Reality Check | Ephraim Schwartz » Globalization takes on a new look

October 09, 2007 | Comments: (0)

Globalization takes on a new look

TAGS: Global IT

Cross-fertilization of companies and countries is creating something brand-new

Globalization is not only alive and well, it's happening on a massive scale.

How else to explain why certain Indian outsourcing providers are buying up U.S.-based companies? They do this to get deeper domain or industry expertise, but meanwhile, U.S. companies are pouring millions of dollars and hiring thousands of employees in India and China.

For U.S. companies, this practice allows them to offer a global delivery model. They can provide strong technical and business process capabilities at the best possible cost, accomplished through offshoring or the use of temporary (H-1B) workers.

IBM alone has 53,000 employees in its development and datacenters in India. A Unisys representative sounded almost apologetic when he told me that it has only 6,000 employees in India but added that the company is ramping up quickly.

The fact is that companies cannot be stateless; they have to be
headquartered somewhere. That "somewhere," however, merely pays lip service to local and international laws. For instance, a recently formed company, Darwin/Suzsoft, has headquarters in China as well as the United States and is a melding of Darwin Partners (a U.S. IT consultancy) and Suzsoft (a Chinese outsourcer for IT services).

It’s important to remember that the concept of globalization does not simply refer to companies with worldwide reach. There have always been plenty of those: General Motors, Colgate Palmolive, and the like. Rather, it represents a complete cross-fertilization where companies have global integration of their workforces, their markets, and perhaps over time, their identities.

I present for your edification just one example: Caritor, an outsourcing company with Indian roots but with U.S.-based headquarters. It recently acquired Keane, a U.S. company that specializes in financial services, insurance, health care, pharmaceuticals, retail, and telecommunications. The acquisition strategy follows the pattern of Indian companies such as Infosys and Wipro that have been acquiring U.S-based companies. The Indian companies need to buy what they cannot build: industry or domain expertise in order to move upmarket. Thus, Keane, with its depth of services and expertise, enhances Caritor's market position.

Keane also gives Caritor something it needed badly in order to go upstream and capture bigger deployments and customers: a large U.S. presence.

And yet, I asked Imran Sayeed, senior vice president of global industry solutions at Keane, if Caritor is a U.S.-based presence, why would it need to acquire Keene?

Caritor has always had more employees in India than in the States, Sayeed explained. Keene doubles Carritor's size to 14,000 employees.

Sure, it's true that with modern communications anyone can work anywhere. But the reality is that companies with big projects in mind want – no, demand – a strong on-site presence. This is true for any company on either side of any ocean.

Sayeed continues: "We have more than 7,000 people in the U.S. that are close to the client's headquarters working either on-site or in one of our many offices around the country."

When it was just a matter of maintenance and support then, yes, offshoring made sense, but now companies are looking for a business partner, Sayeed says. They want someone alongside them where they work.

In addition, they need people who understand what the business problem is, and that takes more than just coders. That's the industry expertise I've been talking about.

As U.S.- and Indian-based companies battle for the Fortune 1000 clients, what should the CIOs at those F1000 companies care about?

It boils down to an execution play. The U.S. companies seeking out India and the Indian companies coming here understand their respective strengths.

The execution Sayeed talks about and that CIOs need to care about is not in delivering the solutions so much as in which companies can assure their customers that they have the strongest leaders who can absorb the big changes that globalization brings.

Whether it is IBM absorbing and leading 53,000 Indian employees or Infosys integrating 36,000 U.S. workers from Infocrossing to this side of the Atlantic, the enterprise will need to be reassured that the company they are partnering with can pull it off.

Some will pull it off, but some endeavors will turn out so disastrous that they will become the stories of legend of what can go wrong. Maybe those situations will be taught in business schools around the world.

But whatever happens, globalization is here now.

Posted by Ephraim Schwartz on October 9, 2007 11:04 AM

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