency expressed by executives in both China and India shaped by a clear understanding that wage rate arbitrage is not a sustainable source of advantage. Instead, these executives are highly focused on rapid incremental innovation, both in terms of processes and products, and creatively bootstrapping their capabilities wherever possible. Tom Friedman provides a compelling perspective on the challenge. A key message of the book is that,if western companies act aggressively, they can turn this challenge into an advantage. The capabilities that are being built in these two countries are available to all who understand how to harness them. Western executives remain much too complacent about the challenge, making the opportunity does become a significant threat. The rise of innovation in Asia is real and the best way forward is to recognize the reality and chart a collaborative approach leveraging emergent and latent strengths globally. After all global prosperity is getting more and more highly interlinked.

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