Is the world really flat?

The book titled "The World is Flat" by Tom Friedman has been making waves both in the US as well as in India. After the heartburn of high paying tech jobs being outsourced to India, this book provides an a-ha for the American who has been wondering what is going on.

I have not read the book, but I watched the seminal documentary by Friedman on Discovery-Times channel. Following up, I have also listened to many interviews that Friedman has done over the last few months.The central therem of this book can be summed in the punchline that is used by the author over and over again

"Twenty years ago, if you had a choice of being born a B plus student in Berkeley, or a genius in Bangalore, India, you'd rather be a B plus student in Berkeley, because your life opportunities, as an American, even as a B plus student, would be so much greater than even a genius born in the heart of India. Not any more."

Powerful stuff, one would think.

Even even if we give it to Friedman without any questions, think about this. A B-plus student in Bangalore, not to mention Banaras or Bhatinda or Behrampur, still does not have half the chance in life as the B-plus in Berkeley. The world is not totally flat after all.

This "flattenning" of the world has meant different things to different parts of the world. Salaries in India are rising like crazy, the economy in the US is at best, stagnant. Nowadays, news analysts on american networks have even started referring to India as a competitor!

The primary reason jobs are going to India is the cost advantage. Of course, Indian companies say "We do the job cheaper, AND better". Most US corporations are however willing to just look at the "cheaper" tag and not worry too much about the "better" tag.

What next? Americans are looking at what is called 'moving up the value chain'. This means that they want to graduate to the kind of work that requires more specialized skills and more innovation and leave the more menial and routine tasks for the natives. This is probably the only way out. How in this world can you compete with someone who is working for a salary less than one fifth of what you would work AND actually works almost double the time?

The irony is that Indians also want to do the same, i.e. 'move up the value chain'. They realize that in the business model that has driven BPO and IT service sector in India, cost is the primary leverage. As the cost of hiring IT people keeps increasing in India, the cost advantage will become less and less. The IT industry is bound to hit a salary cap, and the way things are going it looks like this will come sooner rather than later. So a couple of years down the line, India may find itself in the same position that the US is in today and there is only option to escape that: move up the value chain!

Graduates of all hues and colors flock to the Infy and TCS campuses and learn the programming skills that they would henceforth be using. There is no dearth of people who call these IT guys the cyber coolies, because of a perception that the job they are doing is more like an unskilled labourer. Is IT really 'menial' or 'routine'? That is something debatable. Many people I talked to said that even 'good' work is coming to India now. Still, there is a huge chunk of people in the Indian IT industry who are not really at the cutting edge, yet. Most people in IT are engineers. They do not use their core competence, which is engineering. I dont find anything wrong with it on a personal level, since it always makes sense to follow the money. The point is this: if people do not use the competence in which they have recieved rigorous training it becomes difficult to move up the value chain.

Fundamentally, US has a much better chance of moving up the value chain. They have the best universities in the world and they do research on cutting edge problems in almost all the streams one can think of. Medical science, biotech and nanotech are much ahead in the US than in India. If you think of Indian universities, there is absolutely no comparison. India premier technical institues IITs pale in comparison to even middle rung US universities in research output and of course world's top management schools are in the US. This immense advantage means that there is a very good chance that the United States could actually graduate to being a hi-tech economy.

Some people think that a comprative advantage in design and innovation is a romantic notion that the US nurtures. The Americans were taken to task by the Japanese in automobiles and by the Taiwanese and the Koreans in electronics. Forty years ago, Japan was a low cost alternative to US manufacturing. Last year, Toyota beat GM to develop the first hybrid vehicle.

The question therefore is, how high will India be able to go in the value chain? Will a Google, a SUN or a Amgen be born in India, something which will revolutionize things? In other words ,In five years' time, will India be Coding 4 Bill, or Coding 2 Share?