Local job effects of globalisation & the financial meltdown..

Having worked with a number of global entities over the last 10+ years, we have been watching how they interact, how they may try to interact, the results of their approaches, the effects of their effective and ineffective landing and the on-going life-cycle of the various related parties for those that do get through stage one.

Particularly in relation to Japan entry, particularly in IT, some companies have been clear winners - and some have struggled.

Originally, globalisation was a process of companies reaching out beyond their traditional borders, expanding their market reach, delving into new cultures, languages, laws, etc. Most of the major brands in all industries have done this pretty successfully; IBM, BMW, McDonalds, Coca-Cola, Dell, Microsoft, Oracle, Sun (now in Oracle), Financial Institutions (Deutsche Bank, Goldman Sachs, Morgan Stanley, RBS, ABN (now in RBS), Lehman (now in Nomura)), etc.

We have just come out of the most stinging period of the "financial meltdown" - where we saw some serious shifts - particularly in the financial industry; Lehman goes bankrupt, Nomura buys up some cheap Lehman, RBS buys up some cheap ABN Amro, etc. Most of the laymen think , "oh, they stuffed up big time, but now we know, it should smooth out and things will get back to normal.." The problem is the laymen haven't got a clue what happened, how it happened, why it happened, nor that these large global Financial players still have some serious hidden skeletons that will come out and continue to whack away. They have made their transactions so layered and multi-related, and seemingly complicated, that the effects are like a ripple moving out towards a wave and ending up as a Tsunami. There are ripples and waves in motion now that these players are frantically trying to contain and hide. Some may mellow out, but  we have human greed that is short-term, making a few quick million and jumping ship leaving the ripples and waves moving forward - and that "someone" else may have to deal with these without knowing exactly what caused them - thereby being completely unprepared for quelling them. The Tsunami is inevitable.

The above industry is particular in that stuffing things up there will mess with many other industries - because it reduces the credit and trust available in the market. The Auto-industry is another, but generally they don't have global effects on all or many other industries. The Toyota problems recently will reduce sales in US of Toyota - may improve GM sales in US, but won't affect the sale of Coca-Cola in Malaysia, whereas the financial meltdown would have resulted in consumers tightening their belts and buying less Toyotas AND Coca-Cola - thereby reducing the ability of Coca-Cola and its partners to buy more vending machines, reducing the parts required for vending machines and all labour connected and so on and so forth..Same for Toyota Retailers, parts suppliers, etc.

So what is going now?

On the face of it - the banks are still as they were before, playing the same old games (maybe a little less adventurous)  - albeit looked upon less pleasantly by the average citizen these days. Same name, same luxurious image, same mysteriouis awe to be a part of.

Inside is a different story. Massive cost-cutting and stream-lining is going on. There is a very fast-moving wave covering the financial industry, driven by HUGE competition to make the internals as efficient as possible. This has spawned an even greater need for globally, centrally managed services provided by companies that understand the problem, understand the industry and can move in yesterday. It has also opened their eyes to options and services that they may have even bawked at previously. Inwardly, they don't have to be so cool anymore. Not to say that the "other" options are not cool, in fact quite the opposite. It may have just been their perception or lack of understanding or need to stay in the status quo. We see the end of the status quo in defining what a company can and can't do.

An example will help explain this. What does a global bank use for email and calendar? It may be based on Lotus Notes. It may be based on an internal MS Exchange server and Outlook. They may have a blackberry solution synchronising this into their phone. Could you imagine that these banks would ever consider using Google for example? 1-2 years ago - no way. Now? Yes. Some of these major banks are in fact considering the shift. The price-point is amazing compared to other solutions. Of course Microsoft will do whatever it takes to not allow this - from pointing out the "open source" or "lack of experience in this industry" to even bullying and pointing out the negative effects on their "other related" areas...Some banks were so close to deciding to use Google, that they were in preparation mode - and suddenly the option was removed from the table and they were told to go with MSX - SaaS - at 5 times the price! Go figure..

Another example is the internal Help Desk and Service Desk. Japan is a very good example where the globalisation of internal operations in this area are reaking havock locally. Let us paint a picture;

• Pre-Centralisation Period
  • Decision to go with outsourced Globally Managed Services is done at the top, globally managed level - not at the local level - such as the CEO of Coca-Cola worldwide and where the Japan Director can only put forward some opinions.
  • Company locally has multiple vendors providing resources for various work
  • Vendor pricing at the local market value (status quo) - as for last 10 years
  • Vendor relationships managed over many years - some became personal
  • Vendor expectations for providing a resource are maybe around $9-10
  • Staff expectations in terms of pay are at maybe around $6.5-$7
• Centralisation Preparation Period
  • Management in the Local entity of the global company may no be 100% in acceptance
  • The coming reality is starting to creep in - and the previously managed responsibilities and the "empire" will reduce. This hurts some pride a bit, no doubt.
  • Must cut local vendor relationships, deals, many that have become personal
  • Current local Vendors will REALLY not like this, unless they are part of the game - so therefore will provide whatever forces to try to shape this outcome.
    • They will counter-offer with not-so-cheap-but-better-quality offers
    • They will pressure the company to defy - causing friction even though the outcome is already decided
    • They will strategise together to keep resources in place in some well camouflaged ways
  • Local vendors are facing a wave that once started, may catch on - making this movement even more threatening - threatens their comfort zone. Like people who could not let go of the Bubble era or the .com days. They are gone y'all!
  • "Centrally Managed Services" actually means the services will be managed much more efficiently and cheaper - somewhere in India, Singapore, Malaysia, etc.
  • New, lower-priced vendors will be chosen by the Centrally Managed Service Provider who is less concerned with the companies previous relationships and more concerned with efficient, lower-priced services that match their model.
  • Services will be based on the work-load and not on the number of bodies. Kind of like virtualisation - where previously a service would need a whole server regardless of the fact that it didn't fully utlise all the server's resources. Now that it is virtualised, the resources can be adjusted on-demand - more or less provided as determined by the work-load. In globally managed services, this would be determined by the number of IMACs.
  • Current local vendors and staff's expectations are still at the pre-centralisation level - becoming dazed and still clinging to the bubble era.
    
  • The company must start letting go of staff from current vendors - they understand that the previous price-point was too high for which they have less budget for now, and the new coming centralised services will replace some, if not all of their requirements.
  • The new vendor pricing will shift towards $7-8 - margins are slimmer.
  • Staffing prices will shift towards $5-7
  • Staff will leave thinking they will be able to get a job at the previous pricing - but the vendors know this is not just one company, it is the whole industry and many other industries also that require similar resources.
  • It now becomes more of a volume game than ever.
• Post-Centralisation
  • Centrally managed also means less local control - but also less responsibility and worries
  • Penalties would be in place for dropping any agreed SLAs
  • Companies will have more time to focus on making internals even more efficient.
  • Local Vendors will start to accept over time the new reality and begin adjusting their staffing and pricing models. The realisation has come. Expectations are closer to reality.
  • Staff are now being paid for their skills and abilities more than ever - not just being paid for the industry they work in. There is a greater necessity for staff to study more, learn more skills and advance themselves to get better work and money.
  • Resources will be provided more on a short-term contractual basis to companies by vendors

We see the above occuring now in Pharma, Fincancial, Manufacturing, Auto, IT and many others.

Other movements are that global System Integrators will build tighter, more focused relationships with local vendors that are more efficient and price-competetive. In Japan, this is the Japanese System Integrators greatest weakness - they can not perform globally. They can also not perform "internationally" in Japan - and will one day have to seek similar partnerships.

The question is not how to fight the coming reality - but how to benefit and fit the coming wave - and ride the wave carefully. It is a matter of when - not if.