How technology is redrawing the boundaries of companies

Tontechnology and Business is inextricably linked. Entrepreneurs take technological advances and, with skill and luck, turn them into profitable products. In turn, technology has changed the way companies operate: electricity has enabled the creation of larger, more efficient factories because they no longer need to rely on a central source of steam power; email has eliminated most letters. But new technologies also affect business in more subtle and profound ways. They change not just how companies do things, but what they do—and, more importantly, what they don’t do.

The history of capitalism is the story of such restructuring. The Industrial Revolution paid for an “export system,” in which companies obtained raw materials but outsourced manufacturing to individual artisans who turned those materials domestically into finished goods and were paid according to the volume produced. Instead, factories have strengthened the connection between workers, who are now directly employed and paid by the hour, to the workplace. The telegraph, the telephone, and container shipping and better information technology in the 20th century (it), allowing MNCs to subcontract more tasks to more places. China became the factory of the world; India became its backstage. Nearly three years after the start of the pandemic, it’s clear that technology has once again profoundly redrawn the boundaries of companies.

In rich countries, fast broadband internet and new communication platforms such as Zoom or Microsoft Teams mean that a third of the working day is now done remotely. Jobs are flowing from corporate headquarters in metropolitan cities to smaller towns. The lines between collaborating with a colleague, a freelancer, or another company are blurring. Companies are tapping into common resource pools, from cloud computing to human capital. According to one estimate, skilled freelancers in the U.S. will earn $247 billion in 2021, up from about $135 billion in 2018. The largest companies in the United States and Europe are increasingly relying on outsourced white-collar jobs. Exports of business services in the six large emerging markets have grown by 16.5% annually since the start of the pandemic, up from 6.5% previously (see Figure 1). January 9 Tata Consultancy Services (trade control system), an Indian it– The outsourcing giant, which is expected to report another increase in profits.

About the Coase Study

Ronald Coase provided a useful lens through which to understand these changes in his seminal 1937 paper entitled “The Nature of the Firm.” Keep it small and you forget about the efficiencies that scale brings. Get too big and the business becomes unmanageable – think of a Soviet-style command-and-control economy. Most business takes place between these two extremes. But where on the continuum? Coase’s insight, which won him the Nobel Prize in Economics, was that firm boundaries—in other words, what you do and don’t do yourself—are determined by differences in transaction and information costs within and across firms . Some things are most effective when done internally. The market will take care of the rest.

For example, between the 1980s and 2010s, globalization and it Prosperity promotes economies of scale and thus market concentration. But these two factors also increase competitive pressure and reduce the cost of communication and collaboration between businesses. This caused the company to narrow its scope. In research published last year, Lorenz Ekerdt and Kai-Jie Wu of the University of Rochester found that the average number of industries in which U.S. manufacturers were active fell by half between 1977 and 2017. By the 2000s, many huge industrial conglomerates such as Germany’s Degussa, which dabbled in everything from metals to medicine, or British Aerospace, which dabbled in automobiles, relaxed and opted for braids to stick to ( chemicals and aircraft, respectively).

Today, Coasean forces are introducing a new type of business organization. It’s akin to a 21st century weeding out system – not for artisans, but for the typical white-collar professional of a modern western economy. Micha Kaufman, owner of Fiverr, an Israel-based marketplace that matches freelancers with corporate clients around the world, has observed that companies are increasingly adept at basing their workers on what they actually produce rather than how much time they spend producing it. time to measure employee performance. This is true for both employees and subcontractors. The result is a business restructuring both internally and in relation to other companies in the economy.

Start from the inside. Using data from the U.S. Quarterly Employment and Wage Census, economist Jobs in three sectors particularly suited to remote work were studied: technology, finance and professional services. Our analysis found that such jobs have become more widely distributed across the U.S. since the pandemic began. Metropolitan areas have lost out to smaller cities and even rural areas (see Figure 2). Since the fourth quarter of 2019, job growth in the three industries in rural areas has been 5 percentage points higher than in San Francisco and New York.

Companies also distribute work across more boundaries, often in new ways. Oswald Yeo, who runs Singapore-based recruitment start-up Glints, said his company recruits in batches by country. This helps new hires from Indonesia connect face-to-face with local colleagues, while expanding Glints’ talent pool, Mr Yang explained. Locations with similar time gaps come at a premium, as a Harvard Business School study last year found that cross-border teams collaborating on non-routine tasks often work at their leisure to synchronize workspaces with colleagues at different times. In the case of Glints, it’s places like Indonesia.

For U.S. companies, Canada is more and more. Microsoft opened its first Canadian office in 1985 and opened a new large office in Toronto in 2022. Google tripled its Canadian workforce to 5,000.a study last year CB Richard EllisOf the 50 cities in the U.S. and Canada with the most tech workers, a real estate firm found that four of the top ten are Canadians. Between 2016 and 2021, the four companies added a combined 180,000 tech jobs, a 39 percent increase. In contrast, the top four U.S. cities added just 86,000 jobs, or 8%, over the same period. Lower costs certainly help; Canada’s Quad is one of the 16 cheapest cities out of 50 when measured by housing costs.

Immigration barriers are another factor forcing companies to look abroad, says Prithwiraj Choudhury of Harvard Business School. Mr Chowdhury has documented a growing number of companies helping employers build stable relationships with overseas employees, rather than hiring them directly. One example is MobSquad, a company that recruits skilled workers who cannot obtain visas in the US and hires them in Canada. Its U.S. clients include investment firm Betterment and biotech firm Guardant Health.

MobSquad’s new hires fall somewhere between outsourced temps and full-time employees. This arrangement points to a larger Coasean shift—how firms divide the tasks they perform themselves and those they subcontract.

A survey of nearly 500 U.S. companies by the Federal Reserve Bank of Atlanta in August 2022 found that 18% planned to use more independent contractors; only 2% said they would use fewer (see Figure 3) . On top of that, 13% want to rely more on rented workers, while 1% want to reduce this dependence. management buyout Workforce management firm Partners estimates that the number of U.S. workers working independently for at least 15 hours a week will rise from 15 million in 2019 to 22 million in 2022. Official figures from the Bureau of Labor Statistics are more conservative, but still show that nearly 1 million more Americans are self-employed compared with early 2020. That’s not the whole story of pandemic-era unemployment forcing people into less-than-ideal work arrangements; self-employment did not see a similar surge after the 2007-09 global financial crisis.

This shift is again enabled by technology, such as the proliferation of various freelancing platforms. Self-employment has grown slowly from 9 percent of the U.S. workforce in 2000 to 11 percent in 2018 and is becoming more common. Gig jobs are no longer reserved for ride-hailing or food delivery. While earlier freelance platforms, such as Taskrabbit, focused on routine tasks, emerging new platforms are increasingly recruiting freelancers for complex jobs. Upwork focuses on web development; Fiverr is known for media production. When Amazon needed a team to quickly produce social media content for its Prime, it turned to another freelance platform, Tongal television show.

In addition to making it easier for companies to rely on non-employees, technology enables new ways for businesses to collaborate. In 2020, Slack, the messaging platform of choice for many companies, introduced a feature that allows users to communicate directly with other companies as if they were within their own organization.More than 70% of companies in wealth The 100 largest US companies by revenue use this feature. A survey by the Federal Reserve Bank of Atlanta found that 16 percent of companies surveyed plan to increase inbound outsourcing and 12 percent plan to do more offshoring.The total revenue of the six largest companies has it– Services company with substantial presence in India – Cognizant, HCLTInfosys, trade control systemTech Mahindra and Wipro – grew by 25% in Q3 2019 compared to the same period last year (see Figure 4).

Determining how much a company relies on outsiders is tricky — companies don’t advertise for that sort of thing. To get an idea, two economists, Katie Moon and Gordon Phillips, considered a company’s commitment to outside purchases for the coming year as part of its cost of sales. As a microcosm of the economy, this measure of “outsourcing intensity”, as Ms. Moon and Mr. Phillips put it, must be treated with caution; it does not include all types of outsourcing, and different companies interpret outsourcing in different ways. But it effectively accounts for changes over time.

economist This indicator has been calculated using financial reporting data from a sample of large public companies in the US and Europe (see Figure 5). What we found was that companies are indeed increasingly dependent on others. The average outsourcing intensity in our sample has almost doubled, from 11% in 2005 to 22% in the most recent year of data (2021 or 2022). This growth has been particularly pronounced among tech giants such as Apple and Microsoft; businesses that have grown only marginally during the analyzed period, such as UK consumer goods giant Unilever, have seen only modest growth. This is in line with research finding that as companies grow larger and adopt more technology, and thus become more complex and unwieldy, they outsource more – just as Coase predicted.

As technology evolves, the contours of the company will continue to be redrawn. The result is that companies have more flexibility to find new employees in new places for new tasks. Portugal has created special visas for digital nomads, who can work in the country for a year. Argentina wants to offer freelancers selling services abroad a favorable exchange rate: a “tech dollar” will ensure they are not affected by the rapidly devaluing peso.

For Western white-collar types, this greater competition for jobs may translate into compressed wages. Wage differences between countries are smaller for occupations that are more prone to outsourcing, according to a working paper published last year by Alberto Cavallo of Harvard Business School and colleagues. For the global economy, though, it means greater efficiency and the promise of faster growth and higher living standards. For Coase, this means continuous correlation.

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