Few in the developed world seem to sense that the forces of globalization are creating a new reality with far-reaching consequences: the era of hypercompetition. Hypercompetition simply refers to a global market in which an ever-increasing portion of the developing world acquires the education and opportunity to provide skilled labor, including professional services of almost every kind at a world-class level, defying traditional notions of comparative advantage.
A hint of what is possible is illustrated in the outsourcing of thousands of information technology positions and establishment of call centers in nations such as India. As Internet access broadens, education from leading universities through distance learning will become available to millions around the developing world, allowing them to develop the skills needed to enter the global services market.
It is becoming clear that CPAs, management consultants, attorneys and health professionals who traditionally have been insulated from global market forces will be faced with competition as they never have seen before: bright, driven people capable of offering comparable-quality service at perhaps a tenth the cost of their developed-world counterparts.
Professionals and those supporting them need to adjust to this new reality or risk being swamped in the competitive tsunami to come.
Manufacturers based in the developed world, under increasing pressure to cut costs, have for years sought to incorporate ever-greater amounts of labor into their supply chain at developing-country wage levels. A product may be designed in one country and its component parts made in several others, with partial assembly taking place in another and final assembly and packaging taking place in yet another.
Because transportation costs are low and communications sufficiently sophisticated to coordinate each part of the supply chain, manufacturers have incorporated developing-world labor into their operations seamlessly and profitably.
What seems to have been lost on most commentators and the public until now is that communications technology has made services supply chains possible, and more important, economically compelling. As service professionals perform more job functions by using networked computers, it becomes easier to work on a given project remotely.
The now-famous “Follow the Sun” practices of software developers, who finish their day’s tasks only to pass on work to colleagues around the world, aptly demonstrate that the provision of professional services can be subdivided in any number of ways. There is little reason that cannot be extrapolated to virtually any other kind of professional service.
Take legal services as an example. A law firm retained to defend a manufacturer in a complex product-liability lawsuit generally assembles a team of professionals to perform the tasks attendant to the litigation: paralegals who organize the volume of documents generated in the discovery process; less-experienced associates to conduct legal research, draft routine documents and attend to more mundane aspects of the case; and experienced partners to formulate strategy and handle trial and appellate proceedings.
With existing technology, much of that work could be outsourced to the developing world and seamlessly incorporated into the day-to-day representation of a client. Documents sent by overnight delivery can be scanned by paralegals from India, China or the Philippines into a database, available to authorized users 24 hours a day.
The work of paralegals paid $40,000 to $50,000 a year in the United States could be performed by paralegals in Mexico for perhaps $5,000 a year. Likewise, the research and writing performed by associate attorneys paid $50,000 to $100,000 or more in the U.S. could be done by properly educated and supervised developing-world counterparts for $10,000 to $15,000.
Because similar teams of professionals typically are used to provide services in many other contexts, the use of developing-world professionals in those industries is just as easily imagined.
Once understood, the inexorable economic logic of outsourcing even relatively complex professional services is nearly impossible to ignore. Most companies caught in an increasingly cutthroat global market will find it difficult to resist the opportunity to cut their routine legal costs by 80 percent or even 90 percent, once it can be demonstrated that they will suffer no significant loss in quality.
If the proven ability of the developing world to deliver good quality work in the manufacturing or information technology sectors gives any indication, the confidence to outsource in the service sector will develop quickly.
Distance learning is key
Distance learning, or Internet-based education, will be the key jump-starting this era of hypercompetition.
Over coming decades, distance learning will allow millions of people all over the developing world to get a world-class education without leaving their village. Forward-thinking companies already doing business in developing countries will have an incentive to recruit students and front the cost of their distance education, particularly if the curriculum can be tailored to specific job functions.
The sponsoring company could make back its investment in a matter of months. Moreover, the creativity unleashed in these newcomers might allow for significant advances in any number of fields.
White-collar workers in the U.S. must recognize that the future will not belong to the cubicle-dwelling “worker bee” performing traditional job functions but to entrepreneurs who forge skill sets into unusual but especially useful combinations. Unless one can offer employers something they cannot get “off the rack” in Shanghai, Manila or New Delhi, one will not be able to expect more than the going global wage for their efforts, likely a mere fraction of the pay to which they are accustomed.
Hypercompetition is a powerful challenge to the broader American economy as well.
On a microeconomic level, companies will see their accelerated outsourcing to lower-paying labor pools as eminently logical to gain competitive advantage. On a macroeconomic level, though, the collective effect of all this outsourcing could be a very serious diminution in buying power that could hurt the global economy, so dependent on American markets.
That is not to say protectionism is the answer as awareness dawns of this threat to the established order. Professional societies, bar associations and similar organizations can be counted on to fight a determined rear-guard action to thwart the entry of competition. They will question the training and ability of the newcomers, and some may try to prevent certification or licensure.
It is hard to imagine how this wave can be stopped, though, when only a PC and an Internet connection, rather than visas or relocation of thousands of immigrants, will be needed to benefit from the developing world’s professional skills.
Protectionism self-defeating
If history is any guide, shutting out competition only makes a protectionist nation less competitive.
America needs to focus its energies on those few areas where it still has a competitive advantage and that promote the development of cutting-edge technology. That points to developing the few remaining unexplored frontiers: outer space, the ocean floor and perhaps inner space.
But how can we justify investing the money needed to explore space in light of the shuttle program’s failures and with so many challenges abroad? Frederick Jackson Turner observed more than a century ago that empires without a new frontier die. By exploring and developing the great unknowns, the U.S. can develop next-generation technology much as it did through the manned space programs of the 1960s.
Can we adapt to hypercompetition in time to avoid losing our global leadership position?
Many American professionals in this age are sadly quite arrogant. It is very difficult for them to imagine someone in the developing world having the ability to do their job.
What is obvious, though, is that given half an opportunity, people in the developing world are as intelligent and motivated as anyone here. And the opportunities for these people are coming quickly. With humility, but also confidence in our own ingenuity and abilities, we need to adapt now.
