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Standby, here comes the competition 2

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Peter Thompson
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Having lived in Eastern Europe for the past few years, I have been exposed to many different aspects of the world we live in. Whilst we are all from the same world and same race, we live in vastly different societies that are incomparable from some perspectives. However, what is certain is that we all aim to get ahead and aim for a better life for our families.

An example of how is it different?

I was in charge of a shipyard over the last 4 years and one of the projects I managed was the IT infrastructure. In order to make a network between two buildings we needed to install fiber. In Australia, we usually see a team of people in fancy vans with advanced machinery arrive to dig and install fiber. You can only imagine how surprised I was upon going to inspect the construction works, that I saw a man using a mattock and a shovel to dig some 100 meters of channel. He completed the civil works in one day.

Market economics

It would be true to state that most companies, business people and individuals would like to save money where possible. In order to increase profits, you can either sell something for more than you used to or find out ways to reduce costs. Both result in bottom line increases. And whilst the call to save local jobs is well publicised, the reality is that businesses will save money wherever possible because it’s competitive out there. If the competition has a lower cost base, they are able to sell their product for less and therefore either make more money or undercut your margins.

Consider the income levels of a few countries. The minimum wage in Australia for 2012 is $31,532. In Poland, the minimum wage is $5,421 and currently in Serbia it is $3,625. Add to this the unemployment levels of 5.6% in Australia, 12.4% in Poland and 23.7% in Serbia and the competitiveness of the environments will speak for themselves. Intellectual services arbitrage will come into play.

Services will come under price pressure

One of the certainties in the future is that strong competition will come from lower cost countries. We already see outsourcing to call centers, which to some extent is successful. Surprisingly, it’s a primary customer contact point and risking the quality of the brands image is something that would concern most businesses. However, big business pushes on with the international call center strategy.

The challenge to smaller business will come with the provision of project-based intellectual services. A graphic designer from one country with a similar education is capable of producing a similar quality design to another. There are of course factors, such as market knowledge, that do influence the final output. However, where the difference lies is that a designer in Australia will charge $175 per hour and the designer in a lower cost country will charge $60 per hour. That will add up to quite a savings across a large-scale project where hundreds of hours are required.

It is not just the graphic design industry that will come under pressure. So too will programming, bookkeeping, marketing, copywriting, IT support and to some extent legal, architecture and engineering. I took a taxi in Warsaw this week and the driver said he was a qualified lawyer that actually earned more money driving a taxi. He might not be able to advise on Australian law, but he might just be able to assist as an internal legal council who can ask the right questions to a local lawyer or provide some useful feedback. I think you get my point.

Software and IT is the facilitator

It’s the explosion in software that is driving this potential. The ability to have collaborative software like Google apps, Office365, Skype and online project management software means that information is easily shared with coworkers irrespective of where they live.

The future

Where terms like offshoring and outsourcing seemed like terms only for large multi-nationals, it will actually become something that will become more common place in the future for small companies as the need to reduce costs to remain competitive will continue to escalate.

The article was not designed to compare the skills, living standards or abilities of any other country. It was aimed at helping companies and service providers begin to prepare for the next great wave of competition. Living here in Eastern Europe for five of the last 10 years has given me an insight into the future. If you would like to discuss or ask me any questions, please feel free to send me an email or comment.

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About Peter Thompson

Peter Thompson
Peter Thompson founded GCOMM in 1996. He received his Bachelor’s degree in Software Engineering/Information Systems from Griffith University and his MBA from Nyenrode Business Universiteit in Holland. He believes in building great teams of people, both in business and socially.
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  • Matthew Thompson

    Funny abou the maddock hehe. No jumping through hoops dial 911 before you dig. Agreed saving money a $1 saved is $3-4 earnt (on average). Crowdsourcing is already having an impact. You can go to companies like http://www.99designs.com, http://www.elance.com etc. get about 200 people from all over the world at $2 – $15 per hour to come back with a logos, branding, documents and you set the price. Virtual assistants can be trained via Skype. Potentially why would you not take advantage of that and leverage. Australia will need to be clever and the traditional worker will need to adapt to changing times. Many jobs are already going offshore due to costs. As people and companies here we will need to continue to differentiate to not only survive but thrive. The disadvantages in wages are plain to see by this article. It seems for a decent wage here you could employ 15 people somewhere else. wow- great article

  • Vladimir Milanovic

    I have recently read a forecast stating that outsourcing to India and simmilar countries will peak in 2016 and by 2018 there won’t be any more jobs to be outsourced! What unemployment rate can Australia expect to have by that time?