The economy of cities, Jane Jacobs, 1969
Jane Jacobs sees cities as fundamentally different from other economic regions - not as larger and more complicated villages. In her book, she describes an anthropological view of the earliest cities as centers of trade between non-agricultural tribes that develop sophisticated agricultural techniques as they grow. This conflicts with the view traditionally held at the time that hunter/gatherer villages developed agriculture and subsequently grew to become cities.
Jacobs perspective allows a new analysis of cities and their interactions with the rural areas around them. Since she focuses on cities' imports and exports, her's could be seen as simply an input-output model that treats the city (ie. agglomeration economy) as black box. However, the anthropological background she provides and her analysis of divisions of labor within the city go a long way towards opening the black box and understanding it. Her description of entrepreneurship and incremental innovation makes intuitive sense: People doing their job, naturally find ways to improve on certain aspects - mainly through trial and error. If they get positive feedback, they may shift their focus from the original work to elaborating the improvements. One of Jacobs' examples is Mrs. Rosenthal, a New York seamstress. Mrs. Rosenthal was unhappy with the way her dresses fit her customers, so she used her sewing and fitting skills to create bras. She was so successful with this improvement that she went on to give up on sewing dresses and founded Maidenform instead. One of the most important factors in this example is that Mrs. Rosenthal was originally engaged in local work, which she adapted. Maidenform, by contrast became an export business (ie., exporting out of the city of New York). Once the new line of business was firmly established, factories could be set up in rural areas to save costs and improve efficiency. This example is representative of Jacobs's description of the city as a self-reciprocating, open system.
Jacobs emphasizes that this kind of innovation can only happen in cities where there is a high density of people and jobs as well and if a high degree of specialization can be supported by the economy. Since established businesses are constantly being moved to rural areas, the city must create new sources of income, ie. new exports. To achieve this, a vibrant local economy is necessary to serve as the basis for innovation. The inefficiency of cities is an advantage for the trial and error process of incremental innovation: a large variety of different kinds of work is happening in one place, which encourages new combinations; the sustainability of high degrees of specialization lets innovations succeed before they are fully developed, and replication of work means that many instances of trial and error can occur in tandem.
While individual specialization is important, according to Jacobs, cities should not specialize. They need to maintain many different avenues of innovation/trial and error because only a fraction will succeed. Efficiency works against innovation in this case. Some of the most important specializations/innovations that cities provide have been the generic ones that allow new businesses of all kinds to form: venture capitalists, lawyers, printers, leasing of factory equipment, agencies to provide temporary workers, etc.
Even though Jacobs doesn't touch on radical high-tech innovations or consumer-driven innovation (cf. von Hippel's work), she provides a very tangible, practical account of how agglomeration economies work. Her model gives many insights into what it takes to create an agglomeration economy or to revive a stagnating city.
An interview with Jane Jacobs.
Tuesday
Business process outsourcing moves up the value-chain
Special Section: BPO, a global market for services, Knowledge at Wharton, 25 September 2003
Knowledge at Wharton has a special section on business process outsourcing. One of the most interesting articles in the section is about BPO moving up the value-chain.
Cutting costs is not the only reason why outsourcing such tasks makes sense for its clients; it’s also about higher quality of work, says Aggarwal. “Among the more unusual emerging developments is that business process offshoring is not merely a way to reduce cost by migrating core functions,” adds Spohr of A.T. Kearney. “It is also a strategic initiative to take advantage of technological advances and the human capital available offshore to fundamentally restructure an organization’s operating model.”
These new business models are necessary for the efficiency gains from new communications technologies to finally kick in.
An example of a BPO firm that has moved beyond call-centers and crunching code is Evalueserve with headquarters in Bermuda, a subsidiary in New Jersey and its main operating plant just outside of New Delhi.
Evalueserve provides services like patent writing, evaluation and assessment of their commercialization potential for law firms and entrepreneurs. Its market research services are aimed at top-rung financial services firms, to which it provides analysis of investment opportunities and business plans. Another major offering is multilingual services -- Evalueserve trains and qualifies employees to communicate in Chinese, Spanish, German, Japanese and Italian, among other languages. That skill set has opened market opportunities in Europe and elsewhere, especially with global corporations.
Dieter Ernst's work focuses on how outsourcing manufacturing influences the spread of knowledge around the world. Outsourcing services should have an even more dramatic effect, since transportation is even easier and cheaper. Also, outsourcing manufacturing seems to be mainly cost-driven, with companies in developed countries outsourcing to the developed and developing world. BPO - or service outsourcing more generally - can go in any direction. Globally competitive companies in Taiwan, India and Israel can get R&D from subsidiaries/joint-ventures/partners in Silicon Valley. The ultimate R&D outsourcing example is InnoCentive. High-end professional medical and legal services are already being outsourced by U.S. firms and governments.
So far, India is in the best position to take advantage of the BPO trend - and seems likely to keep it for some time.
The expansion of the labor force by more than 2 million new English-speaking college graduates each year will provide plenty of room for growth. Also, the labor arbitrage between India and the U.S. is so significant that it will take a long time for it to catch up. What’s more, any rise in wage costs is getting offset by declining telecommunication rates (some 30% over the last couple of years), thanks to improvements in infrastructure and technology.
Of course, others are competing to get into the business as well. China is one contender, although some say that a) it can't overcome the language barrier and b) the domestic market's service requirements will use up all the available talent. Mauritius wants to capitalize on its linguistic advantages and is getting help from India to catch up. A solid telecoms infrastructure, tax incentives, and compromises on visas and advance work permits should help. New Yorkers' parking tickets are processed in Ghana. VietnaPhilippineslipines, central European countries and many others are competing for part of the cross-border business that is expected to grow to $178.5 billion by 2005. Indian BPO companies themselves have started outsourcing as costs rise in their own country.
Knowledge at Wharton has a special section on business process outsourcing. One of the most interesting articles in the section is about BPO moving up the value-chain.
Cutting costs is not the only reason why outsourcing such tasks makes sense for its clients; it’s also about higher quality of work, says Aggarwal. “Among the more unusual emerging developments is that business process offshoring is not merely a way to reduce cost by migrating core functions,” adds Spohr of A.T. Kearney. “It is also a strategic initiative to take advantage of technological advances and the human capital available offshore to fundamentally restructure an organization’s operating model.”
These new business models are necessary for the efficiency gains from new communications technologies to finally kick in.
An example of a BPO firm that has moved beyond call-centers and crunching code is Evalueserve with headquarters in Bermuda, a subsidiary in New Jersey and its main operating plant just outside of New Delhi.
Evalueserve provides services like patent writing, evaluation and assessment of their commercialization potential for law firms and entrepreneurs. Its market research services are aimed at top-rung financial services firms, to which it provides analysis of investment opportunities and business plans. Another major offering is multilingual services -- Evalueserve trains and qualifies employees to communicate in Chinese, Spanish, German, Japanese and Italian, among other languages. That skill set has opened market opportunities in Europe and elsewhere, especially with global corporations.
Dieter Ernst's work focuses on how outsourcing manufacturing influences the spread of knowledge around the world. Outsourcing services should have an even more dramatic effect, since transportation is even easier and cheaper. Also, outsourcing manufacturing seems to be mainly cost-driven, with companies in developed countries outsourcing to the developed and developing world. BPO - or service outsourcing more generally - can go in any direction. Globally competitive companies in Taiwan, India and Israel can get R&D from subsidiaries/joint-ventures/partners in Silicon Valley. The ultimate R&D outsourcing example is InnoCentive. High-end professional medical and legal services are already being outsourced by U.S. firms and governments.
So far, India is in the best position to take advantage of the BPO trend - and seems likely to keep it for some time.
The expansion of the labor force by more than 2 million new English-speaking college graduates each year will provide plenty of room for growth. Also, the labor arbitrage between India and the U.S. is so significant that it will take a long time for it to catch up. What’s more, any rise in wage costs is getting offset by declining telecommunication rates (some 30% over the last couple of years), thanks to improvements in infrastructure and technology.
Of course, others are competing to get into the business as well. China is one contender, although some say that a) it can't overcome the language barrier and b) the domestic market's service requirements will use up all the available talent. Mauritius wants to capitalize on its linguistic advantages and is getting help from India to catch up. A solid telecoms infrastructure, tax incentives, and compromises on visas and advance work permits should help. New Yorkers' parking tickets are processed in Ghana. VietnaPhilippineslipines, central European countries and many others are competing for part of the cross-border business that is expected to grow to $178.5 billion by 2005. Indian BPO companies themselves have started outsourcing as costs rise in their own country.
R&D in Brazil
This week, the Knowledge Economy team of the Development Gateway is focusing on Brazil as a potential tech and innovation powerhouse.
Brazil has over the past years been receiving increasing public and private investments aimed at boosting and expanding innovative activities in the country.
Brazil is the largest recipient of foreign direct investment (FDI) in Latin America, and Brazilian entrepreneurs point to FDI as a major source of new technology transfer and to the licensing of foreign technology as a major form of acquiring new technology.
When it comes to the internal capacity to absorb and create new technologies, -while Brazil has been broadening access to education at all levels-, the Brazil Competitiveness meeting hosted by the World Economic Forum in June this year pointed out that only a relatively small number of high-tech professionals are graduating. The Forum recommended that Brazil increase the number of graduating professionals and improve education, primarily by increasing specialization in fields related to the more competitive industries of the country. The Forum also pointed out other weaknesses of Brazil's innovation system, among them insufficient linkages between universities and other actors.
This again points to the importance of building local absorptive capacity rather than relying too heavily on foreign direct investment. (See also a Foreign Policy article, which Reuben pointed out.)
I recently read an article describing the Xylella fastidiosa Genome Project. The Brazilian scientists in the project made use of Europe's distributed team organization for sequencing the genome and adapted it to their own conditions - thereby greatly improving on the European model in the author's opinion. Spreading the research across numerous labs (34 sequencing labs, 1 bioinformatics lab and collaboration with 2 European labs) also helped to train more scientist in biotechnology, and to create a better base/more absorptive capacity for future research projects and the biotech industry. The choice of the organism to sequence was also significant - a citrus pathogen, which is of great interest to academics and agribusiness.
At the time, the project created quite a stir: Brazil was the first developing country to join genome sequencing as a serious player; theirs was the first plant genome to be sequenced. From EMBnet news (April 2000):
In two years, Brazil (or at least São Paulo state) has gone from essentially nothing to being one of the larger producers of sequence data in the world. It has done so not by investing massively in a large sequencing facility, but by bringing together a large number of individual labs, many of which are already using these new data and know-how in their own research. In this way, the genome projects have already had a major impact on Brazilian science.
The world has not really taken notice yet, but I would bet that within another year or two ONSA and the HCGP will have achieved the same recognition as TIGR and CGAP. Bioinformaticians and genome scientists take note!
Brazil has over the past years been receiving increasing public and private investments aimed at boosting and expanding innovative activities in the country.
Brazil is the largest recipient of foreign direct investment (FDI) in Latin America, and Brazilian entrepreneurs point to FDI as a major source of new technology transfer and to the licensing of foreign technology as a major form of acquiring new technology.
When it comes to the internal capacity to absorb and create new technologies, -while Brazil has been broadening access to education at all levels-, the Brazil Competitiveness meeting hosted by the World Economic Forum in June this year pointed out that only a relatively small number of high-tech professionals are graduating. The Forum recommended that Brazil increase the number of graduating professionals and improve education, primarily by increasing specialization in fields related to the more competitive industries of the country. The Forum also pointed out other weaknesses of Brazil's innovation system, among them insufficient linkages between universities and other actors.
This again points to the importance of building local absorptive capacity rather than relying too heavily on foreign direct investment. (See also a Foreign Policy article, which Reuben pointed out.)
I recently read an article describing the Xylella fastidiosa Genome Project. The Brazilian scientists in the project made use of Europe's distributed team organization for sequencing the genome and adapted it to their own conditions - thereby greatly improving on the European model in the author's opinion. Spreading the research across numerous labs (34 sequencing labs, 1 bioinformatics lab and collaboration with 2 European labs) also helped to train more scientist in biotechnology, and to create a better base/more absorptive capacity for future research projects and the biotech industry. The choice of the organism to sequence was also significant - a citrus pathogen, which is of great interest to academics and agribusiness.
At the time, the project created quite a stir: Brazil was the first developing country to join genome sequencing as a serious player; theirs was the first plant genome to be sequenced. From EMBnet news (April 2000):
In two years, Brazil (or at least São Paulo state) has gone from essentially nothing to being one of the larger producers of sequence data in the world. It has done so not by investing massively in a large sequencing facility, but by bringing together a large number of individual labs, many of which are already using these new data and know-how in their own research. In this way, the genome projects have already had a major impact on Brazilian science.
The world has not really taken notice yet, but I would bet that within another year or two ONSA and the HCGP will have achieved the same recognition as TIGR and CGAP. Bioinformaticians and genome scientists take note!
Saturday
Biz-history lesson
The Company: A Short History of a Revolutionary Idea, John Micklethwait, Adrian Wooldridge, 2003
HBS Working Knowledge just alerted me to this new book by 2 Economist editors.
“The most important organization in the world is the company: the basis of the prosperity of the West and the best hope for the future of the rest of the world.” And so John Micklethwait and Adrian Wooldridge, editors at the Economist, begin their account of the rise of this most “remarkable institution.” Reporting on over 5,000 years’ worth of company history, from the Sumerian families who traded along the Euphrates and Tigris rivers in Mesopotamia in 3000 BC to today’s multinational corporations, the authors provide an absorbing, but surprisingly concise, narrative of the influences of the company in shaping our world. Filled with fascinating literary and cultural references, the reader is guided on a journey that includes the medieval guilds of northern Europe, the British and Dutch chartered and joint-stock companies, and nineteenth century American railroad companies.
HBS Working Knowledge just alerted me to this new book by 2 Economist editors.
“The most important organization in the world is the company: the basis of the prosperity of the West and the best hope for the future of the rest of the world.” And so John Micklethwait and Adrian Wooldridge, editors at the Economist, begin their account of the rise of this most “remarkable institution.” Reporting on over 5,000 years’ worth of company history, from the Sumerian families who traded along the Euphrates and Tigris rivers in Mesopotamia in 3000 BC to today’s multinational corporations, the authors provide an absorbing, but surprisingly concise, narrative of the influences of the company in shaping our world. Filled with fascinating literary and cultural references, the reader is guided on a journey that includes the medieval guilds of northern Europe, the British and Dutch chartered and joint-stock companies, and nineteenth century American railroad companies.
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