Offshoring breaks Theory of Comparative Advantage

I earlier blogged about comparative advantage. Today, I learnt that high-tech offshoring breaks the theory of comparative advantage.

The theory argues that the country with the best advantage (i.e. opportunity cost) should produce goods/services and trade with other countries for other goods/servies they have less advantage in producing. This theory was based on production in agriculture context, with countries having varying climate conditions.

Much of today's high-tech jobs are knowledge-intensive. Thus this introduces high-barrier-to-entry for potential new incumbents (comparative advantage in terms of talent pool). However, these barriers can be overcome through technology transfers. Once knowledge has been transfered, there is really very little difference in value if a Pentium chip is manufactured in USA or in China. The differentiating factor thus becomes cost. The technology originating country loses the comparative advantage and the consideration becomes one of absolute advantage; in which the country with the lowest cost wins.

Such is the result of the offshoring trend today, where IT technologies are transfered to India, and high-tech manufacturing technologies like semi-con are transfered to China. Coupled with their government's tax incentives, country like USA permanently loses their competitive edges in these areas, and results in job lose to developing countries.

Why Are So Many Hurricanes Hitting USA?

Another Hurricane Wilma is set to hit Florida within a week.

This accounts for the 21st tropical storm in the Altantic within 2005 alone. Tying it with a record high in 1933.

Why are the hurricanes hitting this area so frequently? Hurricanes are caused partly by warmer ocean surface that does not dissipate (see animation on formation of hurricane). The USA is rated the country with the highest amount of greenhouse-gas emissions in the world (China coming in fast in second place). Green house effects prevents heat on land and sea from dissipating into space by reflecting these heat back from the atmosphere. Hence increasing average temperature on land and sea.

Is this increased rate of hurricanes a concidence? Or is this a sign of the damages that are been done?

The Conflict between Producer and Consumer

For employees, as a producer of labor, they want high wages. But employers (as consumers of employees’ labor) want low wages so that they can cut cost. However, the employees themselves are also consumer when they want to make purchases. As consumers, these employees want low prices of products and services, which translate into why employers need to cut cost.

Funny irony, but this is what happens when the role of consumer and producer is split, which is brought about by Industralization. Coupled with the fact that we play both roles (of consumer and producer) at different times, and this causes such self-contractions. Too many people wants to have their cakes and eat it.

Value, Not Low-cost Is the Determinant Factor In Employment

Many people lament that the outsourcing trend to low-cost countries like India and China is depriving people of their high-paying jobs.

However, it seems that many have over-emphasis on the cost issue, that it hides the underlying factor of consideration - value.

David Ricardo's (1772 -1823) concept of "Comparative Advantage" states that production should be left to country that is best at production of a product/services most effectively. In this regard, labor cost is a factor of production that is considered. However, beyond cost, other factors of production have to be consider also. Like what is the value of production per unit of labor (i.e. productivity)?

If one worker in China costs $1/day, and produces 1 shoe in a day. That equals to Value of 20 shoes for $20 in wages in a man-month. C0nversely, if one worker in USA costs $2/day, and also produces 1 shoe in a day. That equals to Value of 20 shoes for $40 cost in a man-month. It's a no-brainer that I will employ the Chinese worker to maximise my profits. Under such circumstances, cost is the determinate factor in employment.

However, if the USA worker is able to produce 4 shoes in a day, that equals to Value of 80 shoes for $40 in wages. Notice although the wage cost stays the same at $40/month (which is higher than Chinese worker's $20), I have now quadrupled the production and hence can command a higher revenue by selling more shoes.

This is a very simplified example, but it underlines that it is Value and not cost that employers are looking for. Such value can be achieved by higher effeciency in production and productivity brought about by skills, knowledge or usage of machineries, automation etc. That is the reason why the Singapore government is encouraging people to go for re-training and to move up the 'value-chain'.

This argument is verified in a recent article that I read; Various CIOs were surveyed on outsourcing trends and their factors of considerations. A majority surveyed ranked "value-added services" higher (as a main factor of consideration), than factor like cost.

Buying New Car? I Hope You Reconsider.

The COE is at all times low. Last weekend, car showrooms were flooded with potential buyers targeting to catch this good market.

Sad.

Yesterday's Straits Times reported that average daily temperature hit another all time high in 2005. In addition, it also noted that consectively from 2000, Singapore is hitting all time highs (in average temperatures) each year. What this means is that our average temperature is climbing. Effect of global warming? Yes, I think so.

Amazing, isn't it? The fuel price hike is still on. Those buyers seem oblivious to it; in the face of short-term gains of cheaper car cost, they choose to ignore the long-term issue of high (and ever-increasing) fuel cost. More importantly, people ignore obvious signs of global warming.

I attended the 'Global Action to Tackle Climate Change' seminar held at SMU last week. According to Sir David King (Chief Scientific Adviser to the UK Government), many low-lying areas today will be flooded by melted ice from the poles. This includes places like London and Singapore. In addition, the earth has a climatic inertia of about 30 years. What this means is that our global warming effects seemed today are results of Industrialization from 30 years ago. So the effects of our heavily industrialising world today will only see its full effects 30 years from now. More importantly, any efforts to reduce global warming will have its results seemed only 30 years later, from the time we start reducing green-house gas emission. Have we started yet? No.

Ironically, car sales is sky-rocketing; causing more fuel to be burned. Hastening the route down global warming.

One root problem is that our culture holds a strong view of cars as a sign of status and financial capability. Car is one of the 5Cs. Everyone wishes to owed their own car; I do too. However, where is this leading us to? What can we do to ease global warming? Can we continue to turn a blind eye to signs like Katrina and Rita?

Friend, if you are reading this, and you are intending to purchase a car; I hope you reconsider. If not for yourself, for your next generation.

Bird Flu Has Spreaded to Europe

Seems like the flu has spread to Europe. Its reach is indeed widening. Just like tactics I learnt in the Army, their forces are staging at various staging areas. On the command of attack, all forces commerce their multi-prone, simultaneous attack, so that the defender are caught off guard.

Lost

As this sabbatical passes by, a sense of loss creeps up on me. The more I learnt, the more I realized that there are greater forces at work; forces that are beyond our abilities to comprehend, much less control or manipulate. The question of life after death kept bugging me; like the pain in my neck, which I feel constantly, but am helpless to resolve. The pain is like a constant reminder of how helpless I am, despite how hard I tried. I cannot even control my own body; what else can I control? For the first time in my life, I truly appreciate how limited humans are. I start to understand what it may feel like to lay lifeless in bed, waiting for death to claim what remains of a lifeless shell.

My destiny elutes me. I don’t know what lies ahead. The more I learnt, the more queries I have.

Natural law decides the cycles and events. But who made the natural laws? Are we just a minute part of this natural law, that serves to balance itself out in a wholesome systematic way; but each individual is so tiny and insignificant that it is meaningless in itself? Just like the atoms and cells on our body. Millions of cells die and are reproduced everyday, but they are required part of natural law to enable humans to renew themselves. What if we humans, are part of another larger self, just like cells? Who will cry for the death of a cell?

Importance of Tolerance for Diversity

The recent blogger issue; people posting racial and seditious comments online has come to a conclusion with the accused convicted as guilty with jail and fine for punishment. This is a decisive conclusion laid out, no doubt; and it underlines the importance of tolerance for diversity, which is a very important factor in a multi-racial society like that in Singapore.

In addition, I like to extend the importance of such tolerance as pointed out by Alvin Toffler and Thomas Friedman as follows:

Alvin Toffler (in his book ‘The Third Wave’), highlighted that “de-massifying” in mass media, education and social forms have exposed individuals to myriad information leading to differences in thinking and values. This is inherent of the Information Age that we are in, which leads to greater diversification as people are better-informed, and free to take on opinions of their own. In turn, there is greater need than ever, for individuals to develop tolerance for different views and opinions; to socialize, live and work together.

Next, to quote Thomas Friedman’s (in ‘The World is Flat’) argument, the foundation for innovation and entrepreneurship is based on trust; and trust is foster through tolerance of differences between individuals of diverse backgrounds. He cited India and China’s economical progresses as good examples; adopting others’ best practices into their country to encourage growth, which would otherwise not have been possible. He also cited that it is this trust that terrorists are trying to destroy. For it is this trust that underlines open market trading needed for economical progress.

The current youths of Singapore had grown up in the age of racial stability, where they are not exposed to the horrors of racial riots in the 1960s. It is easy to understand how many can all take these stabilities for granted. Coupled with how many are sheltered from worldly issues and historical lessons, they failed to see the potential repercussion of their seemingly “harmless expression of free views”.

Freedom of speech comes with a sense of responsibility for what is being said.

Bird Flu Mutation is No Joke

Changes Cited in Bird Flu Virus

Scientists have reconstructed viruses causing the Spanish Flu in 1918. Hoping that it will help shed some light on the current H5N1 Bird Flu in Asia region.

Before reading this article, I had read on possibilities of the H5N1 mutating into a human infect-able form. I did not make much out of it; “just another flu,” I thought. Wrong.

The Spanish Flu killed more than 50 million people after World War I. It was very infectious and spreaded like common flu i.e. it’s airborne. In May 1918, it infected more than 8 million people in Spain alone. Singapore has a population of about 3 million. Infected victims displayed symptoms of common flu, and died with 2-3 days from lung failure (lungs flooded with blood or fluid). Unlike most common pandemics, the Spanish Flu targeted young, healthy people:

“The strain was unusual in commonly killing many young and healthy victims, as opposed to more common influenzas which caused the bulk of their mortality among newborns and the old and infirm” – wikipedia.org

If you think SARS was bad or AIDS is incurable, think again;

“The social effects were intense due to the speed of the epidemic. AIDS killed 25 million in its first 25 years, but the Spanish Flu may have killed as many in only 25 weeks beginning in September 1918.” ” – wikipedia.org

Now, here’s the best part. Scientists confirmed that the current H5N1 is on an evolutionary path that may mutate the current Bird Flu in Asia into a form as deadly as the Spanish Flu.

The aim here is not to panic or feel that an apocalytic ending is near; however, for those like me, who have been undermining this issue; wake up.

Picture from NYTimes.com

How to Learn Effectively?

If knowledge is so important in this age that we are in, then effective learning becomes the crux between success and failure.  How to learn effectively then?

By Reading – definitely one of the primary means to learning; however, one common problem is that there are more materials to read, and then there is not enough time to read them.  Hence, it is important to read effectively.  Speed reading comes to mind.  Definitely must develop an effective reading practice for maximum learning throughput.

By Application – reading alone is only the start; information gained via reading without application is only theory and not knowledge.  To internalize the information gained into knowledge, there must be some form of application.  There’s why work experiences counts.  Must find means of applications to reinforce the theories.

By Collaboration – other than from books, we can learn from other people; people who have walked the path before, or is walking the path themselves.  This can be achieved via direct communication, or via forums and user-groups of specific subject-matter.  Professional conferences or seminars are also avenues of collaboration.  The problem with this is that human (mis)communication sometimes hinders, rather than facilitate learning.

Given that time is a premium and learning is a required survival factor in this age, the need to develop effective learning skills then becomes very important. We must be mindful about our learning process, know what works and what does not work, what facilitates speedy learning; constantly evolve the learning capability of ourselves.

Is There Life After Death?

Charles Darwin (1809 to 1882), famed for his acclaimed theory of 'Natural Selection'.

This theory underlines that we humans (and all biological species) as we are today, are a result of alteration over long periods of time from a common parent species i.e. evolution. The alteration is a result of species to adapt to environment and to survive. This theory is proven today by DNA.

Fear gripped me today as realisation dawned upon me the meaning of this;

Although I do not align myself with a religion in any official way, from young, I have come to accept that we were created by God. This thinking is termed Creationism, which advocated that human is created by a supereme being, commonly called God. The theory of 'Natural Selection' runs in contrary to Creationism, as humans are no longer created as said in Genesis of Bible, but was a result of natural laws of biological organisms' inept ability to alter themselves to survive aeons of period.

Fear set in because this introduce the questionability on existence of God and all related teachings in Christainity or Islam (whatever religion). In most religion, a common theme is the existence of a supremem being that loves all humans created; that life on earth is just a temporal stage and death is not to be feared. For death leads to the next stage, eternal life. If you have being following me, then the next question is: is there life after death?

Inherently, we don't want to accept the fact that our conscience or awareness cease to exist upon death. We want to 'live' on. This explains why Charles Darwin was very careful about the release of his theory in the 19th century. There was then no DNA to prove his theory, and he understood the potential repercussions on society, religion.

It does make sense to a certain extend. If everyone lives forever after death; then wouldn't heavens suffered from over-population? Ha.

Nowadays, I hardly dream when sleeping. Sleep was like total 'blackout', without consciousness of what is happening around me. When I wake up each morning, I though about what had happened while asleep. I didn't know. I suppose maybe death is something like that? Maybe that's why we have to sleep. To get used to death.

Russia Weighs On What to Do With Lenin's Body

With Lenin's Ideas Dead, Russia Weighs What to Do With Body

This article caught my eyes as I was reading up on Communism lately. Funny that Russia is left with such a legacy; how a man can have such an influence 8 decades after his passing.

Communism, albeit a dying idealogoy, its legacy still lives.

Qualities of a Good IT Professional in a 'Flat World'

Support for internal and external customers is the sole reason for IT’s existence – The nature of IT is to support business functions. Hence the mindset of an IT professional should be to provide solutions to customers’ problems and/or to provide value by making processes or tasks easier to perform. The nature of IT is to shoulder others’ problem onto their own shoulders.

The caveat to this is that users are becoming more IT-savvy, coupled that human nature is seldom easily satisfied. Customers usually take services (in most general sense) for granted, and there will still be ‘complains’ for IT solutions that successfully serves their initial objectives. The mentality of a good IT professional should then be to take these as feedbacks for next round of improvements. In such a sense, a virtuous cycle of never-ending progress is formed. “There is always room for improvement”, is a principle that a good IT professional should live by.

We must recognize that the flattening world is empowering individuals in an unprecedented way; as the Industrial Revolution had empowered the ‘middle class’ in the 18th century. Today, the power of consumers are greatly amplified by the immediate extend and reach that the Internet offers. An IT offering’s success or failure very much depends on its ability to match the requirements of the customers. Otherwise, there will certainly be a competitor’s offering that will.

Increasingly, a successful IT organization needs to be willing to listen to customers and to really understand their needs. Good communication is hence a key skill that every IT profession should possess, yet still, very often lacks.

The last take-away is that no technology (no matter how complex or cool) exists in isolation from the context in which it can be applied and bring about a benefit to its users. This context forms the demands driving the technology. Hence technology, in its own nature, and its sheer existence is to bring about value, improvements, or betterment. A technology that does not fulfill this is termed a ‘white elephant’, that doesn’t really serve much purpose.

Adam Smith's Theory of Economic Development and Growth

Adam Smith’s (1723 – 1790) ‘An Inquiry into the Nature and Causes of the Wealth of Nations’ advocates his theory of economic development and growth as follows:

The Role of Self-Interest – Interestingly, the individual’s pursuit of self-interest (i.e. being selfish) is thought to be the basis for capitalism today.  When examined in isolation, being selfish is seldom good.  However, in the context of mutual exchanges of goods and services, the individual’s self-interests have to be weighted and often balanced by the other parties’ interests.  What results is an agreed level of benefits for both parties in the exchange that results in (hopefully) mutual satisfactions.

He wrote “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.”  Smith also added that self-interest and economic self-reliance were perfectly natural grounded in “the desire of bettering our condition”.  How true.

The Division of Labor – It is believed that the wealth of a nation is dependent upon the production of goods and services, which translates into GDP in today’s context.  It is also believed that efficiency is achieved through specialization of labor into specific areas of work for maximum productivity.  A carpenter works on furniture, a farmer grows crops.  Sounds like common sense today, but in the 18th century, such things were not a common practice.

This argument also underpins the inter-dependency of people on each other for goods and services that they themselves cannot produce; the result is greater exchanges of goods and services i.e. trade, and the needed mechanism for economic growth.

Capital Accumulation – according to Smith, the capital stock of a factory owner consists of fixed capital and circulating capital.  The latter, a wage fund, grows as production and profits expand.  As profits are made through production by workers, and later saved, this leads to capital accumulation. National output grows from such accumulation, as these savings can be used to hire more workers, increase existing pool of worker’s salary i.e. capital accumulation causes job creation.  Job creation improves the purchasing power of workers, increasing demand for more goods and services for the economic.  This virtuous cycle leads to economical growth.

Young Achievers below 25 – Inspirations and Role Models (even for Old Folks)

Today’s Strait’s Times features 50 youngsters below 25, who have achieved some levels of success despite their young age.  Not surprisingly, I am not within this list.  

Of these achievers, those with relation to IT struck me with most impact, given that I am an IT professional myself.   Their achievements put me to shame and to really think about how I have been utilizing my time resources to further myself.

Another common trend among these people that I noticed is that their successes are not driven by materialistic issues, like job security, fame or money etc.  Many were driven by having the courage to break away from social norms, and conventions; to pursuits their dreams and interest, which others may take as ‘unwise’.  However, serendipity seems to have its way with people who works their way through difficulties and dares to take risks; today they make it to this list in their own credits.

Given that I’m jobless at this point in time, my take-away is to work on improving myself and not be in a rush to get the next job.  I will just like to focus on what I like to do i.e. my research work and software development.  God knows when I can get the next job that I desire, or what opportunities will come along; but I believe that serendipity will happen, and I must prepare myself to be able to get it when it happens.

Consistent work and patience are virtues and underlying recipe for success.