MIT Sloan Management Review

Too often, discussions of contemporary economic issues end up either overly simplified for popular consumption — or too jargony and technical to be followed by anyone but economists. A new book, Offshoring of American Jobs: What Response from U.S. Economic Policy? avoids both extremes — and instead finds an informative, nuanced middle ground on an important issue. This brief but thought-provoking book offers insights into economists’ thinking about offshoring.

In the book, edited by Benjamin M. Friedman of Harvard and published by MIT Press, two prominent economists –Jagdish Bhagwati of Columbia University and Alan Blinder of Princeton — debate the impact that the offshoring of jobs (particularly white-collar jobs, such as computer programming) will have on the American economy. (The book includes commentary from other economists, as well.)

Bhagwati complains of ”episodes of media frenzy” despite economists’ consensus about the benefits of free trade, while Blinder worries about the impact of offshoring of service jobs on the American populace and American politics. Here’s a small sample of what each has to say in Offshoring of American Jobs:

BHAGWATI: “In an op-ed titled ‘Technology, not Globalisation, Is Driving Wages Down’ in the Financial Times (January 4, 2007), I argued that the vast numbers of empirical studies…had shown that trade with poor countries had a negligible impact on our workers’ absolute real wages (as against the relative wages of the skilled and the unskilled)….The New Democrats who continue to believe nonetheless in this imaginary downside of free trade are not doing anyone any good.”

BLINDER: “I can’t help believing — and this is what makes me a worrywart rather than a relaxed, business-as-usual guy — that the gross job losses [from offshoring] in the rich, English-speaking countries will a) continue for decades, b) eventually be huge, c) pose a variety of difficult adjustment problems and d) dominate the political landscape for years.”

Whatever your own views on offshoring and its economic and political impact, chances are good you’ll learn something from the discussion presented in this book.

C.K. Prahalad offered an interesting perspective on the economic crisis when he spoke today at HSM’s World Innovation Forum conference in New York City. Prahalad, who is the author of the well-known book The Fortune at the Bottom of the Pyramid, said he thinks that, as a result of the economic crisis, every global industry will be restructured –and it’s not clear that the dominant players will remain dominant.

In particular, Prahalad sees us entering a period where a key challenge is managing volatility and discontinuities. Managing volatility, according to Prahalad, requires two very different skills: strategic clarity as well as operational agility and resilience. 

Prahalad suggested that companies need to learn to innovate within the constraints imposed by volatility – for example, with low capital-intensity businesses,  with continuous churning of business models and with the capacity for real-time reconfiguration of resources.

Prahalad identified four forces behind the new economic structure he sees emerging: sustainable development; global markets; connectivity and social networks; and inclusive development (i.e., economic development that includes the world’s poor.)

This week’s official launch of Tata’s Nano — the world’s most inexpensive car – represents not  only an innovation — but perhaps also a harbinger of more innovations in the future. The Christian Science Monitor reported: 

 Indeed, it’s the middle class in poor nations who will be the focus of innovation for years to come, much as the Internet has spawned new businesses over the past 15 years, says Vijay Govindarajan, professor at Dartmouth College’s Tuck School of Business. “Innovating in these countries does require a fundamental shift in the price paradigm,” says Dr. Govindarajan.

Related links:

• Govindarajan has published several articles in MIT Sloan Management Review,  on topics such as strategic innovation and building an effective global team.
• For more on lessons Western companies can learn from companies in developing countries, see “Surviving the Downturn: Lessons From Emerging Markets” in the current issue of Business Insight, which is a collaboration between MIT Sloan Management Review and The Wall Street Journal.

Ran across an interesting report by John Hagel, III and John Seely Brown – who both have an affiliation with the Deloitte Center for Edge Innovation. The two argue that most Western companies are not yet truly harnessing the power of locales in emerging markets with specialized high-tech expertise (e.g. Bangalore, Shanghai, etc.);  they call such regions  of high-tech specialization “spikes.”  

Hagel and Brown maintain that, to truly leverage the power of collaboration across various geographical “spikes” around the globe, companies need to have less of a transactional mentality — and think instead of managing a loosely coupled network of individual companies. They cite Li  & Fung as an example of this approach.

Developing that kind of network, according to Hagel and Brown, can lead to the next step: what they call “creation networks”  — where companies from “spikes” all over the globe that participate in the network not only work together but also learn and innovate together and  ”get better faster.” The idea is that collaboration can help the companies create new value together.  Hagel and Brown write:

By connecting capabilities across spikes, network organizers can provide a powerful platform for innovation and learning across spikes as participants with diverse specializations learn from each other in order to deliver more value to the market.

 The authors’ paper, “From Transactional Markets to Relational Networks: Amplifying the Innovation Potential of High-Tech Regions,” is available for download.

Here’s a fascinating statistic: A new study of Chinese and Indian professionals and managers who had studied or worked in the U.S. and then returned to their home countries found that slightly more than half think they are either very likely or somewhat likely to start a business within the next five years. The majority of the survey respondents felt that opportunities to start a business were better in their home countries than in the U.S.

The study, which was released today, is called “America’s Loss is the World’s Gain, “ (PDF) and it was authored by Vivek Wadhwa, AnnaLee Saxenian, Richard Freeman, Gary Gereffi and Alex Salkever. The research was funded in part by the Ewing Marion Kauffman Foundation.

“Innovation arbitrage.” That’s a term John Kao uses in an article in the new issue of Harvard Business Review — to describe the way that companies can now parcel out their innovation activity around the globe, to locations with strengths in particular aspects of innovation. (HBR online subscription or article purchase required to read the full article, which is called “Tapping the World’s Innovation Hot Spots.”)

Kao’s analysis — and his description of various countries’ innovation strengths – is intriguing.  Readers who live in the U.S. may, however, be discouraged by his description of four trends that are eroding the U.S.’s historical leadership position in innovation — including the fact that numerous countries now have explicit and systematic national innovation strategies.

On the other hand, things can change — and economic downturns can sometimes be a catalyst for change. Kao, who was formerly on the Harvard Business School faculty and is the author of Innovation Nation, praises Finland’s national innovation strategy — and notes that it was born partly in response to a “economic near-death experience” following the breakup of the Soviet Union, which had been a major Finnish trading partner.

Follow all of MIT Sloan Management Review’s coverage of TED.

Someone doing a study of collaborative innovation could start with a look at the TED Prize, three of which were awarded here last night. The winners this year were extraterrestrial life searcher Jill Tarter, ocean researcher Sylvia Earle, and economist, musician, and advocate Jose Antonio Abreu. The idea is that the prize winners announce their dream. TED kicks in $100,000 to start funding that dream. More important, the prize winner now has access to the people in the TED community. Immediately after the acceptance speeches and into today, I’ve seen dozens of TED luminaries pledge in-kind support to the dream of one winner or another.

This stone soup approach isn’t uncommon, but it’s particularly impressive because all these people are at the center of other communities and have much to offer: that’s how they wound up at TED. Indeed, previous winners of the TED prize have had their dreams fulfilled because of intervention and assistance from (that word again) TEDsters. The most high-profile example of that is photojournalist Jim Nachtwey, a 2007 prize winner, who had to surmount multiple political and technical hurdles to tell his story of a deadly disease that’s hidden to most people in the developed world. Contacts at TED helped him do that.

The TED Prize ceremony capped a day in which it was definitely technology, the “T” in TED, held sway. Some of it was about robots. We learned about medical robots that permit minimally invasive surgery and biologist Robert Full revealed what he learned about how tails work while building robots that mimic geckos.

The first day there was plenty of talk about robots, too, and some of the breakthroughs demonstrated on the TED stage have been placed in the lobby so attendees can get a closer look. You can, for example, interact with a realistic Albert Einstein head that changes its facial expression based on yours:

Yesterday’s talk from Shai Agassi, who, like so many other TED speakers, began his talk with a provocative question — “How would you run a country without oil?” — and told the story of his journey to build an electric car. He noted that “electric cars have to be more convenient and more affordable than what they’re replacing” and maintained that the way to do this is to “separate ownership of the car and ownership of the battery” and replace it with a business model in which people and companies “own the car but subscribe to miles.” When explaining why he decided on an all-electric car rather than a hybrid, he got off the line of the day when he quoted Renault CEO Carlos Ghosn, who’s one of many funding Agassi’s international effort:

Hybrids are like mermaids. When you want a fish, you have a woman. When you want a woman, you have a fish.

You can learn more about Agassi’s company, Better Place, which he’s using to develop — you guessed right — a community around his endeavor.

And, finally, there was a big storm yesterday in Long Beach, as you can see:

If our posts about TED have left you interested in a taste of the conference, the TED Prize ceremonies are streaming live now.

This week, MIT Sloan Management Review is in Long Beach, Calif., for this year’s TED conference, which starts tomorrow. We’ll report daily. Now in its 25th year, TED remains an unclassifiable event. The letters of the name originally stood for technology, entertainment, and design, but in recent years the tag line for the event has become “ideas worth spreading.”

The event is certainly an elitist one. It’s expensive, hard to get into, and you’re just as likely to bump into web inventor Tim Berners-Lee as Overboard star Goldie Hawn in the food lines. If nothing else, TED is a trip. The veteran conference (this reporter has been to six of them) has gone through many permutations. Under curator Chris Anderson, TED is still full of technology, entertainment, and design, but it has really lived up to the change-the-world rhetoric that was always a bit more under the surface during Richard Saul Wurman’s ace stewardship. One high-profile example: Al Gore’s warning about global warming turned into An Inconvenient Truth after a movie producer saw him deliver the talk at TED. Last year E.O. Wilson debuted here the first iteration of his Encyclopedia of Life, funded by a TED grant.

The change-the-world attitude gets a bit out of hand: there’s plenty of talk about how for the past two years the gift bags, by Rickshaw Bagworks, have been constructed from 100-percent post-consumer recycled beverage bottles, but hardly anyone points out that the bags are overstuffed with non-essential items that have a much greater impact on the environment. Indeed, TED is a place for conspicuous consumption, even if it’s relatively sustainable consumption; it’s the only conference I’ve been to in which I’ve seen anyone drive up in a Tesla. (I’ve seen two today here as well as an even more cutting-edge vehicle.) Those with similar ambitions to TED’s, but a more limited budget, may wish to consider attending the alt-TED BIL, which is also in Long Beach this week (and which I hope to visit while I’m here).

For many years, TED was held in Monterey, Calif., but success has brought it to a larger venue farther south, in Long Beach (there’s a smaller, parallel, event being held east of here, in Palm Springs). At Monterey, most of the conference took place in one area. Here, with banners everywhere and events more spread out, it feels like the event has taken over the town, like Sundance does in Park City, South by Southwest does in Austin, and Davos (aka the World Economic Forum) does in, well, Davos. We’ll see how that works.

Indeed, just like last year, TED is coming right after Davos, which was a downer and inspired anger from even sober-minded management thinkers. Last year, TED presenter Craig Venter contrasted the optimism of TED with the pessimism of Davos. This year, especially, we could use a little optimism.

Especially if that optimism is realistic. Except for its entertainers, TED is an irony-free zone, a place where earnest speakers talk about fixing the world as if it is not merely possible, but mandatory. As we’ll see during the conference, the speakers here have a pretty good track record at improving one or another part of the world. The theme for this year’s event is “The Great Unveiling,” which refers in part to the conference’s new location, but also to new ideas due to be debuted here.

So why should managers care what’s happening here? Because the best new ideas helps make good managers better. The joke among TEDsters (an annoying term, yes, but it has stuck) is that attending the conference is an endurance sport. It’s one thing to be in a room listening to spectacular insights for a few hours. It’s another to be doing so for half a week. Nonetheless, part of the experience you get from being at events like TED is that feeling of being overwhelmed: someone just said what feels like the smartest thing you ever heard — and then the next speaker says what feels like the smartest thing you ever heard — and then … well, you get the idea. It’s intellectually exhausting, but it’s also thrilling. And, during the best talks, you can’t help thinking: How can I act on this?

A recent National Bureau of Economic Research (NBER) working paper sheds light on the relationship between innovation and globalization in emerging economies. One of the researchers’ interesting conclusions: In an emerging market, one factor that induces local firms to innovate is involvement with multinational corporations — whether through supplying them domestically or by exporting or importing.

Yuiry Gorodnichenko, Jan Svejnar and Katherine Terrell analyzed existing survey data from 27 ”transition” economies in Central and Eastern Europe and the former Soviet Union.  The researchers used a quite broad definition of innovation (on the theory that, in developing economies, innovation may involve some form of imitation, such as adopting an existing technology). Developing or upgrading a product, acquiring new technology or obtaining a new quality accreditation like an ISO certification all qualified as innovation for this study.  The study had a number of findings — including that innovation rates by local firms were not affected by having a higher proporttion of skilled workers, but that companies with more university-educated workers were more likely to innovate.