Global Talent Pool

The Evolving Global Talent Pool Issues, Challenges and Strategic Implications
The LEVIN Institute

The State University of New York
The Global Talent Pool The Evolving Evolving Global Talent 1
Hosted by The Neil D. Levin Graduate Institute of International Relations and Commerce and the Council on Foreign Relations Maurice R. Greenberg Center for Geoeconomic Studies We gratefully thank our Corporate Partners, FedEx and Guardsmark,
and our Media Partner, Financial Times.
June 1617, 2005
The Institute The LEVIN LEVIN Institute
The Evolving Global Talent Pool
Contents
Published by The Levin Institute Copyright 2005 All rights reserved
Board of Directors Honorary Co-Chairs Governor George E. Pataki Christine A. Ferer Chair Paul Tagliabue President Garrick Utley ex-officio Matthew Nimetz Bradford Race Henry Schacht Alair Townsend Robert Wilmers
Administration
6 Introduction 8 Executive Summary Denis Simon 12 Session 1 Perspectives on the Global Talent Pool 19 Session 2 Demographic Trends 27 Keynote Speech of Nicholas Donofrio 36 Session 3 R&D and How Innovation Works 45 Session 4 National Strategies for Education and Innovation: Comparative Perspectives 56 Keynote Speech of Peter Schwartz 69 Session 5 Policy, Politics and the Global Talent Pool 77 Session 6 What Strategies have Global Corporations Instituted to Address the Globalization of the Talent Pool? 88 Keynote Speech of Elaine L. Chao 94 Session 7 Next Steps, What Needs to be Done?
President Garrick Utley Provost and VP of Academic Affairs Denis Fred Simon Vice President for Finance and Administration Michael D. DiGiacomo Director, Executive Education Richard Mosenthal Director of Development Peggy Hatton Director of Conferences and Special Events Marge Lipton Director of Marketing and Communications Meera Kumar
Graphic Design Piscatello Design Centre Photography Ken Levinson
The LEVIN Institute
Paul Tagliabue Chairman
In June 2005, The Neil D. Levin Graduate Institute of International Relations and Commerce partnered with the Council on Foreign Relations in New York City to hold a timely and important conference on The Evolving Global Talent Pool. Working with the Councils Maurice R. Greenberg Center for Geoeconomic Studies, the two day event focused on one of the most critical aspects of the changing dynamics of globalization: the increasing significance of new sources of high-end knowledge workers in East and South Asia, as well as in Eastern Europe and elsewhere. Speakers came from around the world, including China and India, to share insights and learn from each other. Presentations were made by leaders of global enterprises, as well as R&D directors, academics, and policymakers. They shared their knowledge and thoughts on the implications of the new face of the global talent pool for both the developed and developing world. Clearly, as all agreed, we are only at the beginning of studying and understanding the impact of this new powerful human resource. We believe that this publication will be a valuable contribution to that effort. The Neil D. Levin Graduate Institute of International Relations and Commerce is a free standing research and teaching institute within The State University of New York. Located in Manhattan, it is a new academic enterprise that integrates the curricula of management schools with that of schools of international relations to prepare managers to operate effectively across borders and cultures, especially regarding the deployment and utilization of this evolving global talent pool. It is with that vision and mission that we want to share with you the results of this conference.
Garrick Utley President
Human capital is taking on new meaning. Over the past several decades the industrialized world has seen an increasing number of its manufacturing jobs move off-shore. More recently, we are seeing (and debating the impact of) higher value-added service jobs that are being out-sourced off-shore, as well as witnessing the growing sophistication of manufacturing, engineering, and IT services, and R&D in emerging economies such as China and India. What is driving this phenomenon is the marriage of global capital to the rapidly expanding pool of knowledge workers in what were, in many cases, closed societies, but are now part of the increasingly open, global economy. The potential for emerging economies that can exploit the dynamics of global re-structuring is clear. So too are the challenges that face established, prosperous societies that have long assumed that they will continue to dominate knowledge industries. The conference on The Evolving Global Talent Pool, held at the Council on Foreign Relations in New York City in June 2005, was designed to move beyond the current rhetoric over outsourcing and emerging call centers in Bangalore and similar locales, to focus on the rapidly growing number of high-end knowledge workers who are emerging from increasingly stronger and better equipped universities around the world to enter the global labor force. At The Levin Institute our research is devoted to critical international issues such as the worlds evolving global talent pool, and their implications for business, public policy, higher education, and, indeed, to standards of living. We seek to better inform public discourse regarding such pressing national and international issues, as well as to serve as a platform for addressing questions that cut across intellectual constituencies and traditional disciplinebased academic boundaries. In this publication, we summarize the discussions on a variety of topics and perspectives that relate to our subject. You will also find the text of our keynote speakers. I hope you will find the fruit of this conference to be of interest. It is certainly of importance.
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Denis Simon Provost and VP for Academic Affairs
Executive Summary As we move ahead deeper into the 21st century, the effects of globalization continue to be ubiquitous. The dynamics of global economic and technological development are producing dramatic, indeed, revolutionary changes in the cross border movement of talent, capital, innovation, and intellectual property. Amidst this pronounced re-structuring of the global workplace, prevailing assumptions about the nature of international competition and the process of economic development are undergoing a fundamental re-thinking in many quarters. While the exact shape and configuration of the new global economic order and technology system remain unclear, it is clear that the role of high end scientific, engineering, and managerial talent the supply and demand as well as qualitywill be a pivotal issue for both public and private sector actors. In this new, highly fluid and sometimes turbulent period in world history, competition will revolve around the ability to access, manage and coordinate specialized trans-border knowledge networks structured around both research & development and educational systems. Under such circumstances, countries seeking to promote their own economic development or maintain and enhance their competitive positioning, must have in place a high-end human talent pool that will be their ticket to participate in the types of innovation-related activities required for success by the steadily demanding conditions of the global economy. Countries such as India and China already have made substantial progress in this regard and have achieved a much higher level of integration into the mainstream of global economic and technology affairs. Accordingly, educators, policymakers, and business leaders need to be fully engaged in understanding this increasingly complex global environment, an environment that necessarily will have a direct and ever-present impact on individual lives and on the standard of living in nations around the world. The issues surrounding the global talent pool are multifaceted. The exchanges at the conference seemed to focus on five issues: First, there are the supply-side dimensions, which revolve around the degree to which governments have been able to put in place effective and efficient systems of higher education to prepare sufficient numbers of qualified individuals to handle the ever more demanding job requirements of the knowledge economy. To illustrate the rapidity of the changes occurring, one just has to look at the U.S. versus the Indian and Chinese education systems. While U.S. universities graduated 60,000 + engineers in 2004, China and India together graduated five
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times as many. Moreover, the quality differences in higher education that were seemingly unassailable 20 years ago are steadily disappearing as the investments made by the Indian and Chinese governments have started to pay off in terms of faculty, facilities, and curriculum. Of course, the simple availability of talent does not ensure its effective utilization. Nor does it ensure that the structure and composition of the talent pool are well matched to the evolving needs of the economy. This is true for domestic enterprises and government organizations as well as for foreign companies seeking to harness the new pools of skilled talent available around the globe. As many of the conference participants noted, while concerns continue to be expressed about talent shortages, one burning question is why there is such poor utilization of existing talent. Is enough being done to nurture existing talented individuals, and have employers found the right combination of material and affective rewards to motivate people to take on challenging assignments? This is an especially relevant question as the imperatives of competition and growth combine to place increased pressures on corporate leaders to produce more in the way of new, innovative products and services. The second issue receiving critical attention at the conference dealt with the demand side of the global talent question. Companies such as Microsoft, CISCO, IBM, and Siemens to name just a few increasingly see the world as a series of differentiated talent pools; to service global markets as well as local ones, it has become necessary to have almost on-demand access to these hubs of talented individuals. Corporate patterns of innovation are indeed changing as evidenced by the fact that more overseas R&D is taking place by U.S., European, and Japanese firms, especially in the Asia-Pacific region. The consequences are potentially far-reaching, and as one participant suggested, we may be witnessing the end of national systems of innovation and a move towards globally integrated systems of innovation. With competition for talent intensifying on a global scale and traditional models of technology creation and commercialization undergoing a significant transformation, the role of government in the talent arena formed a third focal point of discussion. Some nations have decidedly attempted to develop a national strategy based on the belief that domestic governments are not yet ready to cede over their domains to the demands of global markets and corporations. China, for example, has instituted major reforms to open up its science and technology system and enhance it own innovation potential. Toward that end, it also
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is attempting to liberalize its human resource systems to attract more talent, including those who have been trained abroad but remain reluctant to return home. The countries of the European Union, under the umbrella of the Lisbon Agenda, are pushing for a revitalization of R&D, with the hope that some of the scientists and engineers who may seek to migrate to the U.S. might have their minds changed as a result of the new, innovative environment being created across the continent. Yet, in other cases, such as the U.S., even as innovation and competitiveness have been propelled to the top of the national agenda, the potential for creation of a formal strategy seems to be limited due to a combination of structural and ideological factors. This does not lessen the challenge for the U.S., which must enhance its capacity to absorb knowledge created elsewhere, do a better job encouraging entrepreneurship, and improve the management of visas and immigration-related processes so that foreign students as well as experienced foreign trained talent can more smoothly and efficiently enter the U.S. and thus fortify the ranks of the American talent pool in science and engineering. While it is hard to identify concrete data to confirm that there is a real shortage of qualified high-end talent in the U.S., there are real, data-driven concerns about whether sufficient numbers of women and minorities are willing to pursue future careers in the sciences and engineering. A fourth issue area that attracted much attention was centered on building a global organizational culture. As noted earlier, the talent strategies of most major companies have been influenced quite heavily by the on set of globalization, which has raised many questions about how to build an effective organizational structure to facilitate operations across borders and cultures. Up to now, the track record of large numbers of firms seems filled with many inconsistencies. Global imperatives seem to portend a shift away from a high degree of local attentiveness, yet many corporate executives report that just the opposite is the case, especially where large local markets exist and the quality of local talent is critical to their competitive success. Creating a truly global culture inside an organization seems to be the quid pro quo for truly harnessing the advantages of a multicultural labor force. Of course, this is not an easy task and requires the blending together of managerial systems, rotational job assignments, and entrusting increasingly higher end work to the various local entities. It is not always clear that surrendering the more predictable work setting at home for lower costs abroad can be achieved without incurring new types of heavy transactions costs.
Finally, the last issue taken on by the conference participants addressed the critical challenges of managing the dislocations and those groups that have been marginalized by the impact of globalization. Recent corporate decisions to bring tools and technology to the newly available talent overseas rather than emphasize centralization of talent hubs at home have raised domestic opposition to such processes as out-sourcing and offshoring. Why firms move specific operations overseas, and which pieces of the value chain ultimately are selected reflect a diverse set of considerations with labor costs just being one of the key factors. Companies also are looking at long term demographic trends as well. There is no doubt, however, that certain groups are disadvantaged by the changes occurring in the ways enterprises re-organize production and knowledge-related activities. This raises a broad range of socio-political issues as well as ethical ones as the footloose behavior of corporations promises to increase, focused on achieving higher and higher levels of global efficiency and cross-border coordination. It also is quite apparent that these processes of change in the production and innovation systems of global companies are moving ahead at a faster pace than educational institutions can cope. This means that skills requirements are shifting very quickly and demand patterns are changing significantly, further creating disruption in the career plans of recent graduates who find themselves with increasing frequency competing on a global playing field. To paraphrase the comment of one participant during the last wrap-up session, we are now in the midst of a revolution of revolutions demographic, technological, and commercial. Many groups are trying to develop effective coping mechanism, but towards what end? If indeed, as some suggested during the conference, we are embarking on a fundamental paradigm change in which both the nature of the playing field and the rules of the game are changing on a global scale, the current period of adjustment is likely to be filled with wrenching changes in many instances. If, on the other hand, there are explicit limits to globalization, derived, in large part, from prevailing national prerogatives and sustained cultural divides, then the types of responses will be of a very different sort. The conclusions reached at the conference did not provide clear answers in this regard, except to suggest that the contest for global talent is not going to abate. Moreover, whether we focus on the flows of talent across the globe or the development of specialized talent pools around the world, the effective recruitment, management, and retention of high end talent will remain one of the best guarantees for global inclusion in the decades ahead.
Session 1 Perspectives on the Global Talent Pool
Speakers
Global Talent Pool: Shifts and Transitions. Is there a Global Talent Market? Denis Simon Provost and VP for Academic Affairs, Levin Institute The Impact of Globalization on Corporate Talent Utilization & Deployment: New Models and Perspectives William Fischer Professor, Institute for Management Development (IMD) Strategic Role of Brainpower in Economic Development: The Developing World Perspective Tino Puri Former Managing Director, McKinsey India, Special Adviser, General Atlantic
Moderator
Garrick Utley President, Levin Institute
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Denis Simon
There are some core questions that come up when thinking about global talent. Among them are: How is the globalization of talent tied to key international issues such as global competition and international development? What are the challenges associated with creating and maintaining an attractive talent pool, be it at the regional, national or corporate level? How specifically does value get realized from talent? Can we improve the way we mobilize talent in order to drive innovation. Finally, what are the barriers to having a truly global talent pool? The reason the entire subject is so relevant at this point is that there are 5 major new economic players on the world scene China, India, Russia, Brazil, and Mexico. Other important economies are those of the 4 Asian dragons as well as those of Ireland, Scotland, Israel and a few of the Eastern European countries. All of these have contributed to radically changing the landscape for science and engineering capabilities around the globe. The U.S. is still the leader in global R&D, accounting for over 38% of the world spending. But China has come from virtually nowhere to be the third largest spender on R&D. While statistics do show the Chinese talent pool growing by leaps and bounds, whether in terms of absolute numbers or in terms of a percentage of the labor force, the picture is not so rosy (for the Chinese) when you look at it on a per capita basis. The West may be concerned about whats going on in regard to the development of Chinas technical capability, but the Chinese are worried that they dont have enough. No matter where the talent pool is located, theres a new buzz word called the simultaneity of competition. This means competition is based not only on factors of cost, resources or time, but all those things have to be done well, now, at the same time, any time, anywhere, and with the right people. In searching for an effective and strong global pool of talent, companies have some important things to think about. They need to find the new skills that will extend their capabilities. They need to pursue new opportunities in research and design engineering that are currently limited by existing budgets and borders. They need to find new approaches and ideas about ways of doing things, they need to figure out how to do exciting and creative new ventures within manageable spending limits, and they need to capture and retain talent because the amount of talent in the world is not unlimited. Some even worry about global talent wars. A final factor to think about is how to shape the
Theres growing competition in the global economy for access to high-end scientific and technical talent A number of countries have key talent, but theyre not able to create an innovative and creative environment where the talent can really make itself felt Developing economies will have an increasingly large impact in a globalized world, especially as their positioning in the global talent pool improves Management needs to do a better job cultivating and nurturing talent Strategic national policies as well as international economic and technological trends will continue to have a strong influence on the global talent pool in terms of both supply and demand The talent pools in India and China already have emerged on the global stage as important elements in international competition and development
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talent pool so it makes sense strategically. A lot of countries have talent, but theyre not able to create the kind of environment where that talent can really make itself felt.
Tino Puri
William Fischer
While the competition for talent is fierce today, there is nothing more important than this issue because it speaks to our future. The corporation is the best vehicle for securing that future because not only is it the place talented individuals are given the license to excel, but its the place theyre given the resources to make that possible. Also, no other actors have the global reach that the modern corporation does. Unfortunately, the corporate sector is not working as well at this as it should. One of the reasons for that is that we arent thinking enough about talent from an individual perspective. People need to be developed in such a way that theyre stretched to whatever theyre capable of doing. Companies claim they hire great people, yet year after year, when you look at the results, the results are average. The relationship shouldnt be great people in, average results out; we need to be building organizations and opportunities to get people in and extraordinary results out. The companies who are doing it right view talented individuals as corporate rather than local assets. In companies with strong corporate cultures, nationality doesnt matter so much. In companies with weak corporate cultures, nationality is a big deal. Organizations need to go after talented individuals as a competitive advantage. They need to hire for skills and worry about attitude and nationality later. Every company says it wants to build a global cadre of managers, but its just not happening. One of the reasons its not happening is because of mundane logistical roadblocks, things like families, schools, and children. Theres probably a lack of imagination about how to tackle those sorts of things. Expatriates are unfashionable at present, and thats unfortunate because they are the way in which corporate culture and values gets transmitted. Theyre also the way corporations learn about the world. Finally, in thinking about the global talent pool, dont forget to start with the individual, no matter his or her nationality.
The change in India in the last 15 years has been extraordinary. Its moved from being a very isolated, somewhat xenophobic country to being globally connected. When India began to liberalize its economy in 1991, it did so out of necessity rather than conviction. But since then, the economy has grown at about 6 percent per year. When an economy grows at that rate, purchasing power expands, people spend on things they couldnt afford before, and new industries come into being that didnt exist before. The quality of life has also improved in India, but so far its been primarily for the top third of the population. The bottom third is still not yet really benefiting from these changes. But the talent pool of India is now poised to emerge on the global stage, to learn and add value to the world economy. Our stock of scientists and engineers is about 3 million at the moment. We add about 100,000 a year. The disciplines of emphasis in India are mechanical engineering, civil engineering, electrical engineering, electronics engineering, software development, and chemistry. You might begin to add biology to that list. We also have an expanding managerial talent pool and I would argue we should not overemphasize engineering because management is the real constraint. Very quickly we will see that management in India is going to become the constraint on what India can do. Additionally, the capacity to actually incorporate non-Indian managers into Indian companies is going to become a very significant constraint on development. The capacity of our educational institutions is small, but the competition to get in at the top institutions is intense and the rigor of that education is extraordinary. The Indian diaspora is now becoming a significant factor in the countrys development. About one third of Microsofts engineers in the U.S. are Indian. One sixth of Intels product development engineering staff is Indian. Forty percent of Silicon Valley startups over the last 20 years have been started by Indians. Where will India have the most impact on the global stage? The first will continue to be in the IT sector. India has developed some capacities in how to do very large scale software development, where in fact, the individual is subordinated to the team, and the real issue is how to get excellent teams to work very rigorously on a very large scale. The second is the IT enabled services area. This is
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essentially all the back office and white collar work that is enabled by digitization and the ability to send information around the world. India will also be active in pharmaceuticals and the generation of drugs, contract research, and pathology. Radiology and medical tourism is growing too. Right now there are significant numbers of people around the world who cannot afford a heart operation and go to India to have it. But I dont want to overstate Indias impact. Its important to keep proportions in mind. Every company I look at in India has about 1 percent of the world market. If were terribly successful, well get 2 percent. If were extraordinarily successful, maybe we will get to 3 percent. Were not going to knock over the economies of the U.S., France, or Germany. All thats going to happen is that India will begin participating in what would be normal growth. With globalization whats different is that individuals have the opportunity to enter and access the global stage. Companies can be born in a global way that was basically impossible before. You or I could set up an internet based company and have the hope that well actually get customers day one in the U.S. That would have been impossible in India 15 years ago. Entrepreneurial talent and creativity are the most encouraging things about India. The numbers of people involved in the IT sector will grow from maybe one million to seven million. But thats not going to drive Indias economic development. Whats going to drive Indias economic development is how well we take care of the two thirds of people who are living in rural areas, providing their basic needs and permitting them to participate in the global economy.
Session 2 Demographic Trends
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Speakers
Global Demographic Trends and Evolving Talent Needs Joseph Chamie Director of Research, Center for Migration Studies Education Investment and Demographics: Creating Competitive Advantage Anne Goujon Vienna Institute of Demography U.S. Demographic Trends and Americas Future HR Base Michael Teitelbaum Program Officer, Alfred P. Sloan Foundation Foreign Investment Decision-making: The Place of Human Resource Factors Fred Tipson Senior Policy Counsel and Director for International Development Policy, Microsoft
Demographic changes are playing an increasingly significant role in defining the composition of the educational sector and the workforce in both developed and developing nations Educating an international workforce will require a huge financial investment Demographic shifts have potentially critical implications for policymakers who face growing pressures to ensure the presence of a well-trained cohort in science and engineering on a continuous basis An educated population does not guarantee competitive success or economic development; effective channels must exist to mobilize the talent pool across industries and geographies There is no single resource as underutilized as women, and no point of leverage more powerful than educating women
Moderator
Tim Ferguson Editor, Forbes Global
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Joseph Chamie
World population in 2050 is going to be much larger than it is now, but its not going to grow anywhere near the way it did between 1900 and 2000 when it quadrupled. We will reach perhaps 9 billion people by mid century. In 1950, for every person in the developed world, there were 2 in the developing world. Today the ratio is 4 to 1 and by 2050 it will be 6 to 1. India, China, Pakistan, Nigeria, Indonesia, and Bangladesh are the top contributors to world population growth. India alone is responsible for 22 percent of todays growth, achieving the EU 25s natural annual increase in just 6 days. While China is in second place now, Pakistan will double the numbers the Chinese will in the next 50 years, despite the fact that China is 8 or 9 times bigger than Pakistan today. Pakistan will then become the 4th largest country in the world. Other countries face declining population. We project 51 countries will be smaller in 2050 than they are today, including such important countries as Russia, Japan, South Korea, Italy, and Germany. Today there are 65 countries below replacement fertility (women having fewer than 2 children.) By 2050, 148 countries will be at or below replacement. Today more than half of the developed countries are concerned about low fertility and some governments are offering benefits in an effort to raise fertility rates. The U.S. is one exception to this pattern. The current population is almost 300 million; by midcentury it will be around 410 million. Eighty percent of the growth between now and then is due to immigration into the U.S. Along with the growth, comes increased diversity. Life expectancy at birth in 2050 will be about 10 years more than it is today. But there will still be gender inequality with women outliving men at lower mortality rates at every age. Additionally, women have and will continue to make enormous progress in education and career opportunities. The family, the basic unit of society is changing. The family is where children are educated during their first 5 years, the most fundamental years of life. We need to pay more attention to the family and its composition and structure. The worlds urban population is increasing. In 2007, were going to reach a historic period: half of the world will be urban. By 2030 we estimate 60 percent of the world population will be living in urban centers. Historically, when people move to urban centers they are better educated, better paid, and have more opportunities.
Anne Goujon
Lets not forget how much time it takes to educate a population. While some talk about the numbers of people enrolled in school, numbers are not a goal. The goal is to educate the future labor force: those who will contribute to society. For instance, lets say that 80 percent of the working age population has below secondary level education. That means that 20 percent have gone to secondary school or above. If a policy were introduced today with the aim of getting the number up to 70 percent of the population with secondary education, it couldnt be done before 2060, unless you started putting 50 year olds back into school. And realistically thats not going to happen. We need to educate those who are of working age. We want to implement some of the goals set forward by international organizations to increase education levels. But you can imagine the investment it would take to get people in places like China, South Asia, and sub-Saharan Africa where resources are scarce, to the same level of education as in the U.S. The working age population of Europe and North America is stagnating. But its still much more educated than all the rest of the world, even than China, which has a tremendous working age population and is quite highly educated at the tertiary level. Theres also the inequality between men and women. In developing countries, women are almost always lagging behind men in terms of enrollment in secondary and tertiary education. There are also differences within countries and regions. In India, some states have very few educated people, but in the state of Kerala, for example, more than 50 percent have more than secondary education. For most countries where the level of education is very low today, few changes will occur by 2030. One of the things they might look at is increasing the importance of adult education campaigns relating to literacy or primary education.
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Michael Teitelbaum
We know there are substantial demographic shifts underway in the United States, and these shifts may be relevant to science and engineering. We know there are persistent claims of shortages, but theres really no credible evidence of shortages that anyone has been able to find. What are the trends? The biggest projected increases in the U.S. population are among Hispanics. The white population is increasing now, but it is projected to grow at a smaller percentage. The Asian and Pacific Islander population in the U.S. is projected to grow as well, but at a relatively small fraction. Why is this relative to science and engineering? There is a low percentage of 24 year old Hispanics obtaining a bachelors degree in natural sciences or engineering and a higher percentage of Asian and Pacific Islanders. The white population is somewhere in between. So if the white population is declining over time, one could argue that the pool is shifting in such a way to reduce the percentages in the aggregate of those taking degrees in natural science and engineering. Its sobering to think that the U.S.S.R. produced a high proportion of science and engineering degrees, yet that did not seem to have made it very competitive in economic terms. Another thing to consider is that however important scientists are, the reality is that only a very small percentage of any countrys workforce can be in science and technology occupations. While there is a long history of hearing about looming shortages in science and engineering the reality is that the data does not point to shortages, but rather to surpluses in the U.S. science and technology labor market. Those occupations have always had a well below the average unemployment rate. The future looks very hazy in the science and engineering fields. Let me list some of the things that affect these markets: First, the government dominates science and engineering budgets in many ways, and government budgeting is very unpredictable. Private markets are speculative in these fields. Often you get booms and busts and that makes it hard to anticipate. And theres no credible way to forecast how offshore outsourcing is going to develop. Fred Tipson
Second, we dont even have good data from which to make projections. So anyone who tries to base policy on what the projections show about 2012 is going to be unhappy at the outcome. Third, some policy actions can actually reduce domestic interest in science and engineering careers. If attention is mostly paid to the supply side, as some advocate, and not to the demand side, when people come out the other end, theyll find terrible career prospects. Heres what I think responsible policies should look like. They need to pay attention to whether science and engineering careers are attractive relative to other available careers and to the personal investments needed to become a scientist or engineer. They need to facilitate access to these career paths for groups currently underrepresented. For example, its not fixed that Hispanics participate at a 2 or 3 percent rate. And, a good policy would increase the agility of science and engineering education. Current pathways take too long. By the time new students come out of the pipeline, the entire demand situation has changed.
You wont be surprised to hear that demographics make a huge difference in terms of Microsofts calculations about future opportunities. The global talent pool is in some ways a matter of understanding what is happening in the IT industry in the various places were going, and its important in terms of understanding who our customers are. Part of the reason Microsoft hires so many people from outside the U.S. is because were trying to hire the best talent in the world. The fact that one third of the developers at Microsoft are Indian-Americans or Indian expatriates is indicative of the fact that the industry in India is producing such high quality talent in this field. And they are paid U.S. salaries with U.S. benefits, so its not a matter of low cost. At the same time, we realize its increasingly important to take advantage of brain power in some of the growth markets. So we now have research facilities both in Beijing and Bangalore to be more a part of the environment in those very vibrant parts of the industry. Emerging markets are the main area of growth in the world for the sort of classic computer applications, and really thats still a huge opportunity to improve productivity through the use of classic tools.
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Increasingly we also see growth in our industry built around tools that enhance collaboration, connectivity, inter-operability, and a focus on the capabilities and skills that facilitate groups working together across geographies and also intensely in single locations. There is no single resource as under utilized as women, and no point of leverage more powerful than educating women. Every study shows that the consequences of one years additional education for women is probably the best investment a government can make in terms of health and economic empowerment. There is an IT component to that and we have a program called Unlimited Potential that is focused on creating community technology learning centers to increase the basic computer skills in various populations. Many of our most successful programs focus on empowering women to enter these kinds of training opportunities. Finally, I want to leave with some thoughts on intellectual property. Whatever happens around the world in terms of the protection of intellectual property will have a huge impact on the nature of the way people make money in the IT industry. Thats not to say there is one particular approach to protecting IP, but in some ways were engaged in a battle with the global marketplace as to what role intellectual property will play in the future. It has deep implications particularly within the developing world as to how the IT industry will develop.
Keynote Speech of Nicholas Donofrio
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Nicholas Donofrio Executive Vice President for Innovation &Technology, IBM
Global Strategy and Corporate Human Resource Needs I was asked if I would share IBMs perspective on the global talent landscape, how we factor in the availability of global resources into our strategies and how that affects the way we think about staffing and planning. And I, indeed, intend to be able to address these topics today. But Im also eager to participate with you as well. I have found over the years that the real value of these sessions is the interaction and dissecting the issues together. So, I plan to leave plenty of time for us to do just that. With international being IBMs first name for more than 80 years, one might conclude that global integration is in our DNA. And of course, it is. But it is an issue that is constantly evolving. IBM conducts business in more than 160 countries around the world. But such presence is not always synonymous with operational advantage. Leveraging that presence is the hard part. Thats because the information technology industry is, and perhaps more than any other, characterized by the blinding speed with which it transforms. Global integration is not a euphemism for reducing costs by labor arbitrage, what many have termed offshoring. That approach severely limits your sustainability. After all, you can only go around this world once before youre back to where you started. Offshoring does not account for the benefits you gain from fusing technology and business process insights and leveraging economies of scale and expertise. To IBM, global integration is all about tightly linking the operations of our company, creating global processes, to eliminate redundancies, and responding to clients with speed and with flair. It means thinking, organizing, acting and operating not internationally, but globally, in ways that make the whole of IBM more efficient. And we are doing that in two fundamental ways. First, we are extending our reach into local markets around the world, particularly in high-growth economies like China, India, Brazil, and Russia. And we are fueling our investments in those markets by reallocating talent from slower-growing maturing markets.
For example, weve recently announced a realignment of our structure in Europe to speed our execution and to better serve our clients there. We are doing that by reducing regional infrastructure overall and by creating teams that can work across country boundaries. By shifting talent into direct client roles, we free up a base of talent which can invest in higher-growth markets and reduce overhead and deploy more talent in the field closer to our clients. Second, it is important to note that we are not lowering our center of gravity in Europe, so to speak, only to build it up again somewhere else in the world. Instead, we are moving to a whole new model. Let me explain. During the first half of the 20th century, IBM was the prototypical international enterprise. We had scores of sales offices overseas and exported our products to customers all over the world. World peace through world trade was the slogan coined by IBMs founder, Thomas Watson, Sr., clear evidence of his deep interest in international relations. Still, while we did some customizing for local markets back then, our intellectual capital was created and managed here in the United States. During the second half of the century, when Germany, France, the U.K., Italy, and Japan were recovering from World War II, a new strategy emerged to capitalize on the talent available in those countries. And to make a stronger contribution in revitalizing their economies, we built self-sustained IBMs in each national market. Each had its own headquarters, its own support operations, and in many cases, its own research and development manufacturing facilities. The result was a multinational IBM. And it is a space between international and multinational that most companies today still reside in. To compete and grow, you must evolve to a globally integrated enterprise, which is what IBM is trying to do today. It is an evolution made possible by the emergence of new skills in new parts of the world, high-growth markets in developing nations, the WTO, and free trade agreements and the rise of a global networked infrastructure. We no longer have to replicate IBM from floor to ceiling in every country. Were optimizing key operations around the world and integrating them horizontally and globally, eliminating redundancies and excess overhead, taking advantage of world-class capability where it is located. Actually, our research organization was a very early model of just this.
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For 60 years IBM research has been operating in strategic locations around the world, focusing not only on the technologies and the business needs relevant to those countries, but integrating science and technologies from across IBM. Our research organization is an incubator for innovation for sure. But equally important, each of our global labs is a hub of nurturing local talent, for launching partnerships with universities and others on projects ranging from optimized business performance to the origins of the universe. Our procurement organization is another practice as an example of how we leverage world-class capability wherever it was located. About 50 years ago, 70 percent of our procurement resources were clerks order-takers focused on administration and transaction processing. Today 85 percent of our procurement employees are high-performing, high-valued partners, doing tasks, like international trade and risk analysis, advanced intellectual property law, and a deliverer of commercial procurement outsourcing for our clients. Each of our 29 commodity councils is responsible for implementing global sourcing strategies. And because the councils are located around the world, they have developed a kind of deep expertise that has helped us lower our cost of operations regularly by billions of dollars a year since 2002. But those moves are not just about labor-cutting cost activities. They are about doing the right things with the right skills in the right places. Given the role that governments play in our daily lives and economic integration, we have also created a Public Policy in Government Relations team at IBM designed to drive global consistency and global relevancy. We are doing this because all governments today are tightly connected in the same way into markets that are connected. They are dealing with the same issues in real time across the globe, serious issues, like supply chain security, terrorism threats, and currency fluctuations, just to name a few. We are realizing that by creating a globally integrated company, we enjoy a flatter operating model and improved productivity. In other words, integrating ourselves globally has enabled us to be an on-demand enterprise, which in turn enables us to help our clients in both the public and private sectors become on-demand enterprises as well.
By now, Im sure you know that on-demand business is our way of describing a fundamental industry shift in the computing architecture and how it is applied to society and to business. Some have labeled the shift organic enterprise, or perhaps adaptive enterprise. But whatever name you choose, it represents a huge transformation. It is a shift in client buying behavior towards integrated solutions that draw on point products and shifts that are moving towards quantifying real business value, not just technological features and technological functions. Technology will always be important. So, I dont mean to confuse you. But in the 21st century, by itself its not going to be enough. These shifts are well underway. Together, they improve the flexibility and resilience of a business, while enabling it to focus more tightly on its core, what is my business and what do I do and what differentiating capabilities and distinguishing factors should I really be focused on? An on-demand enterprise is not just connected. It is completely integrated horizontally, across all the vertical silos that exist, end to end. And that is what drives organizational productivity. While business process and technology are essential to be on-demand businesses, neither can contribute its full potential without a globally integrated workforce, a workforce unencumbered by geography, processes or structure, a workforce that can effectively operate across boundaries, sharing the knowledge and skills needed to bring new value to our clients and to our company is a business model that simply relies on continual innovation. On any leaders agenda these days, few priorities are higher than innovation. Every business, academic and government leader I meet today agrees that innovation is the driver of economic opportunity, job creation, advances in education, and in health care. And theyre making the investments to achieve it. For much of the past century, the United States was the worlds innovation engine. Now other countries are making an incredibly aggressive push. Sweden, Finland, Israel, Japan, South Korea, theyre all spending more on R&D as a share of GDP than the United States. And while R&D spending is an important, but not sufficient, dimension of innovation today, the fact is the
United States is no longer the number one magnet for foreign investments, either. China is. Additionally, the European Union has pledged to boost research and development spending to three percent of GDP, well ahead of the United States and Japan. But of course, the United States is not standing still. A year and a half ago, the United States Council on Competitiveness launched a National Innovation Initiative, a plan devised to restart Americas innovation engine. The NII, an organization comprising more than 200 CEOs, university presidents and labor leaders, was chaired proudly by our chairman, Sam Palmisano, and Georgia Techs president, Wayne Clough. It released its report last December, during a major summit in our nations capital. And I was honored, honored to chair one of the NIIs work groups, the 21st Century Work Group Work Force Team. Theres simply no time to get into all of the details here and I only mention the NII to make two points. First, it doesnt make a lot of sense to think of innovation as a race in terms of winners and losers. No individual company, corporation, or university will ever have a lock on it, nor should they. In fact, the more competitors in the contest, the greater the odds are that we will win. Its a race with no finish line. Second, you dont create innovation simply by increasing your research and development budget. You do it by creating an environment that enables innovations to flourish. To do that, youve got to understand that the process of innovation, how it happens, where, by whom, and at what pace, is changing in fundamental ways. In fact, the most important innovation going on in the world today may well be the fact that the changing nature of innovation itself is changing. Innovation happens a lot faster now. And it diffuses much more rapidly into everyones life. It is more open. Its more collaborative. Its spanning multiple disciplines, industries, public sectors, private sectors. And of course, it is exceedingly global in nature. Think about where innovation is happening these days across the globe. Its coming from places like Bangalore, Haifa, and Seoul and rarely from any place in isolation. And its not just within particular companies. Were seeing the emergence of what Tom Friedman of the New York Times called the flattening of the world.
The collaborative, multidisciplinary and distributed nature of innovation means that it arises not only in labs or garages, but also in marketplaces, the workplace, and the community at large. It is not simply applied discovery anymore, but rather two-way interplay of creation and its uses. Thinking about innovation from this perspective, let us reexamine how IBM approaches this topic. We knew that we already had excellent internal methods of examining technology and business trends. But we had no single, fundamental, integrated view, though, of what innovation itself was. We knew that to collaborate more widely across disciplines, we had to include other important viewpoints from beyond our companys borders. We needed to inject insights from big thinkers in academia, from our client and partner teams, and of course, from multiple cultures around the world. We also acknowledged that innovation is a societal phenomenon, not just a technological phenomenon. So, we set out a year ago to identify some areas critically important to global society in business over the next five to ten years. We considered the implications of business and other integral components of society and then we considered what technology or solutions might need to be developed. That exercise became something we call the Global Innovation Outlook; groundbreaking experiment with virtually no rules. The GIO, as we call it, included hundreds of ecosystem partners from multiple disciplines around the world, including representatives of large and small businesses, academia, government, non-government organizations, venture capital firms, and think tanks from around the globe. We held intense, day-long brainstorming sessions in Shanghai, in Zurich, in Washington, D.C., and in New York City, just to focus on these critical societal and business issues opportunities, if you will for innovation. Those issues became health care, government and its citizens, and the business of work life; broad issues we determined were among those that transcend business, industries, borders and cultures. We then presented the findings last November at a major conference in Manhattan. I would like to spend just a moment on a few of the findings that I believe are highly relevant to this conference.
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First, because innovation requires continual collaboration, workers in the 21st century can no longer rely on the expertise they learned early in life to keep them in front of the skills queue. Second, it is unlikely that universities and other educational institutions will be able to keep abreast of the fast-changing dynamic nature of work. Third, as we step deeper into the 21st century, aspiring knowledge workers will need cross-disciplinary programs and degrees in order to compete. Historically, universities have found it difficult to provide such programs. There are many reasons for that. But to overcome it, the GIO recommends a much tighter collaboration between academia and industry. And as required skills become more and more dynamic, business enterprises will need to assume an increasingly important role as educators. Educational systems in some countries have good precedent for this approach. Others are just beginning to explore the connections. And The Levin Institute stands today at the threshold of such transformation. Thats why the work of the global innovation outlook led us at IBM to embark on a groundbreaking collaboration with the Levin team, an initiative just now underway. Let me explain and put it into context. You know as well as anyone that our global economy is increasingly skills-based. The ability to access and deploy talent effectively is a crucial competitive differentiator, and as I just outlined, corporations, governments, and academia all need to collaborate to better link skills to emerging opportunities. The problem, though, is a severe lack of data or at least data that is organized in a way we need to leverage it. Right now there is no comprehensive, accurate and reliable information source available for tracking skills on a global basis, or better yet, where those skills will be needed on a global basis. Levin and IBM are out to fix that through a tool we call The Levin Global Talent Index, a country-by-country guide focused exclusively on the skills supply and the macro forces that affect it. We are in pilot phase right now in the Peoples Republic of China, a most appropriate test bed, given all the attention on Chinas economic growth, revitalized university system, and its growing scientific and technological prowess. We are very excited to be working on this important initiative.
And after refining it with what we learn in China, we plan to then add some 20 to 25 countries to the model when we finally launch it. We expect that launch to be some time later this year. Id give very high praise to the Levin team for coming to us with this great innovative idea. I also thank our friends at The Levin Institute for orchestrating this very important conference. Through it, the conversation of global talent has clearly now been elevated and I hope we can keep the dialogue going. As we do, we will be best prepared to not only adapt to the change in the 21st century, but to actually embrace it and accelerate it. Thank you very much for your attention.
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Session 3 R&D and How Innovation Works
Speakers
Internationalization of Innovation: Drivers and Implications Dieter Ernst East-West Center The End of National Systems of Innovation? Jon Sigurdson Stockholm School of Economics Regional Systems of Innovation: East Asia Cases Juan Carlos Capuay Senior Officer of Peru and Chair of the Economic and Technical Corporation Committee for APEC, President of ECOTECH (Economical & Technical Cooperation Committee) Regional Systems of Innovation: EU Case Alessandro Damiani Minister for Science & Technology, European Union delegation to U.S.
Moderator
Stephen Baker, Senior Writer, Businessweek
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Dieter Ernst
There are fundamental changes in the way corporate innovation is being organized. If we try to understand the main drivers in the internationalization of innovation, we shouldnt limit our debate to any one factor. Supply, demand, and the changes in the innovation process itself are not sufficient to really capture the very complex and holistic nature of these processes. The strengthening and emerging of transnational knowledge communities, the growth of global markets, and that the number of talented manpower exceeds demand, at least for foreign firms, are all significant drivers behind the internationalization of innovation. There is sufficient evidence to show that overseas R&D by major U.S. and European corporations is increasing. It is important to take into account that the geographic destination of these overseas R&D investments is changing significantly. The share of the main industrialized countries has decreased, and Asia, excluding Japan, has increased. China is the country getting the greatest increase in transnational R&D spending. We did a case study on chip design to get a good handle on the speed and qualitative new dimensions of these developments. Thirty five percent of worldwide new chip design projects are actually done in Asia outside Japan. Asia is the fastest growing market and now, also the largest market for the main tools that you use to do this very knowledge intensive activity which is chip design. We did interviews with a sample of the major companies involved in chip design in Asia and we learned some things. Among them, design implementation services continue to dominate. But system specification, the stages of chip design where you define the architecture of a particular electronic system, is gaining significantly in importance, particularly in Asian system, telecommunication and consumer electronics companies. Substantial progress is also being made in the complexity of design. In all the normal metrics used for measuring complexity there has been a very substantial increase in the complexity of these activities. The growing importance of the talent pool starts with the simple cost issue, which is the basis for these things to happen. If you compare the annual cost of employing a chip design engineer in different locations, including salary, benefits, equipment, office space and other infrastructure, you would have roughly a ratio of one to ten, $300,000 at Silicon Valley and something like $28,000 in Shanghai.
Globalization has changed the face and fabric of the innovation process International companies are increasingly challenged to become more innovative in response to the demands of the global market Knowledge communities have become transnational, communicating and collaborating across borders and cultures in multiple fields Corporate and national systems of innovation, once the key focal point to understanding the innovation process, are now giving way to a new kind of structure best described as a global system of innovation A focus on innovation, research and development, and creating a knowledge-based economy are the requisites needed to prepare a nation and its economy for the reaping the real benefits of globalization The traditional European socio-economic paradigm seems increasingly challenged to cope effectively in a world that has become highly competitive and steadily more globalized
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As a result of the emergence of global markets for technology, companies are now in a position to push vertical specialization deeper into the innovation value chain. The most important bottleneck for many companies is the lack of experienced design engineers. The fact that a Chinese company can hire very experienced foreign designers helps bridge that gap and accelerates the learning process. The internationalization of innovation is positive and creates tremendous opportunities for the countries that have so far been left outside the global innovation circle. But that can mean a negative side for the U.S. and European countries. The question for them is how to compensate for the loss of R&D employment. Juan Carlos Capuay Jon Sigurdson It seems natural that defense and education should be looked at from a national perspective, and basically they are. But in innovation systems, thats not the case; there are a number of systems. Weve had innovation systems in specific sectors and technologies, and weve had a real innovation system on a large scale in the European Union, and within nations. We also have a very important corporate innovation system. And corporate systems are interacting with national innovation systems. We are approaching what I like to call a global innovation system shaping and creating a new way to understand the national innovation system. In the past we had national control of key resources, universities, research institutes and of national companies. The talent pool was also national. This situation was highlighted during the First and Second World Wars, but in the 50-60 years after that, things have changed dramatically. This has taken place particularly in the expansion of global trade and the role of multinationals. In the past, multinationals were looking for resource exploitation and marketing. Now theyre much more after knowledge resources. For large multinational companies, marketing and branding may be more prominent, and research and development is, of course, increasingly important. If you look at individual countries, a very large share of total R&D resources and innovation activities are controlled from the outside, by multinational companies. Companies are increasingly political. Formerly national companies are no
longer national Volvo is now owned by Ford, and Saab is owned by GM. Innovation in this industry is no longer national but political. A politician, in order to get elected, will set up a program to support Saabs future development. This de-nationalizes the innovation system in the name of competitveness. So, while there may be a clash of interests between what is in the corporate interest and what is in the national interest, we are moving into a situation where the corporate and national systems are interacting and creating a new kind of structure which could be perceived as a global system of innovation.
By the year 2000, investment in research and development was 2.65 percent in Korea, 2.9 percent in Japan, 1.0 percent in China, and 2 percent in the U.S. It is important to note how much Asia provides to research and development, which it does because Asian countries know that the functioning of the system cannot be compared with others like the European Union. We have not established an institution with fixed rules. We have our institutions like APEC or the Council of Asia Pacific that are based on nonbinding arrangements and voluntary systems. The only body of Asia Pacific that could be similar to the European Union is the Southeast Asia Association, as they have fixed rules to follow. We are trying to accommodate our policies in order to reach a common goal, but we dont need to have compulsory measures. Ours is a non-binding body. Since the year 2000, APEC has been promoting a knowledge-based economy. According to APEC or Asia Pacific criteria, a knowledge-based economy is one in which production, distribution, and use of knowledge are the main drivers for growth and employment. It is crucial to manage the knowledge and exchange among members of APEC. We have capacity-building programs in order to share the different knowledge and innovation systems to work together and reach an Asia Pacific community, where free trade, free investment, and sustainable development will benefit all its members. Asia Pacific countries have reached a high economic growth based on 4 key factors. They are innovation and technological change, human resource development, efficient IT infrastructure, and a conducive business
environment. We have a clear understanding among government, academia, and industry, and the three of us work together. Through this proactive combination we have transformed new innovative ideas into practical tools for industry and we have made universities into a more commercial enterprise. A critical element in developing economies is accommodating the basic knowledge of a nations economy to globalization. In order to prepare an economy for this kind of integration, it is necessary to promote the social dimension of the economy. A focus on innovation, research and development, and knowledge-based economy will prepare a nation and its developing economy for the benefits of globalization and internationalization. There are two areas where we are paying special attention. The first is micro, small and medium enterprises. This sector employs 80 percent of the population of Asia Pacific. This is an area where most of the people need to have new ideas. They need to receive government aid in terms of technology or technical assistance. The other area is education, promoted through IT schools for young people or the IT village for those already working or already part of the economic life. The purpose of this is to prepare Asia Pacific to face the challenges of globalization through the use of technology. R&D and innovation are part of the free trade agreement we are currently negotiating. The objective we have in Asia Pacific is to harmonize our policies and reduce the IT or digital gap. That will help us have new technology and ideas and promote innovation among all the members of our region.
in the intermediate level and large firms relying on stable markets and long-term employment. The good news is that there is a growing consensus that knowledge is the answer. Knowledge for Growth is the slogan of European Union efforts to redress the situation. It relies on the assumption that research, development, innovation, and higher education are the keys to the answers Europe needs for those challenges. According to the European socio-economic model, the three keys need to be reconciled with sustainable development and social welfare. Quality of life and sustainable economic development can only be considered if innovative science and technology is utilized. Europe needs to concentrate R&D investments, particularly in the high-tech sectors. Europe is doing relatively well in traditional areas chemicals, pharmaceuticals, automobile, electricity, and aerospace telecommunications. In comparison with U.S., Japan, and the rest of the world, its doing much less well in the sectors that are more affected by technological advance, in areas like biotech, semiconductors, and information technology. Europe also has to become more attractive for R&D investment. Europe invests far more in R&D in the U.S. than the U.S. invests in Europe. Europe is still a net winner in the global talent, or more specifically, the researchers pool. But it does much worse than other parts of the world. It does worse than it used to do. This is largely due to the fact that Europe is now Europe 25, and there used to be a large number of Europeans outside of the Union who used to increase the numbers of incoming researchers to the Union. Today they are part of it, and are counted differently in statistics. But the flows towards the United States are the most substantial ones, although from other parts of the world there is a growing positive input. European leaders have adopted a way to address these weaknesses and challenges. The Lisbon Agenda, a set of very ambitious goals that were defined in the year 2000, has not lived up to its intentions and expectations. There is now an effort to revitalize this agenda with research development, innovation, and higher education, plus a number of efforts having to do with making the general environment more favorable to innovation. This revitalization also has to do with setting more realistic
Alessandro Damiani
The economic growth gap has been growing quite considerably between Europe and the rest of the industrialized world mostly due to the fact that there is a traditional European socio-economic paradigm that seems not to be able to cope anymore; its not working in a world that has become much more highly competitive and global. This is a paradigm based on the assimilation of existing technology, a model of mass production relying on economies of scale, with more focus on process innovation than on the creation of new products. There are a substantial number of small and medium sized enterprises in many of the European countries, but a certain weakness
and intermediate targets, creating a clearer time frame for those targets, and a framework for collaboration between what needs to be done at the European level and what needs to be done at the national level. In the area of investment for R&D, the objective is to increase public funding. Were going to do that substantially at the European level with the New Framework Program which will double the investment in research at the European level, from five to ten billion a year. We have a very ambitious goal of reaching 3 percent GDP invested in R&D. But its already obvious midway through the timeframe that this target is not going to be attained. We also have to improve the climate for knowledge, with science education playing an important role. We have to increase the attractiveness of research careers, remove barriers to researchers mobility, facilitate access for foreign researchers, and develop European centers of excellence. Also important is a better environment for innovation in general, facilitating the transfer of results to products and services. We seem to suffer from what has become known as the European paradox, a rather strong substantial capacity in terms of scientific production. When you measure it according to publications, degrees, and PhDs in science and engineering, we score well, compared to our major international partners and competitors. But then if you look at the figures concerning researchers, things look much less positive. Where do all those scientists go if they dont become researchers? Some of them come to the United States. Others just choose different paths in their professional lives. So there is definitely an issue of attractiveness of the system as a whole. Another very important area where substantial efforts in Europe are being deployed is higher education where we are trying to make the system more responsive, integrated, and harmonized, going towards a three-level education system, bachelor, masters, and PhD, as it is the case in most of the world. The challenges are definitely very big. There is a long way to go. Not all the indicators point towards optimism, but being aware of the challenge and the global size of it is a step in the right direction.
Session 4 National Strategies for Education and Innovation: Comparative Perspectives
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Speakers
U.S. Case David Hart Associate Professor, George Mason University China Case Ge Songxue Counselor for Science and Technology, Permanent Mission of the Peoples Republic of China to the UN East Asia Case Devesh Kapur Associate Professor, Harvard University EU Case Riel Miller Founder Xperido X, Futures Consulting
In the U.S., the relationship between public and private sector roles is often confused and unclear with respect to education policy and innovation strategy: the U.S. does not have a formal technology strategy National competitive strategies are being reconsidered as a result of the dramatic structural changes in the global environment Education remains the foundation for scientific, technical, and personal advancement, and is being treated as an even higher priority in places such as China and India In India, talent used to be driven by the state, but now it is largely driven by the private sector The future of knowledge creation and talent development greatly hinges upon leveraging diversity
Moderator
Adam Segal Senior Fellow for China Studies, Council on Foreign Relations
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David Hart
National strategy in the American context is an oxymoron. Like military intelligence or congressional ethics or corporate philanthropy pick your favorite we dont have a national strategy in the U.S. The balance between public and private is lopsided in the education and innovation areas. Our system is weighted towards the private sector, which gives any kind of state-led, top-down strategy modest leverage at best. We rely heavily on the market, even in areas of innovation and education, and that has great significance for international economic competitiveness. And this is manifested in obvious and subtle ways. Higher education, for instance Michael Teitelbaum alluded to this we have a highly competitive sector. It competes for students. It competes for faculty. And this sets the U.S. apart in international perspective. Even though it's mixed, in terms of its funding, it has heavy government funding. For subtly, if you look at schools, K-12 schools, this is a public function, and yet it's highly affected by the real estate market, because our system is organized in decentralized fashion. And the state itself is highly decentralized. Remember, we have a division of labor among the levels of government. Our Constitution reserves all powers that are not specifically allocated to the federal government to the states. So the presumption in our system is one of decentralization. A current example of this in action is the stem cell debate. President Bushs gave a nationally televised speech to lay down a national strategy for stem cell research. Agree or disagree with it, it was an effort to lay down a strategy in an important area of science. And yet, this has now been contradicted at the state level, especially in California. What were seeing is a competition among the states to get involved in stem cell research. Thats an example of vertical decentralization. But we also have horizontal decentralization. We have the usual challenges of managing bureaucracies, principals, and agents. But in the U.S., we also have the separation of powers, where the executive and legislative branches can and often do go their separate ways, even when theyre controlled by one party as they are now. The courts also weigh in on some of these issues. So I would take competitiveness, in terms of the United States, to be the combined effects of all these actors acting in a decentralized fashion. Since having a strategy is highly contingent on the interactions among these various players, its difficult. So we dont really have a strategy. We cant have one and we
wont have one, like it or not. Thats the nature of the game. Policy, however, can have an effect on the margins. And competition and innovation are creeping back up on the national agenda. So where are the pushes? Look at the federal R&D budget. What we see is mostly stagnation, if not retrenchment. The big growth area is homeland security R&D. The relevance of that to innovation and competitiveness is marginal and indirect at best. The bigger effect is that it has been a discouraging message to foreign visitors and students. If you look at the core areas that could feed into competitiveness and innovation, things like civilian and academic R&D, including the NIH, these are likely to be facing a period of slow growth, if not decline, according to the AAAS, for the upcoming fiscal year. The United States is still by far the largest spender on R&D in the world. It spends disproportionately more in the biomedical area relative to other countries. Beyond R&D, the biggest factor on the horizon is how imbalances in our macroeconomic environment are going to be resolved, things like trade and fiscal deficits and low interest rates. These are the kinds of things that have been the precipitant of many of the major policy changes in American history. So what should we be worrying about? The first thing we have to accept is that other countries are at, or reaching parity in science and technology, and that is a good thing. We should want the rest of the world to get rich to improve their quality of life and so on. If South Korean doctors make breakthroughs in stem cells, thats good. We need to think about the U.S. capacity to absorb knowledge thats created elsewhere. The goal of being number one in everything was never really sensible or even ethical. Now its not even realistic. Weve got to adjust our mindset. And thats a big adjustment. We have to sustain and expand public investments in R&D, in education and in infrastructure. That would include capital investments like buildings and laboratories as well as current expenditures. We have to continue making entrepreneurship an easy thing to do and enriching their resource environment. New firms are one of the great strengths of the American system providing an important source of radical innovations and also a spur to existing firms.
We also need to sustain and enhance international cooperation, and America has a responsibility to exercise leadership in this area so that the collective benefits of our investment are received. We need faster flows of knowledge and technology around the world. As the competition heats up in public health and environmental sustainability, for example, we need to make sure that good public investments are made globally.
opportunities available for high labor science and technology personnel and creates better platforms for industrial innovation. As China seeks to enhance its advantage in the global economy, several core issues must be addressed as national strategy.
They include: Ge Songxue 1978 was the turning point in China. Thats when China adopted the policy of reform and opening up. Before the reform China was a planned economy. Enterprises, universities, as well as research institutes followed the governments plans for everything; for work, for products, even for salaries. Since then some key steps have been taken, such as the separation of the government functions from enterprise management and separation of ownership from management so enterprises can operate independently and assume sole responsibility for their profits or losses. Its necessary to understand why education and innovation are so important in China. So far our economic progress has come with high imports, high consumption, high growth and low benefit. This cant last long. Education is the foundation for scientific, technical, and personal advancement, and is being developed as a higher priority in China. China is aware of blazing a new trail to industrialization, featuring high scientific and technological content, good economic returns, lower resource consumption, and lessening environmental pollution. The key is enhancing original innovation capacity. Of the big pushes occurring in China, the first thing is reform of the system. Enterprises have gradually become the mainstream of technical innovation. They have made up 60 percent of the total R&D output in China. Universities are encouraged to create new development patterns for national campuses for science and technology, making them a major component of the national technological innovation system. We are also interested in capacity building. The establishment of national key labs, national engineering centers, and the return of graduates who trained overseas, have improved research conditions and made more
Leaping developmental strategies Enhancing original innovation capacity to include proprietary innovation Improve technology mobilization, realizing optimized restructuring, and rational distributions of science and technology resources Speed up the path of industrialization Stimulate the industrialization process with the help of information technology Promote international science and technology cooperation and exchanges Practice a positive human resources strategy to establish open and mobile human resources systems and increasing the weight of personnel expenditure in the total R&D expenditure
Devesh Kapur
India, even prior to independence, has a fairly sophisticated higher education structure. It has some of the highest numbers in equity in the attainment of education. In 1970, India was producing about 40,000 engineers. By 1990, it doubled to about 90,000. And now there are 300,000 engineers graduating yearly, which is 50 percent more than all the engineers being produced in Europe and the U.S. combined. However, this is just quantity. Quality is something else. Whats also shifted is that while supply was largely driven by the state early on, now its completely driven by the private sector. In 1970, one fifth of all engineers came from private colleges. Now, its 90 percent. Indians are also consuming higher education overseas in increasing
numbers. This is affecting the growth and development of talent in India. One of the key bottlenecks emerging in India is a shortage of faculty. So the questions are: what is the quality of the faculty that is teaching and what is the quality of the training that students get? Another thing to consider is that the regulated structure of higher education in India is a huge mess, and reforms are extremely difficult to enact. So while India does produce a reasonable amount of talented people, thats largely because the base is so large. But as a fraction of the population, its really very, very small. In discussing the national structure of science, technology and innovation, what happened is that in the 1950s Prime Minister Nehru and his government decided to set up a very large structure of specialized public sector labs. This has had two long term consequences. One was that these centers were set up as clusters, especially in the cities of Bangalore, Hyderabad, and Pune, and four decades later they have become the centers of Indias IT industry. The other consequence was they separated research out from teaching. And the long term effect of that was that over time fewer and fewer good researchers were attracted to teaching so the quality of faculty and, with that, the quality of training deteriorated. Partly because of this we began to see a very large brain drain from India. Since 1991 there has been a substantial move to try and reform the infrastructure in research. This was done by reducing public funding, forcing the labs to go to the markets and link to the private sector. The second thing which has happened is a rapid growth in MNC R&D in India. So unlike in the past when a foreign trained Indian returned home and found work mostly in the public sector, now its almost entirely in the private sector. Once you shift from being a net consumer of knowledge to a net producer, your interests change, too. And while the relative change in the balance between public and private sectors has had many positive consequences, there have also been some negative ones. In particular, its the case that talent flows where the private returns are highest, not where the social returns are highest. So India now has 240 medical colleges, but one school of public health. So while foreigners may be coming to India for heart operations, India has health indications which are not much better than sub-Saharan Africa because of extremely poor public health facilities and the fact that very little talent goes there. I
think that what we see in India, and also more broadly in poorer countries, is the global market for talent has one consequence: that it raises the return, the private return to talent in poor countries, and undoubtedly has a negative consequence on equity. In discussing the national structure of science, technology and innovation, what happened is that in the 1950s Prime Minister Nehru and his government decided to set up a very large structure of specialized public sector labs. This has had 2 long term consequences. One was that these centers were set up as clusters, especially in the cities of Bangalore, Hyderabad and Pune, and 4 decades later they have become the centers of Indias IT industry. The other consequence was they separated research out from teaching. And the long term effect of that was that over time fewer and fewer good researchers were attracted to teaching so the quality of faculty and, with that, the quality of training deteriorated. Partly because of this we began to see a very large brain drain from India. Since 1991 there has been a substantial move to try and reform the infrastructure in research. This was done by reducing public funding, forcing the labs to go to the markets and link to the private sector. The second thing which has happened is a rapid growth in MNC R&D in India. So unlike in the past when a foreign trained Indian returned home and found work mostly in the public sector, now its almost entirely in the private sector. Once you shift from being a net consumer of knowledge to a net producer, your interests change too. And while the relative change in the balance between public and private sectors has had many positive consequences, there have also been some negative ones. In particular, its the case that talent flows where the private returns are highest, not where the social returns are highest. So India now has 240 medical colleges, but one school of public health. So while foreigners may be coming to India for heart operations, India has health indications which are not much better than sub Saharan Africa because of extremely poor public health facilities and the fact that very little talent goes there.
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Riel Miller
The question of talent and the knowledge thats underneath all the talent is an evolving global talent pool in an evolving global knowledge pool. The future of knowledge and talent hinges upon leveraging what I call diversity and density. One of Europes strengths is that its relatively dense. You can take the train and get somewhere different quickly and easily. But its also very diverse with different languages, cultures and histories. We need to think about how to leverage that diversity and density and lay the foundations for using them. Of course we need a way to develop a metric that says this is the difference between an agricultural society, an industrial society and a learning society from the perspective of knowledge intensity. If all those bank towers and steel mills are no longer the core of where our wealth comes from, where are we getting our wealth? In a learning intensive society, the answer is by adding value. One way of adding value is by what I call banal creativity. If you wanted to create something that was unique for each person in this room, a product that was yours, unique for you, the only real way to do it is to get you to add the value, for you to do the creative work, for the creative work to shift to your side of the ledger. But if you move to this idea of banal creativity, which is not the creativity of genius, but a fusion of supply and demand, where you add value thats meaningful to you, you can think about a new economy. The question now becomes can we imagine a society thats actually a learning economy, where the global talent pool is really the foundation for sharing talent? Cyberinfrastructure revolutionizes the way we do science and engineering. And it revolutionizes what they can do and who participates. One of the fundamental divides of industrial society is between the different hierarchies. And at the pinnacle of that hierarchy are the engineers and the scientists and the entrepreneurs, and the creators, the producers, of ideas. Cyberinfrastructure will allow for open access, and thats a very significant potential opening. And what does it mean from the point of view of economic and social change?
When we think about a learning intensive society thats not an industrial society, the idea that you need more schooling to improve productivity is wrong because its not technical knowledge that matters. Whats crucial is taste refinement because if Im producing unique products and trading unique products in an intense network, then diversity and the creativity associated with it is the fundamental source of value added without the divide that characterized where previously knowledge was privileged; creating essentially a revolution in the way science and engineering happens. Its an alternative economic model, still capitalist, but going beyond the current system. Products are unique. The corporate form of organization is marginal. IBM will still be there, but it just wont be the center of the economy.
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Peter Schwartz Chairman of the Global Business Network
What will the Talent Pool look like in 2050? What I want to talk about is how the world is going change over the next 50 years and what the implications will be for the kinds of people who are going be in the talent pool. It is hard to predict the future. I was born in 1946. I can remember movies and television programs about the future in the 1950s and they didn't look like what we see at an event like this one at The Levin Institute today. A television show in 1955 depicting a corporate event 50 years hence would have had a room of white men with some women serving coffee. Men were in the dominant position, women in a subservient position, and very few people of other colors in any position at all. I graduated from Rensselaer Polytechnic Institute in 1968 and there were 12 women in my class out of more than 500. Today, the president of RPI is a black woman, Shirley Jackson. The rise of women and social diversity is one of the biggest phenomena happening in America in the last 50 years and just about no one predicted it. We didnt foresee the changing role of more than 50% of the population, let alone predict the personal computer. The order of magnitude of the changes in the next 50 years is likely to be staggering as well. If there is one thing I feel confident predicting, it is that you ain't seen nothin' yet. But preparing for different future scenarios is possible and we should still try to foresee the shape of what is to come despite the difficulty. I begin in a sense by looking backwards at the last century and using those experiences to create a picture of the next half century. Then I will outline some of the fundamental advances in science and technology that will have a large affect and what the implications on society and the evolution of work and organizations are likely to be. The first half of the 20th century was completely different from the second half. It was characterized by war and chaos. There was World War I, the war to end all wars, which killed 9 million on the battlefield and disillusioned generations. The great influenza epidemic of 1919 followed on its heels and through its troop transports and probably killed 100 million people worldwide. By the way, we are looking at another serious flu epidemic now. Then there was the Great Depression and, of course, World War II. Tens of millions of people died horribly in the great wars, in civil wars, due to starvation or to totalitarian regimes such as that of the Soviet Union. There were vast waves of
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immigration to the United States from Eastern and Southern Europe, and massive economic dislocations. The last half of the 20th century saw the Cold War and the rise of the U.S. into a dominant super power. Communism and its effect on the peoples of Eastern Europe and the Soviet Empire basically took the region out of the mainstream of history for the second half of the century. But the rest of Western world saw hugely rising standards of living and the boom in technology. Most every single piece of communication technology you use today did not exist 20 years ago, let alone 50 years ago. Twenty years ago, many people were still using a dial telephone. Phone innovation was the Princess model and the variation was pink or tan or yellow. Now, phones with new features and functions are being introduced every single day. Moreover, technology has been moving so fast that weve seen technologies come and go within the last 20 years. Nobody will have a job renting videocassettes two or three years from now. Technology innovation is only accelerating. There was the huge growth of the middle class, one of the biggest phenomena after World War II, especially in the United States, but also in Europe and Japan. That was my life. My family came from war-ravaged Europe, fleeing communism in the Eastern bloc, and grew from poverty to the middle class suburbs of New Jersey. I was the first person in my family to go to college. That was typical of Americans in the 1950s. It's a different world today. We are a middle and upper middle class society. We have not ended poverty, but the vast majority of Americans, Europeans, and Japanese live reasonably well. One of the really big phenomena of the last 25 years has been the dramatic takeoff of Asia, first East Asia, Japan, Korea, and Taiwan, and now more dramatically, China. Now if we think ahead, what will the next half century be like? And what will people's experience be? Will it be chaos and war, resembling the first half of the 20th century? Will we see conflict with China? Or will the future look more like the peace and prosperity scenario presented by the second half of the century? It is uncertain. Peace and prosperity is pragmatic, but people don't always do what is pragmatic. Donald Kagan's famous book, The Origins of War, lists the origins as honor, fear, and interest, in that order. Economic progress may be in the individual or national self-interest, but often honor and fear get in the way. Look at the struggle going on today over apologies for World War II not even new events,
apologies for old events it is deeply affecting the relations between Japan and China, despite the profound economic connections between the two countries. You can think about the 19th and 20th centuries as a vast European civil war with the French, Germans, British, and, to a lesser extent, the Russians, struggling for dominance of the European continent and with it, the rest of the world. Eventually the answer was none of the above. The dominant power became the United States. That same struggle has not happened in Asia. Japan was the only nation in the last century to attempt Asian dominance and it was rebuffed. The scale of China, especially as it prospers, invites a renewed struggle. Will we see in the next half century, a similar battle for dominance in Asia and will, therefore, much of the energy and economic vitality of Asia be sapped by conflict? It is plausible. The interests of the Chinese, the Indians, and everybody else the Japanese, the Koreans, the Taiwanese all have a strong interest in the second scenario, peace and prosperity, but self-interest is third on the list of causes of war, and presumably, peace. Will terrorism continue? Will the Middle East evolve some structures and societies which can foster the well-being of the majority of their people? I have a 14-year-old son. He'll be 18 in a few years. Will we have a draft then for the tenth year of the Iraq war? It is possible. The Middle East and Asia are not the only hot spots. In the 1980s, Latin America was very much on the agenda. It disappeared from the scene after the debt crisis was resolved, and Nicaragua and El Salvador calmed down. However, it still smolders. Look at Mexico with its gross inequities, border issues, and political struggles. More frightening, think about Hugo Chavez in Venezuela in other words, Castro with oil. Most of the Andes are in turmoil, and President Lula, a former socialist, is struggling with economic reform in the potential powerhouse of Brazil. You can see at least 3 agendas dominance of Asia; religious radicalism exacerbated by despotism and poor living conditions in the Middle East; political extremism exacerbated by poverty and centuries of misrule in Latin America ripening into major geopolitical conflict. Having said that, I am a relative optimist. I believe that the second scenario, peace and prosperity, is more likely because the potential is so great. The opportunity is so enormous for China and India. The win is so large. There's probably no bigger story on earth than the rise of China and India over the next 50 years, and the implication of the
massive change in circumstances and aspirations of 1.5 billion people. In fact, when talking about the future, I want to talk about five countries: China, China, China, China, and India, in that order, and then nothing else. No place else exists on the planet today for foreign direct investment other than China, with a bit of India. It is the center of the world for the next 50 years. The Chinese see this as an opportunity, a 500 year opportunity. They blew the last 500 years. Now they've got the next 500 years in front of them, and they don't want to blow it again. The efforts of The Levin Institute are right at the heart of what is central to success here, and that is the ability of people all over the world to start and launch businesses and create prosperity for their societies. That's how we did it, that's how the Europeans have done it. That's how the Chinese and Indians are doing it. There is no better avenue to peace than prosperity. They go together. So enough history lesson and setting the geopolitical context. Lets look at some of the other trends that will have a huge impact on the population over the next 50 years outside of major catastrophic events such as global war or plague. We are in the early stages of the next great scientific revolution, a scientific revolution on the order of the beginning of the 20th century when Einstein and Bohr revolutionized physics, when we rediscovered Mendel, and Darwinism transformed modern biology. It is the revolution of the nano scale. It began in a sense in the 1980s in biology, transforming that area of study from an empirical science to a rational one. Until recently, biology was basically taxonomy. We could describe things; we didn't really know how or why they worked. Now we're learning to understand biological systems at the molecular and genetic level, in the same way that we understand physical systems. We are learning to control and manipulate them in the same way. It is a scientific revolution on the order of quantum physics and relativity. A few years ago, my neighbor in Berkeley, Saul Perlmutter, made one of the great discoveries of modern physics. Until recently, we believed that the universe was expanding at either a steady state or a decelerating rate. The reason was very simple: all the mass in the universe has gravity attracting all the rest of the mass. This attraction would gradually slow down the universes spread.
But Saul discovered it was the other way around. It was accelerating. In looking for an explanation, we discovered something called dark matter out there that is overcoming gravity. In fact, 95 percent of the matter and energy in the universe is dark. What do we mean by dark? It means we don't know what it is. That's all it means. We don't know. And if we don't know what 95 percent of the universe is, there might be some slight holes in our other theories as well. In other words, we're going to have to reinvent physics. Chemistry is changing too. When I was a college student, chemistry was all about the law of large numbers. You put a large number of molecules in a pot and heated it. Statistics told you what would collide with what and what would come out the other end. You got plastic or oil or whatever it was you wanted when you finished. Now we're learning enough about molecules, atoms, and sub-atomic particles that we can actually control them individually. Last year the most interesting physics experiment of the year, as picked by the American Physics Society, was when the spin of a single electron was measured using a tiny cantilever beam. You had to look through a microscope to see the test apparatus a tiny magnet of just a couple thousand molecules at the tip of this little silicon cantilever beam. With it, experimenters could identify and measure the spin of a known electron within a particular atom and then go back and find that same one and do it again. We can control molecules and atoms, and sub-atomic particles in ways that were simply unimaginable even a decade ago. At this level, chemistry, biology, and physics converge. This also means we're learning how to make things devices, drugs at the atomic and molecular scale. This is how nature makes things. Imagine what it was like to build a building compared to growing a redwood tree. A building takes many people, lots of planning, tons of materials hauled from all over the place, built over a year or two. Nature, on the other hand, has a piece of software called DNA which, when planted in the right place, has the programming to be able to attract other molecules that build more molecules, that form structures, that finally build the tree. Nobody was in charge, at least in my theory of things. The tree built itself. Imagine if we could build our cars or our clothes or other devices that way. Today we think about big factories for everything we want, but that is changing. Take, for example, publishing and printing. Twenty years ago if you wanted to get any thing printed, you had to go to
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a print shop that had a press and it took several days. Mock ups got sent back and forth over a period of time. It was expensive. Now everybody has a printer attached to their computer; big technology put in little boxes, and instant publishing appeared. We'll be able to make other things the same way, in desktop factories. A little bit of natural gas, some trace chemicals and some software, and when you want your Treo 30 in 2025, you'll make it in the basement. You probably won't make your car or your steel that way, but you might make your clothes. Youll certainly print the next book and make most of your information devices. Finally, we've barely begun the information technology revolution. Gordon Moore's Law is about to run out; the power of the conventional microchip will reach its limits in about a decade. But in contradiction of many doomsayers, this does not imply a slowdown of information technology and the world economy. We are going to see a new generation of information technology built on new physics, operating at the quantum level, capable of doing things that are almost unimaginable. Just as we could not imagine the PC when I was a college student 35 years ago, it will be hard to imagine the powerful nature of the technology that will be available in 20 or 30 years. There might be a device that you wear, a headband perhaps, which actually reads information and transmits it directly into your brain. Soon thereafter, you'll be able to send. Well see networkenabled telepathy. So the implication of scientific revolution and new technology is a very different world. It will be much cleaner and greener. This technology will lead to a major modification in how we make things and use energy. We will radically reduce our resource consumption for what we build and how we move. But even more mind blowing is the way we build biological entities, namely ourselves. Like it or not, in the next 20 years, we are going to get control of human biology. We will start designing people, and existing people will modify themselves. You think long, green, spiky hair was a problem, wait 'til your children start wanting to implant or inject chips, and various other forms of bio-modification and neural or sensory enhancement. For example, your children will have the ability to see in spectra that you can't see today. They will be able to extend the range of human vision and human hearing, improve human memory, even improve the quality of human thought.
The Olympics in 2050 will look very different as a result. We'll have the normal Olympics and the modified Olympics. And Mr. Tagliabue, I suspect we'll have some eight-foot guards and maybe some seven-foot quarterbacks, and we'll probably have to have two different leagues. Youll face the question of whether you want your kid to take a pill the night before he takes his PSATs or SATs that will improve his cognitive abilities. You will. And they will. Wouldn't you like your doctor to take it the night before he does surgery on you, so his memory is perfect? One of the implications of this is super longevity. I'm 58 years old my generation has the possibility of, first of all, a very, very youthful old age. More and more of the infirmities of age are going to be reversed step by step, whether it is vision or memory loss. We already have taken care of sexual potency, hair loss the important stuff. But we'll move on to less important things like vision and hearing and memory. There is, for example, in northern New Jersey, a company called Memory Pharmaceuticals. They are working on Alzheimer's drugs. But those same drugs will improve the short-term memory for a person who's not ill as well. What's going to happen is that my generation is going to live to 100, 120 at a biological age of 60 or 70. For my generation, 90 will be the new 60; 120, the new 70. There's a pretty good shot that before I'm 100, probably in another 15 years, we will actually begin to slow down aging itself, impede the aging process. So if I don't kill myself accidentally or get some nasty disease, I'll make it to on the order of 150. The normal maximum human lifespan is 120. The oldest measured person was Jeanne Calmet who lived till 122. Let me tell you about her and her vertical mortgage. In France, you can essentially have somebody pick up your mortgage with the deal that if you die, they inherit your house. She had an apartment in Paris which she sold to a guy when she was 90 and, of course, it seemed a good bet. She would probably die in two or three years. Well, he ended up paying for her flat 3 times over because she lived another 22 years. I mention that example because there are an enormous number of things that actually depend upon the fact that we're going to die soon, for instance: Social Security, pensions, and healthcare. All of those are 100 percent wrong because our actuarial assumptions are way, way off.
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My sons life will be even more different. He was born in 1990. If he only lived the normal human lifespan, he'd make it to 120. That takes him to 2110. But do you think we're going to stop learning biology in this century? It's barely begun. So there's a very good chance that my son and your children who are teenagers today, will live not to be 120 or 150, not 200, not 300, not 400, but become in effect near immortals. The first generation of near immortals has already been born, and they are our teenagers, God help us. What we are going through in the next 20 years, the single biggest thing that has happened to our species since we came down out of the trees, is that we are in charge of our own evolution, our own biology, our own lifespan, in ways that no species on this planet has ever seen. So the talent pool of 2050 will be affected by a world that will have a very different kind of biological environment, a different human environment that will be living longer, with greatly different expectations for their lives, and will be making things in a way that is completely different from the way we make things today. It is amazing to imagine the different life experiences and perspective that these different population cohorts will sustain and how they will interact with each other. The values and aspirations are already vastly different from the life experiences of our parents who grew up in the chaos and catastrophe of the early 20th century. We have the baby boom generation. That's me. I was born in '46, the leading edge of the baby boom. I should be retiring in a few years, but I'm not going to. We have the millennials, the people who were born around the millennium, like my son. And then we'll have a new generation, my sons children, coming along somewhere around 2020. My generation and that of my parents was industrial. The United Auto Workers were the paradigm case of the workforce then, or the United Steelworkers, or the truckers. It was all about stuff, building and moving stuff. It had a heroic quality. The kind of thing Ayn Rand wrote about and I read as a kid Howard Roark went off to work in steel mills. John Galt did the same thing. The experiences and expectations of those generations had everything to do with the classical physical world-stuff and labor and war and death. Now it's software programming, chip design, biotech. My son doesn't know about physical labor. He knows about software and video games. He is growing up with a world that is entirely malleable. His experience of life is a mental
construct, his or somebody elses. The next couple of decades are about biology and the implications of biology. The kids coming of age in a couple of decades, my sons children, will not be computer hackers, but instead they'll be bio hackers. They will be people who can modify biological molecules and organisms. Their experience of the world is likely to be very different. But because we're not going to get off the stage, there's a collision coming around mid-century. My generation will only be about 100 then, looking towards retirement. (Of course, many of us can't afford to retire because our 401K's are now 201K's.) But it is not only a matter of whether we can afford to retire, it's also a matter of simply wanting to keep going. Personally, I don't know anybody who wants to go off and play golf in Arizona. The people I know look to do new things, start new careers. They build new institutes at a time in their life when most people would have retired 50 years ago. Fifty years from now, many of my generation will still have the best jobs. Garrick will still be running The Levin Institute in 2030, and some young person will come along and say, When are you going to move on, Mr. Utley? The millennial generation will want to get in, and the biological generation will be asking what are they supposed to do. Maybe by then, they'll have opportunities elsewhere in the universe. But at the moment it looks like were actually headed for a multi-generational collision as we go through this transition. This has never happened before. This will not only be a generational conflict but it could be a regional or ethnic one as well. Most of the worlds population growth is in Asia, with the exceptions of Nigeria and Brazil and the United States. It's important to keep that in mind, that the U.S. is still a rapidly growing country. Every other growing nation in the world is a developing country. That is because the United State remains a great immigration magnet, while the rest of the developed world resists immigration. Clearly Europe has a fundamental problem; it has an unsustainable economy. Its resistance to large scale immigration and the ensuing repercussions on its economy is probably the rock upon which European integration may founder. But it is a huge advantage for the United States; no other country on earth has the ability to attract immigrants and use them creatively. Another of the big demographic shifts is that the rural population is now in permanent decline. Urban population has just passed rural population worldwide for the first time in history. Most people live in cities. That has never
been the case before. If you look at a satellite photo of the globe at night you see one vast light array. Except for the Sahara and the ocean, we are becoming a huge, planetwide city, with communication and transportation interconnected. My colleague Stewart Brand refers to this as a city planet. That is, we are becoming a planetary city. What is both surprising and interesting about the great cities of Asia, Europe, and Latin America is how much they have in common. There is an enormous amount of interconnections and similarity among cities. Clearly, the shopping is similar, the result of globalization but you're also seeing multiple cultures in many cities. Los Angeles may be the city of the future. Im from northern California and we have no affection for Los Angeles, but we are not the future. L.A. is because it is the worlds source of information, digital media, and entertainment. L.A. is also a quilt of many, many ethnic communities Korean, Japanese, Taiwanese, Iranian, and so on. There's a whole section of L.A. called Irangeles. There's a large Iranian rock community producing Iranian rock music that gets played all over the world. Is it American music? Is it Iranian? What is it? Well, it's something else, something new. It is this intersection of cultures and technology in the urban environment which is creating a new experience for people. Their sense of identity is much more complex, more fluid, un-integrated. These communities around L.A. are not integrated. The city is a patchwork. The right metaphor is not a stew, perhaps it is a salad. And it is more and more typical. Shanghai has more in common with L.A. than it does with Beijing. Yet. These global urban archipelagos which let people live wherever they want, do whatever they want, communicate any way they want, is the pattern of the future. If you want to live in Sydney and work in London, its not a problem, but rather a possibility that changes the reality of where creative people can be and how they operate anywhere in the world. Organizations, groups of people aligned to achieve specific goals, have been evolving substantially as well. The idea of location has changed. There is a changing mix of leadership with many more women and non-whites. Politics, medicine, and law will be a women's practice in 20 years' time. The majority of graduates are now already women. So the women are going to be running the world. They're going to be making the laws and they're going to be curing us all. It's going to be very different as a result.
Our sense of identity is changing. If is less related to our city or country. Think about it as a networked set of connections, with gangs as the metaphor. Think about the colors that gangs wear. There will be the IBM color, the Motorola color, the Toyota color. Finally what we have are organizations that are really built around creativity. If there is anything that we have learned, it is that growth is driven by knowledge, new knowledge. China and India understand this and it is what separates them from everybody else. Creative knowledge has the highest value, whether it's software design, a new biology, a new kind of business service, or whatever. The workers of tomorrow will have grown up with a very different kind of learning experience that theyll get from computer games. I went to the World Cyber Championships last year in San Francisco. The coolest people were a group of girl gamers who played Medal of Honor Vietnam and could take on anybody. They were the toughest warriors out there. What video games give you is the ability to visualize enormous amounts of data, multi-track, and create virtual economies. Eventually those gamers will be celebrated as much as football players and Olympic athletes. So if we think about where we're going to end up after a half century of peace and prosperity, what could we say about the talent pool? First of all, it will be dominantly Asian. It will be focused on new knowledge, new services, and be highly innovative. It will be diverse. It will have many different ages, including very, very, very, old age. There will be a lot of conflict around race and age. The industry will be built around biology and bio-industrial technologies. It will be more government dominated and it will be about struggling to protect intellectual property. On the other hand, if we are in a half century where the war on terrorism continues, where conflict in Asia comes to fruition, and where we see a century characterized more by chaos and war, this may be the opportunity for Latin America to rise, as Asia and Europe are absorbed with other things. Think about the paradigm of the talented person of 2050. If we're in a world of peace and prosperity, it's a Pakistani woman who remains very healthy at age 70. She's practicing Islam and she's consulting professionally on the integration of global service businesses. She is the worker of 2050. On the other hand, if it's a world of chaos and war, our Pakistani woman has probably been blown up in a nuclear blast. Meanwhile, theres a young Latin American man who manufactures genetically enhanced memories,
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bio-pharmaceuticals, that have probably come from an American design that has been illegally copied. These are two very different pictures of the worker of 2050. Thats where I want to stop, by suggesting we could end up in very different worlds depending upon what happens in the global economy, in the global political arena, and what happens in terms of the context in which people develop. The talent pool will look very different biologically and demographically in terms of gender and age. It will have shifted fundamentally around the world in terms of culture and race. And it will be much greater change than that which we have experienced even in the last 50 years.
Session 5 Policy, Politics and the Global Talent Pool
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Speakers
Mobility Issues in an Age of Globalization: Defining the Government Domain Ron Hira Assistant Professor, Rochester Institute of Technology The Coming Global Talent Wars: The Next Battleground Kent Hughes Director Science, Technology, America & the Global Economy, Woodrow Wilson Center Role of Government in Addressing the Impact of Talent Globalization Stewart Verdery Assistant Secretary for Policy (2003-2005) U.S. Department of Homeland Security
The fate of U.S. workers is no longer a serious factor in corporate decision-making Optimum talent utilization requires strategies based on the new realities of a global economy where mobility and access are increasing While it is clear that governments around the world continue to be deeply involved in creating, attracting, and retaining talent, the ability of MNCs to identify and access talent any time, any place, and any where has created new tensions regarding the government-business interface A countrys security policies can run counter to its business and commercial needs in an interconnected world, and there appears to be no easy formula for resolving the dilemma, especially in an era where global terrorism remains a major issue While improvements are taking place in immigration policy and implementation in the U.S., there will continue to be tradeoffs between security and competitiveness
Moderator
James Lindsay Vice President and Director of Studies, Council on Foreign Relations
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Ron Hira
The issue of human capital and how to view off-shoring and outsourcing can be looked at from many different perspectives. American industry seems to be interested in on-demand access to independent highly skilled labor. They want the greatest flexibility, and dont see citizenship or nationality as an issue. They view technology training as either the responsibility of government or the individual. American universities are pretty much aligned with industrys perspective and are interested in increasing their supply of government funds. They want access to the worlds best and brightest to fill their graduate programs and they dont view foreign students any differently than American ones. On the other hand, U.S. technology workers are concerned about protection from what they believe is unfair competition. Theyre concerned about visa programs they view as basically work permits which allow companies to bring in foreign workers, making American workers compete with foreign workers head to head, not between here and Bangalore, but between here and next door. Theyre concerned about job security and nervous about whether theyre going to get a pay off from the high up front investment costs of their training. Theyre also not sure what new skills will be in demand, where to go to get those skills, and where to get the money to pay for additional training In terms of whats in the national interest, strong domestic technology is extremely important from a national innovation system point of view as well as from a military standpoint. A lot of subsidies for higher education in science and engineering have come from the Department of Defense. The U.S. wants to develop new markets as well as good relations with China, India, and other developing markets. It wants to capture the best and brightest from abroad. Developing countries naturally view off-shoring in a different way. Their comparative advantage is high skilled, low cost labor, and they see borders, work permits, and visas as non tariff barriers to trade. They also want to move up the ladder of innovation. There are two competing and contradictory theories to consider. One, of infinitely expanding opportunities argues that jobs that move overseas have little or negative impact on U.S. labor demand because we have expanding opportunities and people who are displaced will quickly get rehired. This theory says all we have to do is spend a little
extra on education. The other theory says its a zero sum game where any job that moves overseas is one less job in the U.S. Neither theory reflects reality. The real challenge for U.S. technology workers is that the fate of U.S. workers is no longer a serious factor in corporate decision making. This makes it very challenging, because American workers are not only competing head to head with foreign talent, but theyre robbed of the advantage theyve had in the past; that of having the latest tools and technologies with which to improve their productivity. Now companies are taking those tools and technology to the labor, instead of importing it, giving companies the flexibility to rebalance or reallocate their labor force. I think the response is for U.S. engineers and technology workers to differentiate themselves in some way. But I also think thats a lot harder than most people realize.
Kent Hughes
Governments around the world are deeply involved in creating, attracting, and attempting to retain talent. What role does the government have in thinking about mobility? There will be a proliferation of carrots in an attempt to make people feel comfortable. In the past, the U.S. probably had a bit of a cultural advantage in that were very welcoming to people from around the world. Recently I was in Finland. Its a lovely country, nice people, but a relatively homogenous population. The government is interested in attracting Indian and Chinese talent, yet the average Indian scientist might feel a bit more at home in northern Virginia where there are restaurants, shopping centers, Hindi TV, and so forth. When thinking about national security, in the U.S. and elsewhere, people recognize that real technologies walk out the door of the lab and get on a ship or plane when workers go home, and that that can be a critical issue. The debate going on right now is over what Americans call deemed exports. That is, the question of an individual from overseas who works on classified material here and then goes back to China, India, France, or wherever. What an individual nation ought to do depends on where it is in the course of its own development and what its strengths and weaknesses are as of today. In the U.S. context, probably the single biggest thing that the country should do is to recognize how much the world really has changed. If the world isnt flat, you might say its a bit tilted,
in this case in the direction of China and India. This is a major transformation and we need to get our thinking around it and form strategies based on that new reality to allow for optimum talent mobility. We need to do a better job at understanding what disciplines we will really need in the future and get a better sense of how and why individual Americans are making the choices they do. It seems to me that we dont have a good idea of why people say they want to be an engineer or a scientist or a doctor, or why they may change their minds as they go through college. Were going to have to worry about the fact that there are usually a series of steps involved in acquiring an advanced skill. Some of the rungs on the ladder up will no longer exist here as theyre off-shored. We need to think of a way of substituting. It may be community college. It may be specialized courses at the undergraduate level. Or it may be grants to multinational companies to provide that kind of training. From a national security view, think about one of the lessons we learned from World War II. Even zealous free trade advocates of the time realized an exception was needed for the watchmaking industry. The skills of watchmaking were needed to set the timing of the bombs used in the war. We need to ask then, from a national security and a long term growth point of view, what are the watchmaker skills of today? I think the single most important thing we can do is create a new sense of excitement around the world about science and technology. A high percentage of the scientists and engineers today who are my age were attracted to the field by the space program. There was a sense of how exciting science was, how important it was to the countrys future and how you were really walking into a very exciting and important new frontier.
short interviews, where biometrics would be collected from would-be travelers. But that created long lines at many posts around the world, especially in China and India. Individuals who had some kind of specialized knowledge, like scientists, who were coming in from countries that were perceived as high risk, were sent for specialized reviews where their applications were sent back to Washington for interagency review. Those were taking way too long by the time our department came into being. The so-called visa mantis program for scientists was taking almost 3 months to turn around before a determination was made whether or not this person was a threat to national security. And oftentimes, by the time that 3 month period had passed, the conference they were trying to attend was already over. That was unacceptable and we were able to improve that. Its now down to about 14 days which is a manageable number as youre planning trips or conferences and that seems to be an acceptable level of interference for people who need to do that kind of travel. The U.S. Visit Program, the kiosks at your ports of entry, is one way. Visitors are now providing fingerprints to be matched against their visas and against watch lists. We thought this system was going to be a huge problem for the traveling public, but its been widely accepted. By last count about 28 million people have gone through it in an average response time of 6 seconds. The system has a lot of challenges ahead, among them moving on to land borders and moving on to checking people out of the country. Its a very high risk system that will have to be deployed in stages. But its the kind of system the American public insists on. Were a welcoming country but we need to understand who is coming and who is going. Its pretty basic stuff, knowing who is coming into your home and did they leave. But we didnt have it in place on 9/11. China is always a particular issue. The reciprocity schedule with China is something weve been trying to negotiate for many years and weve only seen minor improvements. Thats why people have to go back and forth over and over again to get repeat visa privileges. My point is that security policies can be a major roadblock, or speed bump, in this interconnected world if done improperly.
Stewart Verdery
We recognized early on how potentially damaging our security efforts could be on the flow of talent coming to our country. Prior to 9/11, in most parts of the world, it was possible to get a visa by mail and that was seen as inappropriate. We want to lock down the individual with his or her biometrics so we can do watch list checks and give the public confidence that the person who comes into the U.S. is who they say they are. A system was put in place with basically a 100 percent requirement for interviews,
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Were making progress, but let me mention two issues on the table. One is the existing legal requirement, the socalled intending immigrant standard. You have to prove youre going to leave before we let you in. Over 98 percent of people who arent approved for visas is because they cant meet that test. Should we keep that test going? Is it a reasonable public policy or are there other things we could do? Can we check people out? Should companies or universities put up bonds to kind of vouch for these individuals? Can we be more open on the front end if we had better checks on the back end? The second is the perception out there about the United States. The world is competing hard for individuals, for business, for tourists, and for students. Weve got to keep up. The question is what should you, as stakeholders, do? The first thing is to keep the pressure on. If youre interested in these issues, engage the government. Engage the policymakers because, I can tell you, among policy people in Washington right now, while immigration is on their agenda, its not as high up there as what to do with the southern border and the unskilled work flow coming in from Mexico and Central America. Theres room on the agenda for both these issues, but you need people to push it with policymakers in Congress and the executive branch. .
Session 6 What Strategies have Global Corporations Instituted to Address the Globalization of the Talent Pool?
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Speakers
Managing Global R&D Activities: Challenges and Issues Lance Perry Vice President, Information Technology, Cisco Systems Has High-Tech, High Value-Added Outsourcing Worked? Wolfgang Klebsch Senior Vice President, Mobile Devices, Siemens AG Lessons from Globalizing R&D Activities: ThoughtWorks in India Roy Singham President, ThoughtWorks Lessons from Globalizing R&D Activities: Novozymes in China Yiping Yao Director of People & Organization, Novozymes China
While many corporations are actively seeking to leverage the opportunities created by the more open, facilitative global business and technology environment, the reality is that they face many difficult challenges in creating a fully integrated talent structure that can work effectively across borders and cultures At Cisco, corporate activities will be attracted to those locations that have the best educated workforce and the most supportive governments Siemens viewed China as having a very attractive and qualified pool of engineering talent, but it also faced the reality that most job candidates had poor command of English that constrained effective communication between management and employees ThoughtWorkss emphasized that according to its global resourcing strategy, 15% of its engineers should not be working in their home countries. This policy was adopted because the firm wants to build a truly sustainable global social infrastructure and corporate culture One of Novozymess challenges in moving to China was a short-term customer focus among many local employees when typically, years of research are needed to produce results
Moderator
Lionel Barber U.S. Managing Editor, Financial Times
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Lance Perry
Ciscos future growth is based on innovation and on meeting customer needs on a global basis. Jobs will go to the most educated workforce and the most supportive governments. As the business opportunities in different regions grow, well grow in those regions as well. For an industry leader like Cisco, the quality of talent and potential for innovation have always been the primary drivers in terms of hiring. Outsourcing is key in our business model. We focus Cisco employees on our core business activities, and outsource context activities to expand in various regions around the world. Cisco was set up a few years back in stovepipe-type organizations in very different geographic locations Europe, the Middle East, and Africa, Asia Pacific and Japan, the U.S. and South America. Each location had its own head of IT, for example, who reported to the global CIO. About two years ago, we decided to reorganize around a process driven organization. In the past, the IT individual sat in finance IT, manufacturing IT, etc., and that created a lot of duplication, rather than cross collaboration. Process organization brought a lot of productivity to the table. As it relates to infrastructure, we centered our focus on the data center, network, and productivity tools worldwide as well as on applications infrastructure. When we moved to process organization, we didnt want to lose our local connection to clients. What had happened was, while we became more standardized by having functions that worked together around the globe, there was a sense of loss within the local arena. So we created the Theater Relationship program, which put in a contact that would work closely with the head of sales or the head of R&D within that theater. That has closed the gap created by globalization. Due to rapid changes in the adoption of technology, we dont exclusively concentrate on one language or set of business requirements in our applications. Most people thought they needed to have an application specific for their country. What we found was that when we focused right from the start and spent more time on planning and less
time jumping right into coding, it made for a much better experience. Here are some statements often made about virtual teams, and their realities. Statement: Internet is the death of time and space. Reality: You cant change time zones. To work globally, parties must compromise and rotate meeting times. Statement: Technology isnt a problem. Reality: Most collaboration tools are not easy to use. Data, voice, and video convergence has occurred but in most spaces, its really in its infancy. Globalization is about consideration. Were all human beings and we cant rely solely on technology. When you make an effort as part of a larger team, it will pay back huge dividends and bring the organizations closer together. Effective global task or workflow is really in its infancy. Many times its better to have a large self-contained team rather than fragmented teams. Partners are integral to our success. If we were to have the amount of employees we needed to get the job done, it would be an extreme number and we wouldnt be able to grow and shrink as appropriate. We utilize partners to manage a lot of our context activity, as well as to mitigate workload ups and downs. We need to be agile and willing to tap into workforces wherever they may be. Weve implemented our model based on the geographic distribution of resources. Were trying to grow our revenue around the world. You need local resources in order to work around the world. We assume that you have to have a highly interactive relationship with your clients. By dispersing around the world, were able to get an environment conducive to development around the clock.
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Wolfgang Klebsch
Im the head of the global mobile phones R&D organization with 1,800 engineers, distributed over eight locations around the world. In 2000, I was asked to establish the Beijing location. Why did Siemens decide to found this site in Beijing in 2000? Siemens has been producing mobile phones for 20 years. During the 90s, miniaturization and component cost reduction generated an unprecedented boom in the mobile communications and supplier industry. In that time, the R&D workforce in Germany grew from only 50 engineers to 800 in 1998. However in 1999, the boom in mobile communications depleted the supply of experienced engineers. That seemed to limit further growth. It was so serious that Siemens decided to acquire the Bosch mobile phone operations with more than 250 R&D engineers and in parallel founded new R&D locations in San Diego and Beijing. The initial motivation of Siemens to ramp up the Beijing operation was simply to get access to the local talent market. In the time frame from 2000 to 2005, we took care of the talent market in China. For that, Siemens asked nine expatriates to enable the extension of the applicative talent market in Beijing. But in the meantime, new challenges came up like fiercer competition, lower margins, and higher development costs. This activity was accompanied by a shift of R&D load and capacity. An additional motivation later on for ramping up the Beijing organization was to save costs by shifting development loads to China. In 2001, I convinced eight specialists from Germany to accept a long term delegation to Beijing as expatriates for at least three years. These engineers were high-end, each of them having an individual network to the German organization with specific experience and technical know-how. Some words about the high end talent pool in Beijing. Due to its multitude of universities, research institutes, and local branches of Chinese and international high tech companies, the talent pool of Beijing is quite large. However, most of the Chinese applicants had problems adequately expressing themselves in English independent of whether their grades were good or bad or whether they came from famous universities or not. This preference for applicants with good communication skills eventually resulted in a quota of 50
percent women, which is high in this high-end industry. Later on, of course, professional experience became the dominating hiring criteria when eventually our experienced Chinese engineers were involved. This number of engineers is just a small portion, just a software group, and this was achieved after three years of ramping up. Which recruitment channels did we make use of? First of all, the state-owned high school provided staff search services, supporting us in managing a job fair for example in the Beijing exhibition center. They provided us with applicants to interview. Other channels were university events, the Internet, local print media, and a Siemens-specific employee referral program, which worked best. The existence of the R&D location in Beijing demonstrates that it is possible to establish a substantial high-end development organization in China. As long as the mobile phone market was booming, establishing this location destroyed no high-end positions in Germany. But on the other hand, new high-end positions werent generated either. Instead, all additional development capacity was exported to Beijing, where the salaries of managers are relatively high, although talented managers with international experience are still in short supply.
Roy Singham
ThoughtWorks builds complex business software. Weve been famous the last couple of years for creating a technique, applying the same concepts as lean manufacturing to software development. As a result of costs and the location of the global labor market, we set up an office in India in 2002. Were about 700 people now. One of the founding principles of the company is that culture is the deterministic long-term advantage, not a specific business model. Because business cycles and business models are so compressed in todays world, if you want to have a long-term company, you need to figure out what your sustainable global social infrastructure is.
Fifteen percent of our staff in India are expatriates. Our permanent strategy on global resourcing is that 15 percent of our engineers should not be working in their home country. So we have people from Xian, China in
India, and vice versa. We also decided to take the same technologies from the west and bring them simultaneously into the market in China or India. There are some challenges, however. I do not think the memorization and the high degree of formality of Indian universities prepares Indian students for effective communications in the workplace. Its a really competitive country. 300,000 people take the same exam, and they are ranked based on that. The way you do well is by mass memorization of details. The lack of liberal arts training of a lot of Indian students changes the culture of what happens when we hire them. Truthfully, India still suffers from a less egalitarian social structure than the United States. I mean, the caste system is still there. There is an implicit deference to authority with managers and a passive aggressive behavior of a lot of Indian engineers to expatriates. When youre trying to create an open collaboration and culture, these things are still sitting underneath the covers. One of the founding principles of the company was that we want to be known as a network business node and the flattest organization you could possibly build in this twenty-first century. The truth is, most Indians manage very differently. Theyre extremely hierarchical. We didnt want that to be part of the management style. This was one of our challenges and this is one of the reasons we brought in expatriates. Now the Indian diaspora is coming to the rescue. Theres a lot of migration back to Bangalore. The diaspora is growing for both China too. So there is a net influx back and that has really tremendously helped us. Now Bangalore, Shanghai and Beijing still have rapid turnover of personnel. Its actually hard to keep the same managers and employees. On the other hand, there still isnt a mix of people. The ability to mix and match is more complicated. Theres invention, which is a raw technical event. And then theres innovation which is the application of that invention to a business process or a business problem.
The trouble is, to get innovative you have to understand the processes that your customers are going through. But if were writing business software for an inventory control, retail, or dental system, it doesnt have the same context. So the innovation capability is a little bit more difficult. You still need human voice to voice and people to people contact. What happens is both sides start working 12 hour days, and that creates other challenges for both sides. The other interesting issue is women. There are clearly more women software engineers in India than the United States. In the U.S., probably 6 or 7 percent of our hard core techies are women, whereas in India, its 30 or 40 percent. But what happens is that five years into their career, women actually start moving away from the super high tech stuff. The exception is China, where 30 to 40 percent of all the CEOs in the high tech space are women. Neither Europe, the United States, nor India has that level of the integration of women into the workforce, and that gives China a huge competitive advantage. Infrastructure in Bangalore is coming to a crunching halt, which is forcing firms to go to other places. But unless India figures out the infrastructure problem, it is going to hurt them over the long run. India does have the competitive advantage in English as a language because China is about ten years behind. It is massively difficult to create teams, even our global leadership team. Were only 700 people and we have six countries and 30, 40 cities; just trying to get all the leaders in one room for two days to create a common experience is really difficult. Some argue that CEOs are heartlessly taking away American jobs, but it is not just because of access to talent or cost; there is an environment that is being created in the cultures of these countries that actually generates a certain level of integration. We decided to have our training grounds in India. My view is that an American who is not willing to go live in India for 2 months and understand his or her colleagues in India, is probably not someone I want in the company.
Yiping Yao
China accounts for over 12 percent of the global revenue of our company, with about 15 percent annual growth per year. It is very much part of the global R&D strategy. One benefit of managing global R&D for Novozymes in China is that China has a very rich biodiversity. This is one of the main reasons the company set up its R&D center in Beijing. China also has sustained rapid growth. We can also influence government policy because policy has not been entirely shaped yet. Another benefit of putting the R&D Center in China is that Chinese people are very hard working and loyal. And there are lower costs in China, comparatively speaking. One of the challenges we face is customers short-term focus. They want results in two weeks, when typically years of research are needed to produce results. On the human resource level, communication skills are a disadvantage for us, as is the style of the Chinese people. They typically are low-key and non-aggressive. From a managerial perspective, it takes time to discover the quality of the people and this has implications for the recruitment process. Career development opportunities have been a challenge because people want to grow. But they want to get promoted very fast. With a flatter organization and flatter world, how many promotions can you get out of your career? Managing talent in an age of globalization increases talent competition. In the past, we only had the capability to explore our immediate region. Now the global market has opened with global consumption and production. Global interests have anywhere, anytime communication enabled by technology and the Internet. Meanwhile, there is an increased attention towards cultural diversity. So actually more things are becoming global. So is global talent the next logical question or the next logical step? In Confuciuss time, we used talent from other countries. So the concept of global talent is actually not new. But in modern days, this practice has become more enabled by peoples mobility.
Corporations have a more integrated expectation of their peoples qualities. An advantage we have is that our corporate standards for skills and talents are already a global standard, closely linked with our global business strategy. We have highly skilled people with an increased global mindset for learning and development. The culture has been evolving to be more conducive for global talent. A disadvantage is that theres actually a gap between business development and people development. Business booms and it takes more time to develop the people, and that creates an imbalance between talent transfer into and outside of China. We have an old Chinese saying. It says, when trees are transplanted, they perish. But when people are mobile, they flourish.
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Elaine L. Chao U.S. Secretary of Labor
Workforce Empowerment Strategies for the 21st Century Thank you, Paul Tagliabue. I want to commend you for your leadership as Chair of the Board of Directors of The Levin Institute. And I also want to recognize Christy Ferer and commend Governor Pataki for his vision in establishing this institute to honor the memory of her husband, Neil Levin. The topic of this conference, the Global Talent Pool, is timely. As we embark on the 21st century, technology and political revolutions have allowed more nations to pursue the benefits of open markets and free trade. Fostering a skilled workforce has become a critical driver of growth, as many of your panelists have discussed. As Secretary of Labor, the safety, skills, retirement security, and competitiveness of the U.S. workforce are my prime concerns. So I welcome the opportunity to discuss the challenges in attracting, developing, and employing the talent necessary to foster innovation and growth. Today, the world is much different than even a decade ago. Global competition and information technology have increased both the rate and intensity of change. The economic strategies of the past, which have tended to emphasize building a competitive advantage in one specific area, are obsolete. A single, static advantage such as cheap labor or competency in one sector is no longer enough to sustain growth. Successful economic strategies of the 21st century will focus on the ability to constantly evolve and adapt to change. Throughout its history, that has been a singular strength of the American experience. As one columnist has observed, Americans have always shown a willingness to adapt to change, even when it is not easy. When the United States was founded, for example, nearly our entire workforce was employed in agriculture. Today, only about 2 percent of American workers are in agriculture. Yet we produce enough food to feed much of the world. This positive correlation between change and increased productivity has been a powerful historical advantage. And it is critical, not only to our success as a nation, but to the higher incomes and standards of living that American workers enjoy today. To give you an idea of the dynamism and flexibility of the American economy, consider this. Last year, 50 million Americans left their jobs either voluntarily or
Keynote Speech of Elaine L. Chao
involuntarily and 50 million Americans found new jobs. That means about one- third of our entire workforce of 149 million persons is in flux each year. The fact that our society can tolerate this level and pace of change is a tribute to Americas unique characteristics, which are part economic and part culturally driven. It is remarkable that despite high oil prices, the war on terrorism, and the economic weakness of many trading partners, the American economy continues to strengthen and create new jobs. Weve seen 24 straight months of job growth, for a total of 3.5 million new jobs created since May 2003. Real wage including total compensation have outpaced inflation. And, the majority of new jobs being created, according to the Bureau of Labor Statistics, pay above average wages. In fact, it is interesting to note that real earnings adjusted for inflation have gone up since the recession that began in March of 2001. If the majority of new jobs created were low wage, then real wages would be falling. This Administration is committed to reducing the over taxation, excessive regulation, and abusive litigation that hamper growth, innovation, and job creation. The goal is not to imitate the go-go growth of the 1990s. That growth spurt, built around a single industry, spiked quickly. When the bubble burst, it left many people hurting who have still not recovered. Instead, President Bush has favored economic policies that support steady, consistent growth. As a result, todays unemployment rate of 5.1 percent is lower than the average of the 1970s, 1980s, and 1990s. More Americans are working than ever before. And last year the United States had the highest growth rate of any major industrialized nation, averaging more than 4%. But the most telling facts are the long-term trends: population growth is declining in old Europe at the same time that unemployment is rising. But the United States is going in the opposite direction: employment continues to outpace population growth. A major factor is the favorable balance the United States has achieved between worker protections and labor market flexibility. Preserving this balance is critical to our long-term future. The longer a worker remains out of the workforce, the more difficult it is for him or her to find a new job. Thats especially true today, given the rapid changes in technology. The balance and flexibility our country has achieved means that displaced American workers can find new jobs faster. About 12 percent of unemployed Americans remain jobless for a year or longer. Thats compared with 34 percent in France and 50 percent in Germany, where incentives are skewed in the opposite direction.
There is still unease, however, in some sectors of the U.S. economy and the American workforce. Many factors, especially outsourcing, contribute to this. Some analysts estimate that the number of U.S. jobs outsourced to foreign countries is about several hundred thousand. At the same time, between 22 to 27 million Americans work for foreign companies here in the United States or have jobs that depend upon foreign trade. The heart of the outsourcing debate, however, is not about numbers. Its about people and their legitimate concerns. America is a compassionate nation. And nowhere is this more apparent than in the generous assistance offered to workers whose jobs have been displaced by trade. They can access: 104 weeks of income support; 104 weeks of job training; 104 weeks of assistance in paying for child care and other support services including transportation, training related tools, and moving expenses; Help in paying 65% of qualified health insurance premiums; and If over 55 and they get a new job that pays less than their old one, the government will pay 50% of the difference up to $10,000. Some have suggested extending this assistance to every unemployed worker, not just workers whose jobs have been displaced by trade. But this strategy misses the point. The most important assistance a displaced worker can receive is a solid pathway to a new career. Thats why this Administration has made job training a centerpiece of its pro-growth policies. And thats why the Labor Department has proposed a comprehensive overhaul of the $15 billion, federally funded job training system. Everywhere I go, employers tell me they cannot find workers with the right skills for the jobs they have available. The strategy behind this Administrations workforce training reform, therefore, is to link employers, education providers, and workers together in a powerful partnership. The goal is to help workers gain the skills that are in demand by employers right now. Many of the more than 3.5 million jobs that are currently unfilled require higher education and upgraded skills. Advanced manufacturing is a good example.
Recently, I announced a grant to help manufacturing workers in Pennsylvania upgrade their skills so they can access the new high tech jobs being created in the plastics industry. Although U.S. manufacturing employment has been steadily declining since the 1950s, U.S. manufacturing output has actually increased because of productivity gains. So its critical to build a pipeline of talent to access these, and other good paying, value-added jobs. Increasingly, thats where the future lies for the U.S. workforce. Thats why education will continue to be one of the critical drivers of competitiveness. The President recognized this when he introduced the most comprehensive education reform in 50 years, No Child Left Behind. By requiring local schools to be accountable and results-oriented, he jumpstarted efforts to close the achievement gap in our society. But there is still more to be done. It is critical to extend this achievement-oriented program to grades 9 through 12. Beyond that, this Administration is working to streamline the process that allows highly skilled foreign workers to fill jobs for which sufficient U.S. candidates are not available. As you know, Congress has put caps on the number of visas that can be issued in any given year for H-1B, or temporary high skilled workers and H-2B, for temporary non-agricultural workers. In recent years, Congress has attempted to adjust these caps to meet the demand for temporary workers. But in some cases, the annual caps have been reached in the first few months of the year. It is clear that the system is in need of a major overhaul. Recognizing these challenges, the President has proposed reforming our current system for admitting and employing temporary foreign workers. The Presidents proposal is based on five basic principles: 1 Controlling our borders; 2 Matching a willing worker with a willing employer. This means providing U.S. employers with the opportunity to fill job vacancies through a streamlined, efficient and timely process when temporary foreign workers are needed; 3 Protecting the rights of legal immigrants; 4 Promoting compassion to prevent exploitation; and 5 Providing incentives for temporary workers to return home.
The key to a competitive workforce in the 21st century lies in successfully meeting all the challenges I have touched upon. They include: Maintaining a skilled and flexible workforce; Ensuring a strong education system; Remaining open to talent from all over the world; and Reducing the regulatory and economic barriers to risk taking and innovation, including tort reform. But it is also important to recognize that, when it comes to leveraging the global talent pool, economics is not the only force at work. Culture and political factors are also important. Open societies that reward individual initiative, foster transparency and accountability, and protect individual rights will continue to have an advantage over those that do not. That is the most important competitive advantage of the United States. When you combine our nations cultural bias in favor of individual achievement with freedom, transparent institutions, and the rule of law, the result is a powerful magnet for the worlds talent. So as we address the challenges of the 21st century, its time to get rid of the old paradigms about the workforce. For the last two centuries, the world was viewed as a zero sum universe in which some prospered at the expense of others. The world of the 21st century, however, is a place where revolutionary advances in technology have empowered more people than ever before. They can reach beyond the confines of their birthplace and realize their dreams. This is not a threat. It is an opportunity for more people to share in the prosperity that was once available to only a few. And the best way to make this a reality is to promote the elements necessary for this powerful expansion in human progress. Those elements are freedom including free markets the rule of law, and values that affirm the dignity of the individual human person. Thank you.
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About 30 people attended the final Roundtable discussion to identify some of the significant issues and questions that emerged over the two-day period. Their opinions are summarized as follows:
Session 7 Next Steps, What Needs to be Done?
Is it more compelling to think of talent pools or talent flows? Pools can be stagnant, but flows move. Driving these talent flows is the consumer; unwilling to give up his or her expectations about technology, lower costs and higher quality. In effect, the consumer is driving the search for talent in other locales and forcing corporations to relocate facilities. Talent flows are integral to our global economy, and the U.S. education system is unknowingly fostering a global talent outflow. It is not producing the needed S&T talent. But how do we measure talent? Are new metrics needed to measure how one knowledge worker is more productive than another, or more qualified for a position than another? And if you measure that, how do you determine what conditions are needed to increase employee productivity? Corporate actions and government policies can shape the supply side of the talent pool issue. But all too often the demand side perspective is left out of the equation. Awareness of what is needed in the long-term will ensure that policy, at least in the U.S., will encourage curricula development and information technology research and education. Talent cannot be created overnight, but with the right motivations and the right incentives, talent can be cultivated. Nations and governments, and even cultures, need to recognize their roles in the development, maintenance and utilization of the global talent pool. Clear, conflict-free government legislation is necessary to ensure that the global talent pool is sufficiently and smoothly managed and integrated. The global talent pool is an international responsibility; it requires that knowledge of innovation is shared, that capacity building is promoted and that social stability and equity are achieved. Reducing the digital gap, which is only made further apparent through globalization, is critical and can only be achieved when true partnerships
between nations and communities are assured and realized. Parts of the world are failing further and further behind. How can we discuss talent flows when parts of the globalized world are left out of the dialogue? What is driving business and what is the public return? How can the increasing gap between public and private resources and returns be avoided? Just as important is how corporations are cultivating talent and adopting a global talent policy. If there is a change in how corporations perceive the global market and reconfigure how they operate, then there will be a paradigm shift which can change how we live. When companies very delicately and deliberately cultivate and nurture their investments in new places traditionally difficult to operate, understand different cultures, and train and develop people with completely different views and perspectives, it implies that a new approach to business, and to the world, has emerged. Ultimately, globalization is not just a matter of how it is defined and utilized, but it is also an issue of equity. Globalization is inevitable and it is being driven by the technology needs of the marketplace. But does it meet the triple bottom line? Equity issues, ethics issues, and rights issues might seem beyond the scope of foreign policy, but in the long term, they are in U.S. national interests. A focus on the equity, ethics, and rights issues may have a much bigger influence than anything businesses are doing in their regional, national, and international operation venues and in their use of global talent pools. Are we witnessing a paradigm shift? Are corporations engaging with the global market and the global talent pool from a more socially conscious position? The impact that globalization of the talent pool can have on international society is of mammoth proportions. Critical to the discussion of a global talent pool is considering the downside of a global economy and those affected; including the negative effects of the global economy when discussing its benefits will open the door for more productive dialogue on the global environment. An all-inclusive dialogue will focus the debate on the global talent pool and its role in a global market economy. There are a broad range of issues that need to be considered when examining the importance and impact of the global talent pool. Can countries utilize the emphasis on talent as a way to make a developmental or competitive leap ahead? It is no longer a question of seeking to survive at the margins for many countries, but rather how can they
become part of the mainstream of the global economy and is talent the vehicle for getting there? How much of a catalyst will places such as Bangalore be for India and Haidian be for China? Will they serve as a way to drive greater economic opportunity for large segments of the population? The reality is that without adequate investment in education and without an ample pool of critical, high-end talent with the right skills and capabilities technical and managerial it will become increasingly difficult to claim a sustainable space on the playing field of the globalized world economy.
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The Evolving Global Talent Pool Issues, Challenges and Strategic Implications
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The Evolving Global Talent Pool Issues, Challenges and Strategic Implications

The LEVIN Institute

and our Media Partner, Financial Times.

June 1617, 2005

The Institute The LEVIN LEVIN Institute

The Evolving Global Talent Pool

Published by The Levin Institute Copyright 2005 All rights reserved

Graphic Design Piscatello Design Centre Photography Ken Levinson

The LEVIN Institute

The Evolving Global Talent Pool

Paul Tagliabue Chairman

Garrick Utley President

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The Evolving Global Talent Pool

Denis Simon Provost and VP for Academic Affairs

Session 1 Perspectives on the Global Talent Pool

The Evolving Global Talent Pool

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The Evolving Global Talent Pool

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Session 2 Demographic Trends

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The Evolving Global Talent Pool

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The Evolving Global Talent Pool

The Evolving Global Talent Pool

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The Evolving Global Talent Pool

Keynote Speech of Nicholas Donofrio

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Nicholas Donofrio Executive Vice President for Innovation &Technology, IBM

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The Evolving Global Talent Pool

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The Evolving Global Talent Pool

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The Evolving Global Talent Pool

Session 3 R&D and How Innovation Works

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The Evolving Global Talent Pool

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The Evolving Global Talent Pool

Session 4 National Strategies for Education and Innovation: Comparative Perspectives

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The Evolving Global Talent Pool

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The Evolving Global Talent Pool

The Evolving Global Talent Pool

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The Evolving Global Talent Pool

Peter Schwartz Chairman of the Global Business Network

Keynote Speech of Peter Schwartz

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The Evolving Global Talent Pool

The Evolving Global Talent Pool

Session 5 Policy, Politics and the Global Talent Pool

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The Evolving Global Talent Pool

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The Evolving Global Talent Pool

The Evolving Global Talent Pool

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