BPO Backlash

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Small and Smaller
http://www.nytimes.com/2004/03/04/opinion/04FRIE.html
By THOMAS L. FRIEDMAN, The New York Times
<!--QuoteBegin-->QUOTE<!--QuoteEBegin-->Jerry Rao wants to do your taxes.

Ah, you say, you've never heard of Jerry Rao, but the name sounds
vaguely Indian. Anyway, you already have an accountant. Well, Jerry is
Indian. He lives in Bangalore. And, you may not know it, but he may already
be your accountant.

"We have tied up with several small and medium-size C.P.A. firms in
America," explained Mr. Rao, whose company, MphasiS, has a team of Indian
accountants able to do outsourced accounting work from across the U.S.
All the necessary tax data is scanned by U.S. firms into a database
that can be viewed from India. Then an Indian accountant, trained in U.S.
tax practices, fills in all the basics.

"This is happening as we speak — we are doing several thousand
returns," said Mr. Rao. American C.P.A.'s don't even need to be in their
offices. They can be on a beach, said Mr. Rao, "and say, `Jerry, you are
particularly good at doing New York returns, so you do Tom's returns." He
adds, "We have taken the grunt work" so U.S. accountants can focus on
customer service and thinking creatively about client needs.

Mr. Rao's ability to service U.S. accounts this way is at the core of a
business revolution that has happened over the past few years. I
confess: I missed this revolution. I was totally focused on 9/11 and Iraq.
But having now spent 10 days in Bangalore, India's Silicon Valley, I
realize that while I was sleeping, the world entered the third great era of
globalization.

The first era, from the late 1800's to World War I, was driven by
falling transportation costs, thanks to the steamship and the railroad. That
was Globalization 1.0, and it shrank the world from a size large to a
size medium. The second big era, Globalization 2.0, lasted from the
1980's to 2000, was based on falling telecom costs and the PC, and shrank
the world from a size medium to a size small. Now we've entered
Globalization 3.0, and it is shrinking the world from size small to a size
tiny. That's what this outsourcing of white-collar jobs is telling us — and
it is going to require some wrenching adjustments for workers and
political systems.

Globalization 3.0 was produced by three forces: First is the massive
installation of undersea fiber-optic cable and bandwidth (thanks to the
dot-com bubble) that have made it possible to globally transmit and
store huge amounts of data for almost nothing. Second is the diffusion of
PC's around the world. And third (what I missed most) is the convergence
of a variety of software applications — from e-mail, to Google, to
Microsoft Office, to specially designed outsourcing programs — that, when
combined with all those PC's and bandwidth, made it possible to create
global "work-flow platforms."

These work-flow platforms can chop up any service job — accounting,
radiology, consulting, software engineering — into different functions and
then, thanks to scanning and digitization, outsource each function to
teams of skilled knowledge workers around the globe, based on which team
can do each function with the highest skill at the lowest price. Then
the project is reassembled back at headquarters into a finished product.

Thanks to this new work-flow network, knowledge workers anywhere in the
world can contribute their talents more than ever before, spurring
innovation and productivity. But these same knowledge workers will be under
more pressure than ever to constantly upgrade their skills in this
Darwinian environment.

"We created a worldwide network which connected all the resource pools
on the planet, and suddenly we changed the rules of the game," said
Nandan Nilekani, C.E.O. of the Indian software giant Infosys — which last
year received nearly one million applications from Indian techies for
9,000 software jobs. You cannot wish away this new era of globalization,
he added. "It will not go away."

So now I wonder: when they write the history of the world 20 years from
now, and they come to this chapter — Sept. 11, 2001, to March 2004 —
what will they say was most important? The attack on the World Trade
Center and the Iraq war? Or, as Mr. Rao suggests, the convergence of PC's,
telecom and work-flow software into a tipping point that allowed India
to become part of the global supply chain for services the way China
had become for manufacturing — creating an explosion of wealth in the
middle classes of the world's two biggest nations, India and China, and
giving both nations a huge new stake in the success of globalization. I
wonder?

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