By Kyle Austin
One month ago Racepoint Group proudly announced the addition of a world 2.0 focus at the agency. The new focus will be part of a corporate practice designed for corporations, countries and NGOs (non-governmental organizations) to establish on- and offline dialogues and communities to promote their agendas. World 2.0 is aimed to assist clients communicate more effectively in the context of the defining issues of the 21st century such as poverty, education, health, economic development and the environment. We recently had the unique chance to sit down with BusinessWeek’s Steve Hamm, a senior writer for BusinessWeek and author of Bangalore Tiger: How Indian Upstart Wipro is Rewriting the Rules of Global Competition, to discuss his views on globalization, outsourcing and how technology is changing the world of business. Hamm is thought leader in the area and closely follows how companies, countries and careers are being transformed by globalization on his Bangalore Tigers blog for BusinessWeek Online.
The following is our Q & A:
RaceTalk: Your book The Bangalore Tiger published in 2006 looked at the Indian company Wipro, one of the most accomplished tech services providers in the world, and how it changed global competition. At the time Indian companies like Wipro took advantage of the internet and created lower labor rates. They snuck up on American corporations and then made sophisticated services and focused on their human resources to counter American corporations’ efforts to catch up. What is the global marketplace look like to you now, two years later, as America looks at a recession and others globally look at the potential to follow into a global recession?
SH: Since my book was published in October of 2006, the top Indian tech services outfits have globalized even more, setting up operations in Latin America and Eastern Europe in addition to India and China. Because of the rise of the rupee, they have even been building or expanding global service delivery centers in the United States. They are now truly globally distributed organizations, though they’re still India-centric. I expect that if the US goes into a long and deep recession, the whole world will be affected profoundly–since over-consumption by Americans is one of the chief drivers of demand for goods and services produced globally. For the IT services industry, it will be a mixed bag. Large corporations in the US and other developed countries will cut back on their adoption of cutting-edge technologies, but they’ll want to cut costs–so off-shoring of routine software programming and back office tasks will continue or even accelerate.
RaceTalk: Do you get the impression that American corporations have adopted their practices to become more global, innovative and employee centric to counter what corporations in India and other global destinations have accomplished?
SH: It’s more than an impression. Tech services outfits in the West such as IBM, Accenture, and Capgemini have been globalizing aggressively in new ways–doing work at the places in the world where they find the right combination of talent and costs. In addition, top companies such as GE, Cisco, and Unilever are tapping talent around the world and adapting the way they operate so they can succeed in emerging markets. There’s a lot of talk about innovation, and, clearly, some companies take it seriously, but I think it’s just window dressing in most places. Ditto with employees. During economic boom times, talented people are needed, so they’re respected. When economies slow, employees have less value and aren’t treated so well. Only a few companies are enlightened in the way they treat employees in good times and bad. Also, the decline of unions in America has devalued the work of all Americans.
RaceTalk: Due to globalization and interconnectedness of our world, spawned by technology, it seems that corporations are shifting from a product-centric mentality to one driven by corporate responsibility and are increasingly engaging with a diverse set of stakeholders – employees, communities, shareholders, customers and governments. Do you see many companies taking this position or is it a small group of early adopters?
SH: This is an excessively rosy picture, unfortunately. I think only the most enlightened companies see things this way. Most executives are driven by ambition, greed, and fear. It’s true that many companies are talking more about safeguarding the environment, but, in most cases, its defensive (oil and energy companies) or nothing more than an attempt to attach their brands to values that consumers are showing interest in, such as environmental preservation and economic opportunity for poor people.
RaceTalk: What do you see on the horizon for social responsibility and social entrepreneurship? How can companies do a better job of engaging with communities and the countries in which they operate to be more socially responsible?
SH: There’s a lot of interest in social issues right now. I think the realization that global warming is real is the main cause. It woke people up. Katrina sensitized people to poverty. Also, the fact that the US has caused the deaths of so many people in the Middle East may have awakened people here to our interconnectedness and responsibility for what happens to others. I hope that the combination of CSR and philanthropy focused on social entrepreneurship, together with the emergence of successful social entrepreneurship models, will give rise to a new form of capitalism (call it social capitalism, maybe) which can actually move the needle on some of the world’s social problems. There’s an opportunity. It seems to me that the experiments that combine entrepreneurship, innovative business ideas, and partnerships with government and traditional charities are the ones that will have the greatest impact.
RaceTalk: Was really interested in your January 29th blog post on “The Art of Build Global Culture,” which looked at how HP and Manpower have become HR leaders in building their cultures globally. I was intrigued by their ideas of initiating a tightly linked global culture while also allowing flexibility to adjust to local business conditions. Do you think their approach is the right one and do you think other corporations will follow suit? Have you heard from other companies that are taking this approach?
SH: I think it’s a smart approach. HR leaders do share ideas, so I expect this idea to get a fair hearing. IBM does this now.
RaceTalk: You recently reviewed “Creating a World without Poverty,” by Noble Peace Prize winner Muhammad Yunus for BusinessWeek. In your review you talk about his new concept of “social business.” You define it as:
They’re (social businesses) supposed to be smoothly managed, efficient, and profitable. But in their case, profits are invested back into operations rather than being returned to investors or shareholders. So it’s a form of capitalism that does not reward the capitalist in the traditional way.
Yunus’ example of this is Grameen Danone, which sells fortified yogurt for pennies a serving to malnourished children in Bangladesh. However, you point out that they are still turning around a 1% annual dividend for the company. Do you think that true social businesses with 0% dividends will take off in the next decade?
SH: I think traditional foundations and corporations, through their CSR programs, will put some of their money into social businesses. I don’t think they’ll expect financial dividends. This will be a major source of capital for social businesses, and should help the model take hold globally. The question is how big will it get? I don’t see a lot of joint ventures coming in the Grameen Danone model. It’s too complex–mixing profit and CSR. More likely, companies will focus efforts on coming up with products and business models that work in emerging markets–in hopes that those markets will grow up to become mainstream, highly-profitable markets over time.
RaceTalk: In a recent Q&A you did with Paul Hermelin, CEO of Capgemini, he discussed the prowess of a global delivery model for outsourcing. Do you believe this is the most effective outsourcing model?
SH: Yes. I think it’s the only model that will work for large tech services companies. To be competitive, they need the lower costs that off-shoring provides.
RaceTalk: Finally, Lenovo made a big splash at Davos by declaring they were a multinational corporation without a Headquarters. As you pointed out this doesn’t mean they are lacking in social awareness, as they have been one of the leaders in corporate social responsibility in Singapore and Hong Kong. What do you think of this philosophy and will more corporations take to this idea of “world sourcing” without declaring an official home base?
SH: I think most companies will continue to identify primarily with one country, where they’ll have their main headquarters and pay most of their taxes. They may add symbolic second or third headquarters, like Cisco has in Bangalore, for internal and external marketing purposes. A few will go the Lenovo route, mainly new companies that are globally distributed from the start. Among large companies, Lenovo is a special case. It truly is a mix, with major innovation and operations centers in China, the US, and Japan, and sales offices in 160 countries. Because of Lenovo’s desire to emerge as a global brand, it’s important to shed the image of being a Chinese company–with all the negatives that entails right now.
RaceTalk: Thanks for your time Steve and look forward to chatting again soon.