March 4, 2004
Jerry Rao wants to do your taxes.
Ah, you say, you've never heard of Jerry Rao, but
the name sounds vaguely Indian. Anyway, you already have an accountant.
Well, Jerry is Indian. He lives in Bangalore. And, you may not know
it, but he may already be your accountant.
"We have tied up with several small and medium-size
C.P.A. firms in America," explained Mr. Rao, whose company,
MphasiS, has a team of Indian accountants able to do outsourced
accounting work from across the U.S. All the necessary tax data
is scanned by U.S. firms into a database that can be viewed from
India. Then an Indian accountant, trained in U.S. tax practices,
fills in all the basics.
"This is happening as we speak — we
are doing several thousand returns," said Mr. Rao. American
C.P.A.'s don't even need to be in their offices. They can be on
a beach, said Mr. Rao, "and say, `Jerry, you are particularly
good at doing New York returns, so you do Tom's returns." He
adds, "We have taken the grunt work" so U.S. accountants
can focus on customer service and thinking creatively about client
Mr. Rao's ability to service U.S. accounts this
way is at the core of a business revolution that has happened over
the past few years. I confess: I missed this revolution. I was totally
focused on 9/11 and Iraq. But having now spent 10 days in Bangalore,
India's Silicon Valley, I realize that while I was sleeping, the
world entered the third great era of globalization.
The first era, from the late 1800's to World War
I, was driven by falling transportation costs, thanks to the steamship
and the railroad. That was Globalization 1.0, and it shrank the
world from a size large to a size medium. The second big era, Globalization
2.0, lasted from the 1980's to 2000, was based on falling telecom
costs and the PC, and shrank the world from a size medium to a size
small. Now we've entered Globalization 3.0, and it is shrinking
the world from size small to a size tiny. That's what this outsourcing
of white-collar jobs is telling us — and it is going to require
some wrenching adjustments for workers and political systems.
Globalization 3.0 was produced by three forces:
First is the massive installation of undersea fiber-optic cable
and bandwidth (thanks to the dot-com bubble) that have made it possible
to globally transmit and store huge amounts of data for almost nothing.
Second is the diffusion of PC's around the world. And third (what
I missed most) is the convergence of a variety of software applications
— from e-mail, to Google, to Microsoft Office, to specially
designed outsourcing programs — that, when combined with all
those PC's and bandwidth, made it possible to create global "work-flow
These work-flow platforms can chop up any service
job — accounting, radiology, consulting, software engineering
— into different functions and then, thanks to scanning and
digitization, outsource each function to teams of skilled knowledge
workers around the globe, based on which team can do each function
with the highest skill at the lowest price. Then the project is
reassembled back at headquarters into a finished product.
Thanks to this new work-flow network, knowledge
workers anywhere in the world can contribute their talents more
than ever before, spurring innovation and productivity. But these
same knowledge workers will be under more pressure than ever to
constantly upgrade their skills in this Darwinian environment.
"We created a worldwide network which connected
all the resource pools on the planet, and suddenly we changed the
rules of the game," said Nandan Nilekani, C.E.O. of the Indian
software giant Infosys — which last year received nearly one
million applications from Indian techies for 9,000 software jobs.
You cannot wish away this new era of globalization, he added. "It
will not go away."
So now I wonder: when they write the history of
the world 20 years from now, and they come to this chapter —
Sept. 11, 2001, to March 2004 — what will they say was most
important? The attack on the World Trade Center and the Iraq war?
Or, as Mr. Rao suggests, the convergence of PC's, telecom and work-flow
software into a tipping point that allowed India to become part
of the global supply chain for services the way China had become
for manufacturing — creating an explosion of wealth in the
middle classes of the world's two biggest nations, India and China,
and giving both nations a huge new stake in the success of globalization.