BUSINESSWEEK ONLINE : AUGUST 28, 2000 ISSUE
THE 21ST CENTURY CORPORATION -- THE CORPORATE ECOSYSTEM Different Countries, Adjoining Cubicles U.S. and European companies are outsourcing service jobs to English-speaking workers around the globe. White-collar workers left behind will be forced to retrain A grimy concrete slab building fronts on a Manila street jammed with smoke-belching taxis and jeepneys. Upstairs is a far more tranquil scene--an air-conditioned floor divided by neat office cubicles filled with Herman Miller chairs and Dell computers. This is the new regional accounting unit of Caltex Petroleum Corp., a 64-year-old joint venture between Texaco Inc. (TX) and Chevron Corp. (CHV). that runs gasoline stations stretching from Southeast Asia to South Africa. In a dramatic rethink of its corporate structure, Caltex moved its headquarters from Dallas to Singapore last year to be closer to its customers. It shifted Web site development to South Africa. And it set up the Manila accounting division before switching off the lights forever at the Dallas office early this year. ''As technology and communication improve, we are scattering centers of excellence around the world,'' says William Pfluger, general manager of Caltex's Manila operation. Caltex is on the cutting edge of a trend that is likely to revolutionize operations for the 21st century corporation: More and more service and professional jobs are shifting from high-cost Europe and the U.S. to developing countries. From giants like General Electric (GE) to startups such as Texas-based VideosDotCom Inc., companies are turning to skilled workers in English-speaking locations such as Ireland, remote regions of Canada, tiny Caribbean nations like Jamaica, and, most important because of their larger size and populations, India and the Philippines. Companies are seeking workers to take jobs ranging from basic clerical, accounting, customer support, and legal services, to software design, scientific research, and pharmaceutical development. ''This is a huge transformation--much bigger than what happened in the blue-collar world,'' says management guru Tom Peters. He estimates that as many as 90% of today's American white-collar and clerical jobs could be outsourced over the next 10 to 15 years. Some companies, like Caltex, are shutting down operations in the U.S. or moving whole divisions to new locations. Others, such as Verizon (VZ), are farming work out to subcontractors--from small software designers to large consulting outfits like Andersen Consulting, which has 550 employees working for multinational clients in Manila. The global dispersion of work is sure to accelerate as new interactive software and telecom networks make it increasingly common for engineers, number crunchers, or researchers from China to Scandinavia to work on the same projects at once--as if in adjoining cubicles. As business functions converge onto the Web--and professionals adopt similar worldwide standards--financial analysts based in Mexico will be able to tap into the real-time data bank of, say, Finland's Nokia Corp. (NOK). Many companies, of course, will still want to do their own bookkeeping, market projections, and legal work in-house. But others will push the concept of virtual corporations to radical extremes: They will outsource most of their back offices to offshore service providers, enabling them to concentrate only on what they do best, such as basic research or design. Economies boasting lower-cost but well-educated and computer-savvy workers are most likely to benefit. Countries where English--the language of global commerce and the Internet--is spoken will have the sharpest edge. That's why Ireland, where the economy is now growing at 7.5% annually, has enjoyed an astounding turnaround in the last several years: Companies ranging from Citigroup (C) to Microsoft (MSFT) were attracted by its pool of skilled English speakers, plus generous tax breaks offered by the government. Indeed, Ireland has become the world's leading software exporter. But Ireland, with a population of just 3.7 million, is beginning itself to experience a tight labor market. Unemployment is down to 4.5%, the lowest level in 18 years, and wage costs are picking up. ''You can't get a clerical person in Dublin now,'' says Hugh Evans, head of finance and performance management for Deloitte Consulting in Britain. So U.S. and European companies are looking to new sources of labor further East. One of the most important will be India, given its relatively low wages--less than one-third of those in the U.S., even for highly skilled workers. And there's a sizeable pool of skilled English speakers. Massachusetts Institute of Technology computer guru Michael Dertouzos figures that as many as 50 million new white-collar jobs could be created in India, which would add $1 trillion to its gross domestic product within 10 years. ''Thirty to fifty million Indians can read and write English and deliver clerical services,'' says Dertouzos. ''OPPORTUNITY.'' The Philippines, with a population of 75 million, is also actively promoting its skilled labor force. Philippine universities graduate 70,000 engineers and another 100,000 computer scientists a year. ''We recognize this as a major opportunity,'' says the Philippines' Secretary of Trade and Industry Manuel Roxas II, a former Allen & Co. investment banker who recently toured the U.S. as part of his high-profile campaign to lure white-collar jobs to his country. The country's skilled workers come cheap, but the quality of their work is high, says Masimina S. Martinez, a partner at Andersen Consulting in Manila. Andersen, for example, pays its employees in Manila from $20,000 to $30,000 a year compared with the $80,000 to $100,000 annual paychecks U.S. employees in similar positions at Andersen take home. Given such wage gaps, should U.S. and European workers be worried about the migration of white-collar jobs overseas? For now, new jobs in India, the Philippines, and even Ireland are mostly supplementary as companies scramble for labor in a white-hot U.S. economy. Indeed, foreign workers may be helping the U.S. economy by holding down costs and preventing an inflationary bottleneck that causes economic overheating in a tight labor market. Of course, problems could crop up if too many existing jobs go from Dallas and Des Moines to Madras and Manila. Steelworkers and autoworkers reacted with calls for trade protection when they saw their jobs taken away by Japanese and Korean competitors in the 1970s and 1980s. Many white-collar workers will hear that same sucking sound of jobs moving to low-wage countries. ''It is going to discombobulate international labor distribution,'' warns MIT's Dertouzos. ''It will cause arguments, threats, and tariff changes.'' That's why the pressure will be on American and European clerical and other lower-level white-collar workers to retrain themselves. They'll need to find new skills to offer corporations and other employers in an increasingly knowledge-based economy. Even high-tech jobs aren't sacrosanct. Already, companies such as Microsoft, Motorola Inc. (MSFT), and Bell Labs operate large research centers employing skilled Indian engineers in Bangalore and Hyderabad. BANGALORE BOON. American startup VideosDotCom shows how an innovative U.S. company can use leading-edge Indian expertise to leverage its strengths. VideosDotCom is designing a video-on-demand service. Initially, VideosDotCom shipped work to an Indian software maker, Wipro Ltd., when the Texas-based company's staff was too busy. Now Wipro, which employs 6,700 software engineers, is doing most of VideosDotCom's development work in Bangalore. It has become more important than the company's own in-house development team. ''Their extensive e-commerce experience, development skills, pricing, and overall quality have made them my primary engineering team,'' says President John E. Tuder. Some U.S. companies are going even beyond basic outsourcing. One is Cognizant Technologies (CTSH) of Teaneck, N.J., which is contracting with clients to set up shop for them in India, hire and train workers, and implement projects. The company began as a subsidiary of Dun & Bradstreet in 1994, helping to outsource D&B's large software development projects. Three years ago, Cognizant began supplying the same service to other companies. From a 1,900-employee operation in Madras, it has provided back-office software support systems such as aircraft computer maintenance for clients like Northwest Airlines Corp. Now Cognizant is moving up the value chain, developing e-commerce services for U.S. financial houses. Sales and marketing are done in the U.S., but 70% of the development work is done in Madras and Calcutta through a high bandwidth network. Meanwhile, General Electric Capital has shifted a chunk of its customer service department to New Delhi. At the company's call center in Gurgaon, which is outside Delhi, 1,000 young Indian English-speaking employees answer customer phone calls seven days a week, 24 hours a day. Now, GE plans to open two more centers in India to handle payroll, design, and billing services for other GE-group companies. To keep such investments coming, India is pouring millions into its infrastructure. In the southern state of Tamil Nadu for example, a gleaming new $85 million state-of-the-art technology park in Madras threw its doors open for business in July. Within the first month, the park was nearly fully occupied with rapidly expanding companies such as San Francisco's Brigade Corp., which provides e-mail customer service response for Compaq and 3Com's Palm Pilot from offices in Madras. Brigade is hiring 150 young professionals a month. The state is also spending $10 million annually to install computers and teach computer skills in local schools. ''By 2008, all the citizens in Tamil Nadu will be computer literate,'' says R. Gopalan, chairman of the Tamil Nadu State Industrial Development Corp. and prime mover behind the tech parks. As the century progresses, the migration of white-collar jobs around the globe will force managers to become far more accustomed to virtual corporations. Millions of clerical workers in developed industrial countries will have to retrain themselves as jobs shift to other locations. The good news is that corporations will have access to much wider talent pools. But companies will have to groom cosmopolitan managers--equally at home in Madras and Manhattan. By MARK CLIFFORD AND MANJEET KRIPALANI With Heidi Dawley in London _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS The Ecosystem And Now, the Just-in-Time Employee TABLE: Of Those Who Define Themselves as Free Agents Perspectives: The New Wired World of Work The Barons of Outsourcing CHART: The Boom in Outsourcing Perspectives: Limits of the New Corporation Different Countries, Adjoining Cubicles TABLE: Where White-Collar Jobs Are Going Commerce Reweaves the Social Fabric High School Will Never Be the Same Watching over the World Wide Web TABLE: The New World Order INTERACT E-Mail to Business Week Online

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