Change: the only constant

It�s been said that only two things in life are certain: death and taxes. But Lesley Meall suggests we add change to that list, particularly when it comes to technology

Astronomy, chemistry, mathematics, meteorology, physics, and seismology: the early origins of all these sciences can be traced to China. Despite the prevailing stereotype of the Chinese as lacking in scientific and technological ability, from 600 through to 1500 China was the world�s most technologically advanced society, and many innovations were developed there. From paper-making and paper money, through gunpowder and the game of Chess, to wheelbarrows and umbrellas; Chinese scholars got there first.

But the nature of technological development is such that no one country, company or technology is dominant for ever; or even for very long. Witness the history of two of information technology�s most successful companies: IBM and Microsoft.

Over its 100-year history, IBM has gone from humble beginnings, through mass market success, to pragmatic survival. During its 30-year history, Microsoft has also gone from humble beginnings to mass market success, and is now battling to maintain its supremacy. Today, the corporation faces challenges not just from fellow technology companies, but entire countries. Only time will tell if and when Microsoft will slip into survival mode, but the odds seem firmly against it maintaining its dominance for the next 70 years.

Recent anti-trust actions are just one sign that Microsoft�s past glories will be a barrier to similar successes in the future. The rise of the open source movement hints at a wider trend. Governments in countries including Australia, China, Denmark, Finland, Germany, India, Malaysia, Spain and the US have launched major Linux initiatives in attempts to minimise their Microsoft dependence, by encouraging the uptake of the low cost alternative.

China, Japan and South Korea recently took the move a step further by forming the Open Source Software Promotion Forum. It will promote open source; it�s already agreed on a division of labour. China will develop PC operating systems, Japan will focus on software development and security, and Korea will develop software for PDAs. All three countries are keen to reduce their dependence on any one company, or country.

Economic incentives

Microsoft is particularly unpopular in developing countries where the high cost of Windows can hold back the development of an entire nation. As Sergio Amadeu, head of Brazil�s National Information Technology Institute, explains, paying software licensing fees to companies like Microsoft is simply �unsustainable economically� when applications that run on the Linux operating system are much cheaper. Only 10% of Brazil�s population has computers at home, and the debt-laden Government is the nation�s biggest computer buyer.

President Luiz Inacio Lula da Silva has declared his intention to transform the land of samba and Carnival into a tech-savvy nation, and although Brazil has no official anti-Microsoft mandate, the company is nonetheless unimpressed. �There is a risk of creating a technology island in Brazil, supported by the law,� says Luiz Moncau, Microsoft�s marketing director in Brazil, adding: �We think free choice is best for companies, individuals and the Government.� The US Senate seems to disagree.

In January, it passed a law which will ban the outsourcing of US federal public sector work to low-cost offshore countries, and a group of senators recently got together in support of a Bill which will, if successful, slap limits on federal grants to companies that replace US workers with overseas employees. Although these moves will only make a slight dent in the growth of the global outsourcing industry, they have been criticised as being hypocritical and protectionist.

Kiran Karnik, President of India�s National Association of Software and Services Companies (Nasscom), says that he was �dismayed� by the law. �Such a Bill is not in keeping with the increasing globalisation of trade, which benefits all countries, and is contrary to the spirit of free trade being promoted by the World Trade Organisation and long espoused by the United States.�

But not everyone believes that the classical arguments for free trade, based on an 1817 tract by British economist, David Ricardo, are appropriate in 2004. �The Internet has made it possible for labour to move across boundaries,� says US economist, Paul Craig Roberts, and �this is not the �Ricardian� case for free trade�. Whether he is theoretically correct, or not, he raises an interesting issue.

No shortage of skills

When many Western countries experienced massive job losses during the 1950s and 1960s due to automation, and during the 1980s because of de-industrialisation, there were white collar jobs for many to aspire to - if not move up into. More recently, many of the jobs that are being outsourced to areas where labour is less costly are highly skilled. What can American accountants, English engineers and Italian insurance claim adjusters do for work if their jobs move overseas?

Even India, the prime beneficiary of the global outsourcing movement, has some changes of its own to deal with, as the market matures. The Indian software and services industry grew 18% in 2003, and Nasscom is predicting 17% growth in 2004, with projected sales of $8.4bn. But this could be difficult to sustain.

�We have seen a lot of venture capital money coming into this sector,� says Ananda Mukerji, CEO of ICICI OneSource, an Indian outsourcing supplier. �And now many of these portfolio companies are looking for an exit because they realise they are not going to be able to grow and reach critical mass.� The Indian outsourcing market is going through a period of intense mergers and acquisitions activity, while it simultaneously faces challenges from other regions such as Brazil, China and Russia.

IBM recently joined the long list of companies outsourcing some of its core activities overseas to save money. According to a recent report in the Wall Street Journal, during 2004 IBM is planning to transfer thousands of skilled jobs to Brazil, China and India - though it is also planning to increase employment in the US.

Apparently, according to IBM company documents, for accounting purposes, a programmer in China with three to five years� experience will cost about $12.50 an hour, including salary and benefits, while a comparable US employee will cost $56 an hour.

Although India may be waving goodbye to some of its outsourcing deals, it is pushing its way up the value chain. Indian accountants in Bangalore are preparing tax returns for clients in the UK, while financial analysts in Bombay are writing brokerage reports for Wall Street.

Two-way street

Meanwhile, China is picking up some of the slack in terms of outsourcing, and attracting substantial inward investment from the world�s biggest technology companies. AOL Time Warner, Oracle, Lucent, Nokia, and Siemens, are just a few of the high-tech luminaries keen to get a foothold in what they view as the world�s most promising market.

China has a population of 1.3bn, a fifth of the world�s total. It also has more than 220m mobile subscribers and almost 80m Internet users, but PC penetration is very low. By investing in joint ventures, non-Chinese companies have been able to utilise the country�s relatively cheap technological manpower to further their ambitions both inside and outside the region, while Chinese companies have benefited from the opportunity to turbo-charge their technology development.

China is keen to develop its own fledgling technology industries in areas ranging from cars and computers to telephones and television. Which country or company benefits most remains to be seen. But the odds seem to be stacked in China�s favour. As one US attorney who counsels foreign companies on their activities in the Chinese market warns: �History shows that Chinese joint venture partners are prone to knock off your products.�

At the moment, China is focusing on software and systems for its own use, but its emergence as a major technology exporter seems to be simply a matter of time. In what may yet emerge as one of the biggest gambles in his career, Bill Gates recently signed a pact with the Chinese Government to reveal Windows� source code.

If just one enterprising Chinese company should somehow manage to come up with a Linux equivalent to the Windows desktop, something the open source movement sadly lacks, it would help China regain the technological supremacy of the first and second centuries. It just might do that anyway.

Lesley Meall is a writer on business and technology issues.