The New Economic Reality

August 18, 2011

A few years ago, I was responsible for a business unit which developed software that optimized product placement on grocery stores shelves. This was very sophisticated stuff that used sales data to figure out how much space should be devoted to each SKU and where products should be placed on the shelf or endcap  to maximize total store sales.

My engineering team was split between the US and India. The company had begun a move to outsource many functions to India prior to my arrival. The company's lines of business all involved some form of high volume, data intensive analytics for the retail and consumer packaged goods industries. One of the major attractions of outsourcing to India was the availability of employees with advanced degrees in mathematical modeling and computer science, at a fraction of the cost of North American salaries.

Unfortunately, while all this made sense on paper, in practice, running this split team had many challenges. One of the most interesting was also one of the most basic. It was extremely difficult for my Indian development team to intuitively understand the problems that they were trying to solve when most had never set foot inside a North American grocery store. Culturally, they had not grown up in North America, but were trying to spot, understand and solve problems for that marketplace.

So now consider what has happened recently in world economics. Europe and the US are a mess and it could take between five and fifteen years to work their way out of their current debt problems. This will mean cuts to government spending along with higher taxes, political turmoil and possibly some civil unrest. All the elements of uncertainty that businesses hate.

This presents a problem for North American business leaders. The two largest markets that we are culturally attuned to, will offer limited growth opportunities for a generation. At the same time, the emergence of the BRIC countries (Brazil, Russia, China and India), as high growth markets, will force us all to reassess our strategies for innovation.

Reverse the problem that I had a few years ago. If India is now the market that I am targeting rather than the traditional US market, how would my US engineering team fare in trying to solve problems with which they have not grown up? Will they even be able to spot a market opportunity from thousands of miles away? In India and China, we will face the problems of scale in handling their billion person populations. In Brazil, China and Russia, language will be a challenge. For software companies, Portuguese has traditionally been a language that is not offered until many versions and years after the original product was developed. Russian and Chinese languages were usually available earlier, but still not until long after the first release in English. Generally, the English release has always been followed by a translation into French, Spanish and German. With European markets flat, will this still make sense? Also, adapting to these new market cultures and business practices will be an issue as we learn the nuiances of doing more business in non-traditional places.

Consider other changes that we will have to adapt to. How will North Americans accept white collar, knowledge worker jobs that require overnight work hours to match the business hours of their new customers similar to how many Indian workers have lived for years, servicing the North American market. I have one client, a small Toronto based software company, that has a sales rep who works evenings and overnight to penetrate Asian markets.

Most large technology companies have the scale and size to handle some of these challenges by creating in-country business units but will those companies acknowledge and accept the new role of their BRIC country organizations as they evolve from the "tail at the end of the dog" to the engine for innovation and new business practices for the company? To do this, a lot of North American egos and hubris will have to go down in flames.

How will the small technology start-ups, which have traditionally been the engine for innovation, adapt? Will the next big "Facebook" or "Groupon"-like app be delivered to market first in Portuguese, and only later be translated to English before it sweeps into North America?

Boards of small tech companies have their work cut out for them if they are going to be successful navigating this paradigm shift that we are about to face. Being on a number of those Boards, that is where my energies are being channeled. Stay tuned.


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