Digital Media

Monday, October 30, 2006

Flattener #5: Outsourcing Y2K

Main points:
The U.S. needed India’s large brain pool to fix the Y2K bug — a tedious process that required skilled technology workers. Since 1951, shortly after India became independent, the country’s highly competitive Institutes of Technology have been successful in educating young workers in the sciences, engineering and medicine.

India profited from the dot-com bust by being "second buyers" of fiber-optic cable. The bust made the technology practically free, allowing the U.S. to connect to India. America became second buyers of Indian brain power when India could not provide jobs for its highly skilled graduates.

After the dot-com bust, companies were under tremendous pressures to cut costs by finding the most efficient, high-quality, low-price way to innovate. GE chairman Jack Welch realized the potential for outsourcing IT work to India and other companies were close behind.
Friedman makes the point that India’s fortune did not come overnight. The country has been investing in its population’s education for more than half a century. "Fortune favors the prepared mind." — Louis Pasteur

Flattener #6: Offshoring: Running with Gazelles, Eating with Lions

Main points:

Offshoring vs. outsourcing
Outsourcing: Taking some specific, but limited, function that your company was doing in-house and having another company perform that exact same function for you and then reintegrating their work back into your overall operation.

Offshoring: Company takes one of its factories and moves it to another country to produce the very same product in the very same way, only with cheaper labor, lower taxes, subsidized energy, and lower health-care costs.

China’s entry into the World Trade Organization on Dec. 11, 2001, meant that the world has had to run faster and faster to keep up (the gazelle must run faster than the fastest lion to keep from getting eaten; the lion must run as fast as the slowest gazelle to eat). Membership has also forced China’s bureaucracy to modernize. China will continue to become flatter — political or economic upheaval could disrupt this process.

Competitive flattening: Companies scramble to see who can give companies the best tax breaks, etc. to encourage offshoring in their country (Malaysia, Thailand, Ireland, Mexico, Brazil, Vietnam).

American companies will need new business models to compete.

Between 1995 and 2002, productivity increased 17 percent annually in China. China is also losing manufacturing jobs as productivity accelerates, and gaining them in services, much like what has been happening in the U.S.

The U.S. should not use protectionist policies, which will only cause economic and geopolitical chaos in this interlinked global economy. Rather, Friedman says, America must adjust, but it can be as prosperous as ever.


  • Kristina: Hi - I cannot find your email address - please send me your contact information (

    Thank you,

    By Blogger juriedmedia, at 11/05/2006 6:52 PM  

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