The Sting of Globalization 5.0
It was less than a year ago when I wrote about the fourth iteration of globalization. I thought this particular sub iteration of offshore development and market rebalancing (i.e., Globalization 4.x) had a few additional years of existence as it adjusted its principles gradually to a new global “release level.” In times of great uncertainty and turmoil, prediction is indeed a fool’s game. Much has changed and a re-evaluation of the prior discussion must be undertaken.
What has been so wicked is the speed, breath, and depth of change facing a vast array of supplier segments. Lenders, brokers, outsourcers, associations, lobbyists, servicers, and securitizing Wall Street firms are all paying their retribution for unwittingly participating in the global wealth rebalancing and unbridled speculation. The traditional value chains and profit models have been broken, buried, and cemented over as a stunned consumer bearing the brunt of widespread short-term practices pays a very heavy toll.
From the ashes of many industries, a new path is becoming increasingly apparent from the anecdotal evidence. Indeed, there are several new fundamental shifts and macro implications that may have a lasting and marked impact on Globalization 5.0. So what sets apart Globalization 5.0 from its prior iterations?
- Rapid-Cycle Orchestration: New skills and operating principles are being adopted that facilitate rapid-cycle structured arrangements between a lender and a provider. No longer framed in terms of years, they are defined by months, by knowledge, by integration, by gain-sharing, and by the lender / FSI institution. Active and fluid governance demands are being applied to a wide range of contracts – both existing and knowledge-based. New internal management groups leverage the best of competitive providers forgoing once stoic relationships for quality, flexible arrangements that meet the needs of diverse consumer obligations coupled with downstream partner relationships. As a result, the varied and underlying rapid-cycle solution set arrangements will be viewed iteratively -- with temporary, but auditable, operating structures.
- Multi-Faceted Solution Sets: Technology was once viewed as a standalone support mechanism within a globalization arrangement or sometimes as a bolted-on enabler. Mortgage and FSI technology was once heralded as being SOA, SaaS, Smart-Doc enabled, customer friendly, or even compartmentalized data. Tomorrow’s catalysts are about interoperable solution sets that provided the ability to conduct rapid-cycle orchestration without a penalty for transformation, migration, and conversion – they are intrinsically part of all 5.0 solutions. Enterprise management of the underlying sourcing data will take on new vigor, while moving beyond the discussions of standards and old school DM insights and into the realm of business usage.
- Domestic Contributions: Globalization 4.x was often characterized by a burning desire to secure the best possible deal for offshore service labor. Since the late 1980’s, new services and support industries defined once remote countries into market leaders merely by “taking an order.” Why else would many groups simply have sales staffs and very limited delivery capabilities within the domestic U.S. (e.g., 50 U.S. personnel and 15,000 offshore personnel)? Now, 20 years later these once “innovative” business models are failing, these angry providers are increasingly arguing that their domestic customers “just don’t get it.” Complicating matters is an architectural shift which is taking place in many mature economies (i.e., U.S., EU). There is widespread recognition that globalization, governance, and innovation in services driven environments is no longer mutually exclusive when compared against domestic job growth within the outsourcing enterprises. The fifth iteration winners will embrace the need for multi-faceted domestic and offshore delivery chains rather than rail against it.
- Nothing is “Too Big to Fail”: Like financial institutions, nothing is too big to have issues or ultimately fail and that includes globalization providers. One can argue that many institutions today are being “propped up” to enable an orderly unwinding at a future date – and not as part of an “ordained” few. Moreover, these iconic operating principle failures highlight the radical shift that has ushered in rapid rise of Globalization 5.0. Borders are “semi-irrelevant” as knowledge implications and orchestrated data (OD) take priority over size or costs. Globalization 5.0 partners embrace this new axiom by adopting open and transparent interchanges, auditability, multi-jurisdictional regulatory compliance, and forward and backward sourcing / supply chains. Size and scale is no longer a precondition to lasting success within these new market realities.
- Quality, Innovation, Risk, Control, and “Value”: Just as organizations a decade ago dealt with the total cost of technological ownership (TCO), Globalization 5.0 has become all about TCO moving beyond the traditional cost of labor discussions. Whereas, progressive advisors and firms have known for years that the transactional outsourcing discussions were evolving, it has been the economic meltdowns that have firmly and permanently changed the debates. New globalization discussions and structured arrangements now concentrate on continuous quality improvements, innovative delivery in process and technology, risk analysis and mitigation, operating control and balance, and of course “booking” value in terms of consumer repeatability and satisfaction. All components that labor arbitrage alone cannot consistently exceed.
- Virtual Borders, New Economics: With many “bursting bubbles” simultaneously happening globally, the new economic reality of interlinked, capital creation markets has been properly framed. The acceptance of a growing “global economy” will eliminate international sourcing restrictions, while jointly highlighting the need for local job and wealth creation for both provider and financial institution. Like the financial engineering undertaken to devastate the markets, Globalization 5.0 must accept its responsibility to create substantial jobs in every country it operates – not just sales local jobs designed to offshore domestic workforces. A failure to recognize and deliver on this dual job base will fuel domestic protectionism and trade barriers.
There is a great deal more that needs to be articulated and mapped out in an effort to properly frame the next iteration of globalization for services delivery. Some are becoming clear, but much has yet to be written. Regardless of the changes potentially advocated by Globalization 5.0, there are several caveats that may impact its ultimate direction and an organization’s choice / contractual terms:
- EU and US Solvency: It sounds like heresy, but the long-term impacts of the rapidly announced and amorphous “support” plans may contribute to another catastrophic series of complications – hyper-inflation, declining GDP and productivity, innovation destruction, iterative recessions to name just a few. The downside risks may be avoidable, but it will take very diligent oversight and “de-stimuli” to proactively derail potential negative aspect implications.
- “Government Investment”: With governments initially selecting winners and losers among varied institutions, there is an unchartered passageway for Globalization 5.0 in dealing with the hidden agendas of politicians and regulators. This triangular series of relationships will be burdened with landmines specifically focusing on fairness, free trade, job creation, taxes, and yes, political correctness. Compounded by global recessionary pressures and administration changes, this area promises to hold the most uncertainty and highest probability for disruption as Globalization 5.0 spreads it roots. This operating intrusion has underlying subtitles that include the extent of both domestic and international regulation coupled with the public trials that will captive the media in the ensuing years.
- Asia-Pac Slowdown: With the cross-border flow of money rapidly slowing, the pervasive impact to localized globalization economies is already showing with marked declines in GDP. Whereas the emerging economies are advancing, any slowing below predefined thresholds present potential unrest and upheaval with their domestic inhabitants. The vicious circle that helped propel these new economy enterprises, can also lead to their destabilization within this fifth iteration as they have become increasingly dependent upon export of services.
The new global reality is very simple – one country or ideal cannot prosper at the cost of another. That was a hallmark of prior iterations transplanting manufacturing ideals to deal with services sourcing. With global wealth having risen by over 200% in 25 years (i.e., approaching $150 trillion USD), the old Bretton Woods ideals that implicitly governed financial markets and back-office processes, has shown its age. Now, with two-thirds of global wealth comfortably in non-domestic markets and rising, the value equations that coincided with Globalization 4.x appears to be in its closing chapter.
However, there are many dimensions and cultural cross currents that must be taken into account. A crystal ball I do not have and much can still change or proven to be inaccurate. Accountability and responsibility for delivery, governance, innovation, and transformation will be different – that is a certainty. The old models are broken, their advocates are angry, and the buyers very scared of anything that is longer than 90 days. Yet, the answer showing up every day and they are not as we encased them in the past. Suffice it to say, a new book is being written using a vastly different outline, players, and scenes.
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