Friday, July 08, 2011

Coming Home: Globalization in Reverse

Santander's decision to bring back its call centres to UK should not come as a surprise: The bank had a bad record for complaints handling and something had to happen. However, this is part of a wider trend which should worry Service Outsourcing and Contract Manufacturing companies everywhere.

It is interesting to note that the global economic meltdown led to shortening of supply chain by European and American companies, rather than rushing to find lowest costs elsewhere. What is happening is indeed globalization in reverse, a far cry from the go-go days early in the millennium. In fact, Mckinsey is now talking about 'Globalization Penalty' after noticing that companies that stayed home are continuously outperforming the big multinationals who are struggling to pull together their global subsidiaries. If we thought the world is flattening, surely it is going round all over again.

Add to this the protectionist thinking in Europe and America, and increasingly right-wing approach to immigration in Europe and now possibly in Canada, globalization looks a lot less sexy than it did before. These emotions are mixed up still, even comical (read this delightful piece by Lauren Collins in New Yorker), but very real. The public sentiment has swung, at least for the moment, at the opposite end of multiculturalism, and it will take a while to restore sense in public life and start being open again.

This is bad news. This can indeed be the indicator of a step change: We are reaching the end of one cycle and entering another. There is also no denying that apart from the bad publicity that outsourcing companies received, there were some serious shortcomings in the business models of globalized business. Speaking from experience, in India, outsourcing was somewhat akin to Tulip mania: Everyone with a spare room wanted to set up one. Everyone who had a cousin or a friend in Europe or America tried to get in. The infrastructure was faltering: The people were not there. Most of these businesses indeed failed, but not before they seriously dented the perceptions of a few clients here and there.

But, this is not the time when anyone wants to see a dip in global economic activity and integration. The threat of a double-dip, another prolonged recession when there isn't any stimulus around the corner, looks very real. Global interest rates are low and inflation is running out of hand. The economies of China and India are seriously overheated and are struggling to patch the internal social strife. Banks everywhere are seriously on the brink and the middle class consensus that kept the Western societies going since the Thatcher-Reagan days is disintegrating. This is not about power shifting to the East - to China and India - but a civilizational inflection point where our assumptions and models have to be revisited and rebuilt.

So, at least for a while, we may see the return to localization. I would argue that whatever is the economic logic, if there is one, this is primarily driven by psychological factors: when we feel threatened by uncertainty, we attempt to return to the familiar. May be, we ventured too far too fast with globalization, and we must trace back our steps now. But that is invariably the way of history: See-saws of a kind where occasional stepping back is part of the game. Perhaps we are at such a point now.

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