…complicated.

Riya’s Leaves India

Just recently a former coworker of mine from Riya India messaged me to ask me what I thought of Munjal’s recent decision to pull out of India. After I read his post and reflected on the sadness of it (I met most of the India team and really enjoyed hanging out with them in Bangalore), I knew, for the long term viability of the business, he did the right thing.

I mean, the original reason Munjal chose India was due to the enormous savings he achieved by outsourcing. Now that their economy is getting stronger and the wages are driving up, that advantage goes away. With the time difference and the difficulty in the hiring process and the team building due to the long distances, it just doesn’t make sense to continue to outsource.

But this isn’t new. This has happened with many countries over the years in the manufacturing field. Factories have been set up in many countries where the lower wages have made it very attractive for big multi-nationals to move in, but when those wages increase with the growth of the local economy (basically, due to that outsourcing), the multi-nationals move onto another country that has the lower wages again…and so on.

Thomas Friedman’s book, The World is Flat, talks about the leveling of industrial playing fields through the growth of outsourcing, but it is a quite short-sighted viewpoint for many reasons.

The Myth of the First vs the Third World

Hans Rosling’s gapminder is a powerful visualization of how the world’s wealth, health and other measures of ‘well-being’ are moving. I totally recommend watching his brilliant TED Talk (darn, I have to go next year…every talk is amazing), highlighting the following:

1. there is no clear distinction between first and third world…that there IS a split in wealth and health, but it isn’t as cut and dried as “Africa is poor, North America is rich”;
2. within each country, the splits between haves and have nots is extremely wide, but improvements have been made in most every country;
3. improving health almost always increases wealth, but improving wealth isn’t necessarily correlated with the improvement of health;
4. we need to make the multitudes of data available for people to continue to build these and other ways of educating the general public so we can stop making unhelpful hypothesis; and
5. when you introduce access to technology to a country, many things improve (health, wealth, education, etc.)

Brilliant stuff.

But, most importantly, Hans shows that the ‘middle class hump’ is growing and projected to grow even more from the so-called developing countries over the next few years.

Our Experience at BarCampBangalore

When we participated in BarCampBangalore, what most struck me was how many startups and independents there were in Bangalore. I didn’t exactly expect this spirit as I had been told by Munjal, himself, that most Indians wanted to work for the big co.’s due to stability (and stability would lead to a better marriage). I had also read Freidman’s book and expected many discussions around the state of labour, jobs and such to occur.

But this wasn’t the case. Instead, what we saw was presentation after presentation of startups, most of them focused on the local and growing economy, open source advocates rejecting the notion of business plans and the US-centric idea of Web 2.0, and a great number of individual consultants, making a great living in their local as well as the global economies as CREATIVE workers…not as the outsourced labour suggested. Yet, there were still huge issues with this. First off, there was little support from the Indian government or private sector for such activities. VC’s were not present at this BarCamp. Even those who scoffed at business models were quick to add that they needed to sustain themselves somehow going forward.

The truth is that there were still many people working for big multi-nationals like Yahoo! and Google, but the question was, were they there because they desired the stability or because there wasn’t much support for alternative routes?

The Importance of the Local

I spent many years in Canada complaining to anyone who would listen that one of the biggest reasons that Canada’s economy sagged below the US was because we continued to export our resources, not goods…and resources, as we know, are terribly commoditized. Sure, one type of tree is better quality than another, but most of the manufacturers will buy based more on lower price than they will anything else because ‘bottom line’ needs to drive their decisions. And since Canada’s biggest customer is the US, this is very much the case.

Labour is another commoditized resource. Yes, it is a good way to jump start an economy…entice in the multi-nationals to invest in your local economy by advertising low-cost and plentiful labour. Undercut the other countries. Let them bring their tax dollars and jobs and help boost local development. But don’t be short-sighted that this strategy is a long-term solution, unless you plan to undervalue your own people for years to come.

I like to think about the long term strategy akin to planning one’s own career. When one starts out in the workforce, most of us need to collect a meagre salary to gain more experience. Slowly, we can climb the ranks and make more money and gain more responsibility, but everyone hits a point in their career where they make an important life decision: work for others for the rest of our lives, padding their bank accounts and making them look good, or work for ourselves where sky is the limit, but the growth rate will be slower?

India seems to be at that career-turning point. What happens now that rising wages and standards of living are making it less competitive to outsource to India? Personally, if I were there, I would be calling for larger investments into the local tech economy. With growing numbers of people being connected at home, it’s the perfect time to create online services specifically suited for the locals. If they don’t, they will find that although Yahoo! and Google (and other foreign companies) aren’t as interested in employing large numbers of working citizens, they ARE interested in accessing the growing market of BUYING citizens.

The powerful position of being able to export those products may even come after you service your local economy.

BarCamp and Government Services 2.0

I’m off in about a week to speak in New Zealand at the local GOVIS conference, not specifically about this stuff (i.e. India), but as I’m preparing my talk, I’m seeing how all of this is so inherently tied to the idea of government as a platform for homegrown successes. I’ve been witness to how insightful the goals of local tech communities (many born out of BarCamp) are towards the long term growth of their economies.

For instance, the Toronto group, championed by people like David Crow, Jay Goldman and Mark Kuznicki, who are co-running the upcoming OpenCities. This group has been busy collecting the technology people in the area, creating tools and a network for the growth and proliferation of local startups and independents and lobbying government to jump in and aid this movement. Or, how about the amazing folks at FaberNovel in Paris, who have launched a sister cities project called AF83 (named after the flight between Paris and San Francisco) to support the burgeoning French technology startups: making important connections, supporting with space and resources and raising capital to invest in their local businesses.

Many countries are waking up to the potential of this. I’m sure that technology isn’t the only industry that sees that outsourcing and exporting raw resources are short-term thinking (as well as one of the biggest reasons behind the ‘brain drain’ - smart people aren’t happy being sourced).

In Conclusion

Although I’m no economist, it’s an area I’ve always been fascinated with (mostly in the Marilyn Waring sense of economics). Perhaps there are a gazillion holes an economist can poke in my theories, like, the alternative I propose would take a long time to bring the same results to a country’s economy and politicians only have 2-4 years in power, so it wouldn’t fly.

However, short-term thinking and the focus on the quick cash grabs are obviously fleeting, so some sort of alternative needs to be explored. It’s the old teach a man to fish thing, really.

Companies like Riya.com have every right to pull out of a deal that isn’t economically viable to them and will continue to do so. What needs to happen now in centers like India is what is happening in Toronto and Paris, an investment in the growth of local startups to use the skills previously outsourced to American countries to build tools to serve the growing local needs. Otherwise the same multi-nationals who pulled jobs out of your country will come back and serve the local needs and reap the benefits….again.