Since yesterday being back in Bangalore, the “capital of globalization”, a few inspirational thoughts on what has changed in the last 2 years since Thomas Friedman coined the term of a “Flat World“. Let’s start with the simple statement: The speed of change has remained the same. However, the absolute delta of that change are bigger than anything we would have imagined in our lifetimes. With “we” I allowed myself to bluntly simplify people like me and my peer group who are in their mid 30s, born and brought up in Europe, reasonably well educated, relatively independent. And here the drama starts: This type of “we” is an endangered species, extinction not directly imminent, but in relative terms clearly in decline – as this graphic of the world population puts forward (courtesy to Rohit Talwar).
In the light of this huge demographic macro-trend it is no wonder that successful companies have left the shores of their homelands to set up shop elsewhere, in particular Asia. This is so far nothing new. What stunned me however, was an article in the German Spiegel about SAP, a software company. Although SAP has been a pioneer early on in India, by now the underlying paradigms have started to shift. Previously, it was clear that SAP’s headquarter in a small and boring German town called “Walldorf” was the centre of the universe. This is about to blur, not without the dismay of the German employees. Previously, India was the cost-effective programming bench delivering to Walldorf, by now some German staff has to report to the Bangalore. Here, the Indian entity has taken the lead at the front-end design for the new A1S, a system targeted at small- and mid-size companies.
By the same token, the great and respected Indian companies are by far no longer purely Indian. How else could we put today’s news into proper context, that Wipro has decided to hire 100 people in Mexico. Thus, the really global players no longer flow towards the force of labor arbitrage, but are clearly about to establish a global “value network”.
Overall, the transformational impact on the world order coming due to Asia’s rise must not be underestimated. Besides the pure demographics, where the Spiegel article rightly points out that the likelihood of finding strong talent is higher just based on the sheer number of people, also the economic growth will re-allocate the gravitational centres: In 15 years China will produce the world’s biggest GDP (normalized for Purchase Power Parity (PPP)), in another 30 years the same will hold true in absolute terms.
The biggest challenge in these hyper-dynamic economies is and will be talent, as “The Economist” recently pointed out.
Technical skills, particularly in information technology, are lacking in many parts of the region, even India. One of the main concerns is that there are not enough skilled graduates to fill all the jobs being created in a vibrant sector. Nasscom, which represents India’s software companies, has estimated that there could be a shortfall of 500,000 IT professionals by 2010. This means companies recruiting at job fairs in India are having to make lucrative offers to capture the most promising students.
Indeed, from my own professional experience in India, the top IT-firms are nowadays accepting candidates whose resumé would have landed in the trash-bin two years ago. The hook: These freshers undergo a 12-months training internally before they can be put on the job, get productive and especially get billed. Until then, they add significantly to the cost base of the company. I would call this the broadening on the “bottom of the pyramid” to keep these companies doing what they need to do: scale, scale and scale. On top of the pyramid, in a kind of radical top-down cascading of skills, the air is becoming increasingly thinner, as the the same article continues to explain:
Pay rates for senior staff in many parts of Asia already exceed those for similar staff in much of Europe. The going rate for a human-resources director working for a medium-to-large multinational in Shanghai is now $250,000 a year, and that is for “someone who has probably never even left China,” says Vanessa Moriel, the managing partner of Human Capital Partners, a Shanghai-based consulting firm. The chief executive of an international business based in India can expect to earn $400,000-500,000, with many earning well over $750,000, according to Korn/Ferry, a consultancy.
The other cost of labor comes in a different shade: attrition. People leaving fast and even worse, unexpectedly, being gone and away usually a few days after resigning. For a a western manager, where comparable labor-markets possess rather negotiating power from the demand (=employers’)-side, such behavior can come by surprise. Thus, the necessity to create a tremendously robust HR-framework from the beginning is of fundamental essence: sifting through tens of thousand of applications, coming up with the right retention plan, considering 20 % attrition per year as good and hedging against knowledge-loss via systemic processes.
Asia is booming, everbody wants a piece of the pie. Yet, who wants to succeed must truly adopt HSBC’s slogan: “Never underestimate the Power of local Knowledge.”
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