Transference of wealth from West to East

October 23rd, 2006

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According to media reports, Qantas recently announced that they are outsourcing their ?IT applications support and maintenance operations to global services companies Satyam Computer Services Ltd and Tata Consulting Services.? Furthermore, ?Chief executive Geoff Dixon said the transition to Satyam and Tata, which would take place over 15 months from November, would mean the loss of up to 340 Qantas IT positions.?

We were dismayed to hear that. Our immediate dismay laid in the poor souls who have lost their jobs. But our greater dismay laid in the long-term big picture trend that is going to affect our country for our future generations. The news from Qantas was just one of the incremental steps in the current macroeconomic trend towards the massive transfer of wealth from the West (mainly the spendthrift countries: US, Britain and Australia) to the East (mainly India and China). The West?s bubble economy set the stage for the beginning of its decline. Virtues like thrift and hard-work were forgotten, giving way to greed and profligacy. What started of as a trickle soon developed into a flow, which then formed a gush. Eventually, the dike will be overwhelmed and a final collapse ensued.

All right, we may be exaggerating about what may happen in the future, but our hyperbole served to illustrate a truth?the West is getting economically poorer and poorer while the East is getting economically richer and richer. How is this happening?

It all began with the outsourcing of manufacturing to the East. This common myth was often believed in the West: They sweat, we think. The assumption was that we will push the base, labour-intensive and low-level jobs to the East, while we concentrate on the more capital-intensive, high-level, technologically advanced and value-added jobs. Pundits will point to the fact that the Eastern economies consisted mainly of producing goods while the Western economies consisted mainly of providing services.

It is this kind of complacency that we wish to shake off. As the West manufacture less and less, its manufacturing industries got more and more hollow. As the manufacturing industries migrated to the East, technology hitched a ride along as well. As the East manufacture more and more, they learn from us more and more. As they learn more, they moved up the technological ladder, create better products and move up the value-added chain. With the wasteful and spendthrift ways of the West, more jobs get outsourced to the East to protect corporate profits while the real wage of West stagnate and even decline. As the trend continues, Western skills, know-how, capital and industries get increasingly eroded. This erosion is a portent for the eventual loss of wealth by the West.

Now, let?s examine this issue at the grassroots level, where the frontline battles are fought daily. Qantas?s decision to outsource its IT jobs to India is just a small example of a wider trend. In Australia, university enrolments for IT courses are pathetically low. Who would want to learn a skill for a job that you believe has got no future and is going to be outsourced eventually? With less and less people wanting to learn IT, no wonder there?s an outcry of an acute IT skills ?shortage? by businesses in Australia. We believe the IT skills ?shortage? is a humbug?business whinged on the lack of IT skills and yet, on the other hand, not willing to pay the price to acquire them in the first place. We believe that if nothing is done about it, one day, we will not even have an IT industry to whinge about!

Lately, we heard that Satyam (the company which Qantas outsourced its job to) is the same Indian IT company that is drawing people from the West to learn from its training campuses in India. Hey, aren?t the East supposed to sweat while we think?

Meanwhile, as investors, we are more willing to trust our wealth to grow faster in the East than in the West.

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