• Technology
  • The Economist

Men and Machines

Technology and economics have already revolutionized manufacturing. White-collar work will be next.

Eventually the organization of car manufacturing may begin to resemble production in the consumer-electronics industry, where the adoption of industry-wide standards (along with de facto standards, such as the Intel microprocessor) has enabled suppliers to become highly specialized. Companies such as Flextronics and Selectron now offer outsourced manufacturing platforms for whole categories of consumer electronics. All the branded makers have to do is handle the logistics, badge the goods and send them off to the shops.

A similar platform-production system is emerging in white-collar work. A few popular business-software packages sold by companies such as SAP, a German software firm, and PeopleSoft, an American one, are now offering standard ways of organizing and delivering administrative office work. When companies outsource HR departments, specialists such as Hewitt and Accenture add them to their HR-services production platform. Convergys, for instance, claims to be the world’s largest operator of SAP’s HR software. FDC, for its part, has built a production platform that offers credit-card services.

Thanks to the internet’s open standards, extreme specialization is now emerging in outsourced business services, just as it did earlier in consumer electronics. Next door to a Safeway supermarket on the Edgware Road in London, a group of British accountants and tax experts has built a business service called GlobalExpense that handles employees’ expenses over the internet. Employees of its customer companies log on to the GlobalExpense website, record their expenses on standard forms and put their receipts in the mail. GlobalExpense checks the receipts, pays the expenses and throws in a few extras such as related tax work and information on whom the company’s employees are wining and dining.

This year GlobalExpense will pay out £60 million-worth of employee expenses, which probably makes it the biggest expense-payer in Britain. With a large, flexible pool of foreign students in London to draw on, the company says it can handle expense claims and receipts from anywhere in the world.

And So to Bangalore

In the late 1980s and early 1990s, as transport and communications costs fell and logistics technology improved, rich-country manufacturers began moving production to cheaper nearby countries. American carmakers and consumer-electronics firms started manufacturing in Mexico; European makers went to the Czech Republic, Slovakia and Poland; and Japanese, Taiwanese and Korean firms moved to China. By the late 1990s, European manufacturers such as Philips, Siemens and Nokia, and American ones such as GE and Motorola, were moving further afield, to China. American imports from China rose from $66 billion in 1997 to $163 billion last year. By one estimate, foreign companies opened 60,000 factories in China between 2000 and 2003. The country’s exports rocketed.

In the same way, with the cost of telecommunications bandwidth falling, some firms in rich countries, mostly in America and Britain, began moving some of their business services abroad, so far mostly to India. IT-service companies such as IBM, EDS and Accenture have hired thousands of Indian software engineers to carry out work previously done near their customers in rich countries. An Indian GE subsidiary called GECIS handles administrative processing work for the firm’s financial businesses. NASSCOM, the Indian IT-industry lobby, has high hopes for these young export industries. By 2008, it thinks, they will employ over 4m Indians, generating up to $80 billion-worth of sales.

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