By Willy Shih, Harvard Business School Professor of Management Practice in Business Administration
One of the dominant features of the global competitive environment is the growth of the tradable sector, those portions of an economy where the outputs are traded internationally. Technology has long powered the growth of tradability, from the railroads and steamships of the 19th century, to container shipping, air cargo, and the Internet more recently. Much of the wave of offshoring we saw in the early 2000s was driven by labor arbitrage with emerging economies like China enabled by low cost container shipping and easy communications both virtual via the Internet and physical, in the form of accessible travel to all corners of the world. This coincided with a huge expansion in the size of the tradable sector, at least from a domestic U.S. perspective.
The offshoring contributed to a broad decline in America’s manufacturing employment and our global competitiveness. As the skills base in our workforce and the capabilities of our companies and their supplier networks weakened, this has impacted our ability to fuel innovation in many areas. I’ve described this as a decline of America’s industrial commons.
But in the last few years, we have seen America’s global competitive position improve. Much of this has been because of relatively stable labor costs and a tailwind from highly favorable energy costs. Yet we see troublingly low job growth in the middle of the market and even some high skill areas. What is happening, and how should I think about that? Does it affect me?
I think the answer lies in the continued technology-driven expansion of the tradable sector, and we are seeing more and more high skill jobs moving into a single global market for labor. The tools for collaborating on complex high value-added design work have already globalized product development. General Motors has a design center in Bangalore, India where many young engineers design components for cars that are produced worldwide, even though many of those same engineers have not yet learned how to drive. The post-production and special effects businesses that support the latest Hollywood film blockbusters no longer need to be anchored close to the processing labs that produced film dailies. With digital capture, the work goes anywhere in the world where you can set up some PCs and software, and train young software engineers. Gene sequencing work for the largest pharmaceutical firms in the world is now done at BGI (formerly known as Beijing Genomics Institute) in a converted shoe factory in Shenzhen, China. That firm trained young computer scientists in bioinformatics, and now they are showing up as co-authors of papers in Nature. The inexorable improvements in Internet connectivity means we now ship work around the world in circumstances where we wouldn’t have thought of doing so as recently as five years ago.
That means mechanical engineers in Warren, Michigan compete with ones in Bangalore. Special effects artists in Burbank, California compete with ones in Malaysia, and bioinformaticists in Cambridge, Massachusetts compete with ones in Shenzhen, China.
Jobs that were once localized to an industrial or country cluster are increasingly tradable and subject to labor arbitrage, a phenomena that plagued factory jobs during the great waves of offshoring. Perhaps this has been obvious to technical professionals. McKinsey has long offshored the preparation of PowerPoint presentations to India. And when I finally gave up doing my own taxes because they got too complicated (I had to file a Federal return and four state returns that year), I went to one of the big accounting firms, who promptly offshored most of the work to India. And how about the person who takes your drive-thru order at McDonalds? Many of those orders are processed by people sitting in call centers thousands of miles away, who take a photo of you sitting in your car and post it with the order display panel at the fulfillment window a stone’s throw away.
My view is that over time, less and less work will be tied to a location, and more jobs will fall into a single global market for labor. Technology is going to keep improving, and where we are physically will matter less and less.
For many professionals, this is a scary prospect. Because if you are in a developed economy, it means you will increasingly be competing with others who will happily do the work for less. I think this argues for several things, as one thinks about his or her career:
- Staying technically abreast in your field is your responsibility. While employers invest to varying degrees to help employees keep their skills current, things are changing too fast. You really have to work hard to stay on top of things. That requires being proactive, and aggressively continuing to learn.
- Managing people and managing teams, especially across cultural and geographic boundaries is an increasingly important skillset, and you should get all the practice you can. This is much harder than it sounds, as it takes time and facing up to many challenges to develop those muscles.
- Learning to aggressively look and think across boundaries will keep you on the vanguard of fresh thinking and new ideas. This is also harder than it sounds, because it requires constantly pushing yourself outside of your comfort zones into areas that you are not familiar with.
Certainly this is not a complete list, but people who do these things will always be in demand, even if we are in a single global market for labor.
Prof. Willy Shih is the Robert and Jane Cizik Professor of Management Practice in Business Administration. He is part of the Technology and Operations Management Unit, and he teaches in the MBA and Executive Education Programs. His expertise is in manufacturing and product development, and he has written or co-authored more than 125 cases and teaching materials in industries ranging from semiconductors, information technology, consumer electronics, aerospace, transportation equipment, manufacturing processes and tools, and intellectual property. His paper, “Restoring American Competitiveness,” co-authored with Gary Pisano, won the 2009 McKinsey Award. His recent book, “Producing Prosperity – Why America Needs a Manufacturing Renaissance,” co-authored with Gary Pisano, has called attention to the link between manufacturing and innovation. He is also the author of “Back Bay Battery,” a best-selling innovation simulation.