Monday, July 28, 2008

What happens when the dollar shrinks ..

Especially when $1 = Indian Rs. 1

Over the past few months the dollar has been declining against the Euro. This spurred me to think of some discussions I had with friends a few years ago.

The talk was centered around immigration into the US and what makes an individual leave her or his country to go for better prospects in a developed country like USA.

There are various reasons why people move : better job prospects, lesser political tension, better infrastructure support and last but not the least is money driven by growing economy.

In his book "The World is Flat" Friedman talks about how jobs have moved from one country to another largely due to the growth and advancement in technology which link the developed and developing nations.

Today jobs are shifted overseas for getting the same done cheaply. What does one spot at the end of the tunnel?

Today the value of $1 is approximately Rupees 40 in Indian currency. Will a perfect flat world be considered when $1 = Rs 1 or 1 yuan or 1 pesos?

Rather than going into how this could happen lets consider if this does happen what kind of effect will it have. I surveyed a few Indian friends I have and most of them said that Indians would return back to their country since the whole purpose of them coming here was to make money and if thats no longer true then there is no incentive to stay.

That was an immediate reaction. If one thinks more about the same thing. If $1 would become Rs. 1 then will American businessmen see any point to outsource? Will that mean all centers or outsourced jobs would come back to the US?
What would that mean for the Indian economy? Will it fear to lose all these jobs or think of outsourcing them somewhere?

There are some that move to other countries to attain more freedom and just to run away from their home land if the lifestyle back home is not to their liking.

I also spoke to some of my Latin friends , one from Venezuela thought that the baby boomer generation might move back faster if that happens.

The general feeling I got was life after retirement is easier in one's home country.

These are my general thoughts thinking about the same. I will jot down more. I welcome a discussion here :)

Friday, July 4, 2008

The World is Flat or Spiky - free trade analysis

Further on the analysis of "The World is Flat " By Friedman.

On the aspect of "free trade" Friedman explains how outsourcing or globalization might be good for all countries. He sites an example of "free trade" between US and China , these two being the only countries of the world. This will create additional resources in the market. If US had 100 people and China had 1000 people then the total number will be 1100 peoplewhich was described as win-win situation for both countries.
If this does happen then certain low level jobs in the US will go to China and these people will need to bump themselves up in the vertical markets which means higher education.

As globalization of flattening continues the population in the developed countries will need to prove themselves by competing with someone thousand miles away. Education will be an important criteria and we might see an increase in the number of applications for colleges.

At the same time the people in these developed countries will now be made to think to ensure they serve the higher 1100 vs. 100 people market. That is a stimulant or an incentive for business ideas.
I still think low skilled people will need to worry if education or intelligence is not their piece of cake and surviving in the flat world might require them to move to other low level skilled jobs which cannot move to China.

This movement of jobs creates a stiff competition in the developed countries. Pay rises increase in software tech industry in India is cited as an example in the book. Will it ever grow to the level equivalent to the US? If that becomes a reality will outsourcing really stop?

At this point the question that comes to our mind is outsourcing done to save money or improve quality or both?

The World is Flat can be interpreted in a few different ways. What is the true example of the ideal flat World? Is it that each person is self sufficient in their own country? Does that mean that less people will now migrate to US from Asia or Latin America since now there is a state of equilibrium established? Yes, there could be temporary assignments if this "free trade" continues.
For that to happen the first thing is that money across the world also becomes flat. Will that world be called "Money is Flat" and we just trade in one currency?

Will it happen that capitalistic minds in one country fierce in competition in the other ?

In this article on "The World is Spiky" found at the author talks about the spikes in geographical concentrations of economic activities and notices the spikes at many. He also notes that innovation is concentrated in just a few countries in the world and argues that the World is Spiky. An example cited in the article is that people in urban areas of China makes 3 times more money than the same in the rural areas.

The above example cites a different angle of view for the same or similar idea of the flattening world.

The World is Flat - review

Recently I have been reading the book "World Is Flat" by Thomas Friedman. One good thing about the book has been it has brought alive a lot of interesting historical events which were stored in our grey matter somewhere. Since there are so many facts brought about in the book its hard to recollect all .. a blog to share might we worthwhile

I had some interesting take aways in the few chapters I read in the book.
Take the story of how Walmart grew and does business with its "Everyday low prices". One thing that Friedman points out intelligently in one of the chapters is how the society pays for the above in an indirect way. He takes an example of how Walmart insures its employees and makes a point in saying that the society indeed pays for the "everyday low prices" through tax money whereas Costco does do the opposite but thats what a citizen in many may demand.

Very interestingly Friedman has made some points alive like "income levels of people who shop at Walmart, Target or Costco"? Why is it that some people pay more to get the same thing at other place - is it because of convinience or simply a matter of principle?

More of the World is Flat to continue in my next writings....