Location and R&D

Location as it relates to research and development increasingly matters - although you can't ignore talent in other places.  Find out why and how this affects BlackBerry (aka CrackBerry) maker - Research In Motion.

 

Aleem Kanji

The Outsourcing of Consumer Services

(posted by David) Steve Lohr's piece, Hello India? I Need Help With My Math, in the NY Times (sub rq'd) uncovers the evolution of outsourcing as consumer services (often considered non-exportable) such as tutoring, tax and legal services, and personal valets are now available at much lower costs than local providers.

From the article,

The second wave, according to some entrepreneurs, venture capitalists and offshoring veterans, will be the globalization of consumer services. People like Ms. Yamaki and Mr. Tham, they predict, are the early customers in a market that will one day include millions of households in the United States and other nations.

They foresee an array of potential services beyond tutoring and personal assistance like health and nutrition coaching, personal tax and legal advice, help with hobbies and cooking, learning new languages and skills and more. Such services, they say, will be offered for affordable monthly fees or piecework rates.

From Farmer to Landscape Worker?

The latest report from the International Labour Organization, Key Indicators of the Labour Market (KILM) includes this little gem (h/t Peter S Magnusson who mentioned it on his blog):

In recent years agriculture has lost its place as the main sector of employment and has been replaced by the services sector, which in 2006 constituted 42.0 per cent of world employment compared to 36.1 per cent for agriculture. As for the industry sector, it represented 21.9 per cent of total employment, which is almost unchanged from ten years ago. Although textbook theory suggests that economic development entails a structural transformation with a shift away from agriculture to the industry sector, this no longer seems to be reflected in reality. Instead of moving into high-productivity jobs in the industry sector, people are moving directly into the services sector, which consists of both high- and low-productivity jobs.

Therefore, it is unclear if the sectoral shift goes hand in hand with productivity increases and thereby a better utilization of the workforce. Agriculture is still the main sector of employment in the world’s poorest regions. Two-thirds of workers in sub-Saharan Africa and almost half of workers in South Asia and South-East Asia & the Pacific are in agriculture. (Box 4b on page 6 of KILM04)

However, the world has, for the first time ever, more people working in something other than gathering, raising, or providing food.  The fact that they are going from farming to giving manicures and manicuring lawns and asking "do you want fries with that?" might give you reason for pause.  But, many of the ILO "service" occupations are ones that we include in the Creative Class so it's not all doom and gloom.  In fact, the worldwide stagnation of "industrial" employment is an equally interesting finding.  Clearly, productivity increases have impacted industry in the same way as agriculture -- we are making more with less or at least making more with the same.

posted by Kevin Stolarick

Globalization and US Cities

My old friend, Don Holbrook, outlines the challenges globalization brings for US cities and economic development, here (hat tip: Kevin Stolarick).

Blame the Workers

The Wall Street Journal (sub req) quotes a Big Three executive:

"We need to eliminate most, if not all...like 80%" of the gap, says a senior automotive executive involved in labor planning. "It has to be gone by the end of the contract, or doing business in the United States is unsustainable." All three domestic auto makers "will move investment in plants and people outside the country" if they don't bring U.S. labor costs in line with those of Toyota and the other foreign auto makers, the executive said.

How do they get away with this BS. This guy shouldn't be managing a 7-11. The Big Three are not failing because of labor costs. They are failing because their product is crap. The problem is the worst management since the US steel industry - whiners, cry-babies and incompetents.  They keep churning out stuff no one wants. The SUVs which were carrying them have now collapsed and they are being crushed with the move to more fuel efficient cars and hybrids. This is one of the greatest stories in gross mismanagement in world industrial history. It is hard to imagine how anyone could squander the kind of lead and assets they had, but they did. It boggles the mind, actually. When Martin Kenney and I studied Japanese investment in the auto industry during the 1980s and 1990s we were shocked and appalled by what we saw. Factories in total disrepair.  Crap everywhere. Workers treated like sub-humans. Read Rivethead sometime if you have a chance. So were the Japanese. They never even imagined the US auto and related industries could be in the shape they were in.  When in doubt remember this:  Those Camrys and Accords that are tearing up the US market? No, they're not made in Japan or some low labor cost country. They're made right smack here in the US, using American workers. And Japanese and German workers are not exactly cheap labor. It's not American workers that are the problem- it's management.

Harnessing Global Talent

SAP CEO Henning Kagermann has a global talent strategy for the spiky world. Have a look at this interview in the New York Times.

A decade or so ago, we did nearly 100 percent in Germany. Now, it’s two-thirds in Germany and one-third outside. Palo Alto was the first, and we now have about 1,400 engineers in Silicon Valley. Today, we have about 3,000 engineers in India, about 1,000 in China and 900 in Israel. There are other engineering centers around the world, but those are the big four.

More after the jump.

Globalization, demography and real estate

A recent report from the Urban Land Institute and Columbia University's Milstein Center for Real Estate examines what globalization and demographic trends mean for the world's real estate markets.  Download the report here.

The world's wealth is very spiky

The recent UN report on the global distribution of wealth has gotten a lot of media attention, focussed mainly on the startling fact that just 2% of the world's population account for more than half of all wealth; the top 10 percent own more than 85%.

Overlooked however is the extreme geographic concentration of that wealth.  "Almost all of the world's richest individuals live in North America, Europe, and rich Asia-Pacfiic countries," the study finds, which account for more than 90% of all global wealth.   37% of the world's richest 1% live in the US, 27% in Japan, most of the rest in Europe.

The study finds that  wealth is "more unequally distributed than income across countries. High income countries tend to have a bigger share of wealth than of GDP."

I can only imagine how this distribution looks within countries - how tall the world's richest regional peaks are?

Full study is here

Download the powerpoint

Press release

Creative Bay Area

Here's an oped by Jim Wunderman, president and CEO of the Bay Area Council, a federation of the CEOs of hundreds of the largest employers in the Bay Area in today's San Jose Mercury News.

"We suddenly live in a truly global world  ... the Bay Area Council released a survey in which 36 percent of the region's CEOs said their company now actively participates in the global marketplace, buying or selling goods or services. Among small companies with one to 49 workers, an astonishing 26 percent said they are now 'global.'"

"Our region's companies are rapidly "going global,'' but our laws, policies and infrastructure are not keeping pace... Other regions -- such as Shanghai, London, Sydney, Bangalore and even South Florida -- ... are making big changes to maximize the benefits that their region and their companies accrue from the economic change. Their gain could be the Bay Area's loss as companies either move to, expand in or get their start in regions more friendly to global economic competition."

"To respond, the Bay Area Council -- and the hundreds of employers we represent -- proposes that our region focus on a three-part vision:"

"First, attract the creative class. Innovative, knowledge-based workers choose to live in areas with a high quality of life, which also offer superior educational opportunities -- both for themselves and their children."

"Second, fuel the innovation pipeline. Economically successful regions in the future will be defined by distinctive public and private research facilities, a solid supply of risk capital to finance ideas generated at research facilities, and a deep pool of business management talent to run companies founded on these ideas."

"Third, improve trade capacity. The greater the global connectivity, the greater the benefit in the global economic competition. This includes physical trade through airports and seaports, as well as electronic trades of information over fiber-optic lines and wireless systems."

The rest is here.

Also have a look at the Bay Area Council's report, Bay Area 3.0: Global Competitiveness Initiative (hat tip: David Miller). 

Global talent, venture capital and entrepreneurship

Check out UC-Berkeley's Annalee Saxenian new report on the global mobility of engineers, international flows of venture capital, entrepreneurship in India and China and "brain circulation. Download Saxenian_WIDER_2006.pdf

The Post-geographic workplace

Great story on the coming of the post-geographic workplace in Business Week by Michelle Conlin one of the brightest young business writers around. The story profiles Best Buy's efforts to replace imposed space and time-tracking with a flexible, clockless, anytime, anywhere culture.

"The official policy for this post-face-time, location-agnostic way of working is that people are free to work wherever they want, whenever they want, as long as they get their work done. "This is like  TiVo  for your work," says the program's co-founder, Jody Thompson." By the end of 2007, all 4,000 staffers working at the company's Minneapolis headquarters will be part of a new "results-only-work environment" or ROWE. "Another thing about this experiment: It wasn't imposed from the top down. It began as a covert guerrilla action that spread virally and eventually became a revolution. ... "ROWE was an idea born and nurtured by a handful of passionate employees," Best Buy's CEO Brad Anderson told Business Week. "It wasn't created as the result of some edict."  Productivity has risen 35 percent since ROWE was introduced, Business Week reports.  Anderson and his team have set up a new venture, CultureRx,to help other companies do the same. Conlin lists these five key dimensions for a post-geographic workplace:

MEASURE:  Before unplugging workers, metrics are key to ensure that productivity, engagement, and turnover improve.

TAILOR: Imposing new work rules rarely pays because managers and workers need to tailor schedules to their needs.

TRUST: Inevitably, some untethered workers will slack off. Managers need to trust—then rely on data to assess performance.

EDUCATE: Location-agnostic work is a hard concept to grasp. So refresher courses are a must for managers and workers.

GATHER: When workers are nomads, regular gatherings, in person or by video-conference, help retain a team dynamic.

Read the entire story here. Plus a video  here

Work is no longer defined by real estate. The limits of technology during the industrial-organizational age required that we work in shared spaces, offices and factories. But now technology means we can work anywhere, anytime.  How long will it take for other companies to catch on? And what about other dimensions of human life? Learning is also no longer defined by real estate.  When will universities and schools go post-geographic, allowing "students" to engage in learning-by-doing? The great irony of our time is that just when technology has freed us from the constraints from working and learning in central facilities, it makes our location - the place we choose to live - ever more important. 

Share your thoughts on this incredibly important issue.

Global creative class

From time to time, I like to play around on google. I'm always pleasantly surprised to see how global  an idea the creative class has become.

	Top Cities
1.	Copenhagen, Denmark
2.	Washington, DC, USA
3.	Stockholm, Sweden
4.	Toronto, Canada
5.	Amsterdam, Netherlands
6.	New York, NY, USA
7.	Helsinki, Finland
8.	Sydney, Australia
9.	Chicago, IL, USA
10.	Milan, Italy

 

	Top languages (normalized)
1.	Swedish
2.	Danish
3.	Dutch
4.	Finnish
5.	Italian
6.	English
7.	German
8.	French
9.	Spanish

	Top Languages
1.	Swedish
2.	Danish
3.	Dutch
4.	Finnish
5.	Italian
6.	English
7.	German
8.	French
9.	Spanish

Wiki Is Open (@ the moment) in China

While most of us don't live under state run censorship, we should always be asking just how open our society and organizations are. Apparently some Chinese Communist Party Officials are doing just that.

According to a report in the WSJ, Wikipedia is up and running in China and is a huge hit. This open platform tool is quickly building a large community according to the piece (sub required). From the Journal,

"The Chinese-language version of reader-edited online encyclopedia Wikipedia has exploded in popularity in the past five days, after a yearlong ban of the site was lifted.

Activity on nonprofit Wikimedia Foundation's Chinese Wikipedia site has skyrocketed since its release, which Internet users in China first started reporting on Nov. 10. Since then, the number of new users registering to contribute to the site has exceeded 1,200 a day, up from an average of 300 to 400 prior to the unblocking. The number of new articles posted daily has increased 75% from the week before, with the total now surpassing 100,000, according to the foundation.

Authorities had been blocking both the Chinese and the English versions of Wikipedia steadily since October 2005. The sites previously had been blocked in China only intermittently. The lengthy ban drew criticism from some intellectuals in China who pointed out that it hindered the ability to add Chinese perspective to articles on the encyclopedia sites. Last month, the block on the English site was suddenly lifted, without explanation.

The unblocking of Chinese-language Wikipedia makes the site's user-generated content accessible to a much larger share of China's Internet population, which now numbers more than 120 million.

No one can be certain the current access will remain. "I won't crack open the champagne just yet," said Tim Starling, a Wikimedia system administrator."

Fun with Flight Data and Patterns

We love data and patterns that illuminate how people live and work. Check out this short video that uses Federal Aviation Administration data to create animations of flight traffic patterns and density. Pretty Cool. (Hat tip Kevin Stolarick)

Creative Class in Japan

As someone who's long been interested in Japanese innovation, I was delighted to come across these two recent reports: a World Bank Working Paper on Innovative Tokyo by Kuniko Fujita and Richard Child Hill at Michigan State and this report on the Creative Class and the 3 Ts in Japan.

Wow that was a long time ago

Economists, like Paul Romer, have argued that economic growth is endogenous, meaning it builds on itself, over long periods of time. Some say its "path-dependent" to use Paul David's term.  But how long a time? Over at Marginal Revolution, my GMU colleague Tyler Cowen, has a link to this new paper by three economic historians says you can predict economic development today by the levels of technology way, way back in 1500AD, even earlier.

WSJ Four Part Series on US Manufacturing

On October 24th, the Wall Street Journal (sub required) began a four-part series on US Manufacturing. The first piece, by Timothy Aeppel, is titled Still Built on the Homefront. The preface:

"Rumors of the death of U.S. manufacturing have been greatly exaggerated. Even as high-profile manufacturers like American auto makers stumble, a remarkable amount of stuff is still made in the U.S., from construction equipment in North Dakota to high-end ranges in Mississippi, artificial knees in Indiana and pipe organs in Ohio.

While manufacturing represents a relatively small part of the U.S. economy -- about 17% of GDP compared with China's 41% -- and the number of plants has dwindled, the U.S. is still by far the world's largest manufacturer by raw value of the goods produced, $1.79 trillion worth last year, nearly twice its nearest rival, Japan. China produces more of the things most consumers think of as coming out of factories -- cellphones, toys, and coffee makers -- but the U.S. continues making goods that tend to be more complex, difficult to transport, and time-sensitive."

Economist Survey on the Search For Talent

According to the Economist Magazine, Winston Churchill said, "the empires of the future will be empire's of the mind." And so begins the new Economist Survey of Talent. The first article is available to all online and is well worth the read.

Here is a snippet...

"But a large and growing number of businesses outside the tech industry—from consulting to hedge funds—also run on brainpower. When the Corporate Executive Board (CEB), a provider of business research and executive education based in Washington, DC, recently conducted an international poll of senior human-resources managers, three-quarters of them said that “attracting and retaining” talent was their number one priority. Some 62% worried about company-wide talent shortages (see chart 1). The CEB also surveyed some 4,000 hiring managers in more than 30 companies, and was told that the average quality of candidates had declined by 10% since 2004 and the average time to fill a vacancy had increased from 37 days to 51 days. More than one-third of the managers said that they had hired below-average candidates “just to fill a position quickly”. The CEB found, too, that about one in three employees had recently been approached by another firm hoping to lure them away."

Is your company seeing this landscape? Fighting battles to attract and retain talent? Has it been successful?

Holy Flight of the Creative Class

A new report from the Milken Institute titled, "Mind to Market: A Global Analysis of University Biotechnology Transfer and Commercialization," examines the process of university technology transfer. The process began three decades ago when researchers @ UCSF and Stanford began to develop commercial applications for their research into DNA (the birth of the biotech industry).

While the summary table on p.9 of the Milken report (login in required) shows that the US has 8 of the top 10 universities, foreign universities are doing really well with University of Tokyo (#2), University of London (#3), and Osaka, Kyoto, Cambridge, and Oxford in the top 20 (ahead of MIT and University of Michigan among others).

My sense is the tables were turn dramatically in the next decade. For the first time, one can see the levelling of technological capabilities in a sector, industry, economy-defining field.

This, more than anything else I can think of, shows the improvement of universities outside the US at the scientific frontier.

My hunch is that these data still do NOT capture the significant "damage" that has been done as a result of recent immigration, research, science policies in US, and increased recruitment abroad.

(posted by Richard)

Globalization thru Coffee and Fries

Via Tyler Cowen's Marginal Revolution blog -- a great world map of globalization -- McDonalds and Starbucks. (click image for clearer image in separate browser)

(posted by Richard)

Health Care as Economic Engine

That's the message of Gina Kolata's story in the 8/22/06 Science Times (sub required). The Nobel-prize winning economist, Robert Fogel, predicts that by 2030, about a quarter of economic ouput will be spent on health care, making it "the driving force in the economy," like railraods in the early 20th century. Fogel is the author of the fantastic book, The Fourth Great Awakening.

The article caused me to recall something the visionary venture capitalist, David Morgenthaler said to me several years ago. When he was a young man, Morganthaler said, he invested heavily in technology: figuring it took a large share of income to buy more computing power.

Now he invests in health care and entertainment, which he saw as driving sectors in our economic future. Largely, he said, because the technology revolution has brought very cheap computing power. Now when he spends his money he wants to buy additional years of life, or more quality years of life, or enhanced experiences. This is where demand is. The economy is no longer powered by the key engines of the industrial era, as our current growth in the face of soaring commodity prices can attest to.

Yes, certainly, one of the new economic drivers is health care, but so is entertainment and the production and puchase of experiences. And on that score, another leading sector is destined to be education -- I mean education not as elementary, high school and college -- but education broadly defined as life-long development across all spheres, including work, life and leisure. And technology, especially in the form of software, will remain important as an undergirding infrastructure in this emerging economic system. Health care, education, entertainment, and technology -- the core fields of the creative economy!

(posted by Richard)