Beware The Globalization Bubble

New York Times columnist Tom Friedman has neatly divided globalization into three software-like stages, as follows:

    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.

Tom does have a penchant for creating buzzwords. And while I typically agree with him on globalization, I believe he dangerously oversimplifies things.

Globalization 3.0 did not begin just a few years ago. He would have been wise to speak with a few translation or localization firms, which have been outsourcing work globally for more than three decades. And for the past five to seven years, most of this work has been outsourced via Internet applications. Yes, the technology today makes outsourcing tremendously easier and more cost effective — hence, more attractive to upper management — but the trend has been in place for some time. It is simply affecting more and more industries and people within those industries.

My major concern with Tom’s column is that it will encourage executives to leap into the globalization waters without realistic expectations. I would hate to see thousands of executives around the US thinking they can lay off half their IT staffs and outsource everything to India without so much as a speed bump along the way.

For a sober analysis of one company’s outsourcing efforts, the Wall Street Journal recently profiled a software company that nearly failed in outsourcing jobs to India. The article is here (subscription required). But here is an excerpt that I found most relevant:

    ValiCert’s experience offers important insights into the debate over the movement of service jobs to lower-cost countries, such as India. Such shifts can save companies money and hurt U.S. workers. But the process is difficult, and the savings typically aren’t as great as a simple wage comparison suggests. Some jobs cannot easily or profitably be exported, and trying to do so can risk a customer backlash: In recent months, Dell Inc. and Lehman Brothers Holdings Inc., for example, moved several dozen call-center and help-desk jobs back to the U.S., after employee and customer complaints.

Globalization is inevitable, but let’s not get reckless

I believe that globalization is ultimately good for the world and world peace. It forces countries, through commerce, to do what their governments are so often incapable of doing — get along. Yes, globalization is messy and people absolutely lose jobs as a result. But people also gain jobs as a result. When a Hollywood blockbuster earns $50 million abroad, are there protests in Seattle? Is it fair for one country to sell its products to the world and then not expect anyone but its own people to benefit from its growth?

Globalization is painful because it forces us all to reexamine our worth — to our employers and our countries. It also opens our eyes to a more competitive world. My advice to executives is that globalization is unavoidable, but it is also no panacea.

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