McKinsey On Outsourcing Intellectual Capital

Depending on your point of view, the threat or opportunity from outsourcing may not be as big as you think. A McKinsey & Company study pegs the growth in the number of college graduates in developing countries at more than five times that of developed nations (5.5%, versus 1%). And low-wage countries are growing from a bigger base. There are right now 33 million young professionals in low wage countries versus 15 million for high wage (7.7 million in the U.S.).

There are other ways to move intellectual capital as well -- for example across application domains . . .

But tapping into that excess talent might not be as easy as those numbers suggest. McKinsey interviewed 100 HR managers in companies that actually outsource labor to those low wage countries. The HR managers said that only 13% of those professionals are "suitable." The three biggest barriers: lack of language skills, a emphasis on the theoretical in educational background instead of the practical, and a cultural mismatch. Cultural mismatch means, for example, that workers might be more accustomed to a consensus management style versus the hierarchical organizations in place at most multinationals.

Companies themselves are also complicit in factors that mitigate against a wholesale transfer of jobs overseas. For example, companies tend to outsource operations to the same places -- which tends to push up both wages and attrition in those locales. Then again, these also tend to be where the infrastructure has been more developed, the tax structure is more investor-friendly, and the talent pool is more experienced.

There is a lot more in the McKinsey study, but you get the idea. You can't move intellectual capital across international boundaries as easily as you can other kinds of capital -- especially in its more concentrated forms, like innovation and cultural sensitivities. And this is just in a geographic context. There are other ways to move intellectual capital as well -- for example across application domains, which is something technology companies do all the time. A study into how companies can (or can't) do that would be very interesting as well.