Joanne Oxley, "Offshoring and Beyond: Making Globalization Work for You", Rotman Lifelong Learning 2005, June 3, 2005

Lifelong Learning 2005, Rotman School of Management, (University of Toronto), held at the Fairmont Royal York Hotel, June 3, 2005, 9:20 a.m.

Joanne Oxley, Associate Professor of Strategic Management, Rotman School

These participant's notes were created in real-time during the meeting, based on the speaker's presentation(s) and comments from the audience. These should not be viewed as official transcripts of the meeting, but only as an interpretation by a single individual. Lapses, grammatical errors, and typing mistakes may not have been corrected. Questions about content should be directed to the originator. These notes have been contributed by David Ing (daviding@systemicbusiness.org) of the Systemic Business Community ( http://systemicbusiness.org ).

Introduction by Andrew Gowers

Joanne Oxley, interested in strategic alliances internationally
Ph.D. from U.C. Berkeley
Internal auditor fo Apple

[Joanne Oxley]

Have been at Rotman for one year, was at Michigan for 9 years

Hard task following Wendy Dobson

Will put some grand trends into perspective, for Canadian business

Will talk about a few things that Canadian businesses can do

It's not all about China and India

Canadian's top service export: U.S. 59.5% of the world
Hong Kong + China always equal to Japan
India isn't on the list

What about 2020? Their service trade is increasing in growth.

Concern less about trade flows, as much as that Canada is lagging behind other countries on capitalizing on globalization

OECD figures on computer and information services, Canada is dragging its heels

A few things to make globalization work for your company: two themes

1. Upgrade at home to compete approach
- Defend your territory
- Catch the nearshoring wave
- Globalize on your own terms
2. Foster complementaries to benefit from upgrading abroad
- Practice 'instditutional arbitrage"

Upgrade to defend your territory: Be like Jolibee!

Filipino hamburger chain
When McDonalds came 20 years, many believed that they would be steamrolled
McD crept up on 30% Jolibee share
Joliebee instituted many of the practices that McD had, increasing efficiency
Capitalized on local tastes
e.g. Big Mac, but Filipinos like big and spicy: square burger, two patties
Also some help from Acquino's people power movement, that brought local pride
Not only fended off McD, then used upgraded facilities to expand overseas

Upgrade to catch the nearshore wave

A lot of offshoring from the U.S. is actually nearshoring
UNCTAD data: Canada is doing well
Call centres are down in the knowledge chain
IT services, Canada isn't doing much
In comparison with India or China, Canadian business isn't upgrading their capabilities to get the extra value added

Upgrading at home to compete abroad

Initially to defend territory, but then internationalize.
Without constant upgrading, will be swept away

e.g. globalization of the Canadian wine industry

1988: Future of wine industry threatened by NAFTA
Today, Vincor is North America's 4th largest wine producer
Industry is thriving, growing through acquisitions in California and Australia
Happened as a result of dramatic upgrading of industry capabilities
Ontario launched VQA; individual investors invested heavily; moved into premium wine segment; consolidation of wine companies for greater efficiency
Efficiencies, and the rolling out worldwide, in marketing and production

Ordering: first upgrading capabilities, and then international expansion

Doesn't mean that you can't go to internationalize expansion strategy, but if didn't upgrade capabilities, would fail
Literature shows this: international expansions usually result in good results for stockholders (in contrast to domestic takeovers), but there has be large investment in development

Canadian wine industry came late to globalization

PC: designed in Taiwan, assembled in Mexico, components from Thailand, China and Korea

How to manage these interdependencies?
On approach: modularization strategy
Modular, with simple interfaces
For simple manufacturing, it's possible; but trying to get into knowledge activities of the future, it's a bigger challenge.
Just as you're upgrading at home, your partners are upgrading.
In PC industry, in Taiwan, Acer started as OEM, and became a force by itself

In the context of the rise of India and China, potential threats loom even larger

Fear of losing technology
Fear of creating own competitors

Practice institutional arbitrage

e.g. Microsoft in China
- At first, tried to wrap DOS with local needs
- Had pirates of shells
- Difficult for Microsoft to control
- One tendency would be to not want a piece of it, and get out of there.
- Now, actually Microsoft does R&D in China, but different types: AutoMovie for Movie Maker; Mobitle HTML Optimizer for Front Page; Ink parsing technology for Tablet PCs
Microsoft is doing this with cheaper engineers in China, underpriced
Not worried about leakages of technology, as these innovations are only valuable in Microsoft products created elsewhere.

Good research across large groups of firms: firms doing R&D where IP protection is weak are seeking greater complementarity

Summary

As a new resident of Canada, happy to see opportunity in offshore services
Upgrading capabilities is key to competitive advantage at home and abroad
Need to foster "institutional arbitrage"

Questions

Question: Upgrading capabilities, but what capabilities? A lot of Canadian manufacturers only build modules.

It depends on the specific of the business
As individuals, can speak about upgrading capabilities -- being here for lifelong learning, mingling not only with fellow Canadians, but others, in both formal and informal forums
At level of businesses, it's particular to different industries, e.g. marketing or production or R&D
Firms that are innovative foster connections to other firms
At the level of government, there's a role: not picking winners, and if you try to extrapolate from where you are now, you'll miss it.
Government needs to make investments in infrastructure.

Andrew Gowers: On nearshoring, relative lack of penetration. In the U.S., pension and health care costs complaints. UK has attracted this type of business.

Have only recently turned attention to the Canadian economy.
So much attention to India, maybe not enough attention on nearshoring.
Maybe conservatism in Canadian business?
Maybe some issues in regulation, because UK is more open.

Need doctors and lawyers, homegrown. Engineers different? e.g. Microsoft? Is there an edge for Canadian and American engineers?

This current wave of globalization / offshoring is more of a concern.
Offshoring is a new term
It used to be manufacturing, now it's services
It impacts me and you, as opposed to manufacturing jobs that we don't see in the same way.
Policy perspective: engineers and professionals whose jobs are under attack, which is a positive side.
Economists worrying about negative effects of trade, not that jobs are lost, but in the long run, development creates more job.
Worry not about long term, but short term.
Steel, textile jobs are lost forever, and need to move to a new job.
If you're a 50-year old steel worker, hard to move on, but if you're a 30-year old, you should be able to retrain.

Scale required to operate globally has dropped dramatically, particularly in IT. Is this a case where Canadians do poorly? Canada traditionally has not supported small entrepreneurial firms, more about good quality jobs with social services. Compare to Taiwan, starting with small companies that weren't going to make it. Cultural aspects not addressed.

Is it true that scale required for international competitiveness is dropping?
Data is not as true as we think it is.
Small businesses create a lot of jobs, but large scale operations also generate a lot of innovation.
Financing small businesses: Canada needs to develop venture capital and small business institutions

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