Managing Chaos

October 10, 2006

Rise of the Aerotropolis

(Cross-Posted from HedgeStop.com)

You’re a company. You’re looking to do business in the third world, because the labor is cheap. If you make some smart moves, you can lower your production costs and increase your profit, all at the same time. So what’s the problem? Usually, the thing getting in your way is the transportation system you’ll use to get the goods from the third world producers to the first world consumers.

In Rise of the Aerotropolis, Fast Company magazine examined the increasingly massive transportation systems (usually airports) that are being built in developing nations to make them more attractive to manufacturers. The article focuses on Professor John Kasarda at the Kenan-Flagler Business School at the University of North Carolina. Kasarda proposes that airports (massive airports at that) should be built, and cities developed around them. Here’s an excerpt:

In the relatively obscure world of urban planning, Kasarda, a professor at the University of North Carolina's Kenan-Flagler Business School, has made a name for himself over the past decade with his radical (some might say bone-chilling) vision of the future: Rather than banish airports to the edges of cities and then do our best to avoid them, he argues, we should move them to the center and build our cities around them. Kasarda's research has laid bare the invisible plexus of air-cargo networks that have shrunk the globe (much as railroads did for the American West). And his conclusions are expressible as a series of simple numbers: Over the past 30 years, Kasarda will tell you, global GDP has risen 154%, and the value of world trade has grown 355%. But the value of air cargo has climbed an astonishing 1,395%. Today, 40% of the total economic value of all goods produced in the world, barely comprising 1% of the total weight, is shipped by air (and that goes for more than 50% of total U.S. exports, which are valued at $554 billion). Raw materials and bulkier stuff still take the slow boats, but virtually everything we associate with our postindustrial, value-added economy--microelectronics, pharmaceuticals, medical devices, Louis Vuitton handbags, sushi-grade tuna--travels via jumbo jet. We may think of the 1960s as the jet-set era, but the supremacy of (soft) airpower has only now begun to reshape our ideas about how cities should look, how they should function. "They're now effectively a part of global production systems," Kasarda says, "and without that connectivity, you're out of the game."

Those statistics lay out much of the story line of the coming age of global competition, and it's a story being written by many of our most formidable current and future rivals. Hong Kong is premising its entire world-trade strategy on the primacy of the airport: Its Chek Lap Kok already has a mini-city stationed on a nearby island for its 45,000 workers, and SkyCity, a complex of office towers, convention centers, and hotels will soon be visible from its ticket counters. On the Chinese mainland, construction has begun on Beijing Capital Airport City, a $12 billion master-planned city of 400,000, and a massive airport expansion is coming to the city of Guangzhou, in the Pearl River Delta. Thirty-three miles to the south of Seoul, New Songdo City, billed as the most ambitious privately financed project in history, is taking shape in the Yellow Sea: The metropolis of 350,000 people, many of them expatriates living and working on-site for multinationals, is being built on a man-made peninsula the size of Boston. The estimated $20 billion cost is being underwritten by Korea's largest steel producer and by the real-estate developers from the U.S.-based Gale International.

What are the potential ramifications? Think about a total shift in population centers. Here’s a brief overview, from People & The Planet, outlining how the world lives relative to oceans:

Human populations have a tremendous impact on the quality of coastal and oceanic environments. A full two-thirds of the world's population - 4 billion people - live within 400 kilometres of a seacoast. Just over half the world's population - around 3.2 billion people - occupy a coastal strip 200 kilometres wide (120 miles), representing only 10 per cent of the earth's land surface. With this population distribution, increasing human numbers and mounting development pressures are taking a grim toll on coastal and near-shore resources.

One of the primary reasons for this geographic distribution has been transportation systems. (Remember, air travel is a relatively new thing. 50 years ago, if you wanted to get goods from Asia to Europe, you likely did it via a shipping container in the hold of a very large boat. Those boats aren’t going away soon, but air transportation will certainly take a bite out of them.) Currently, the 10 largest cities in the world are all located on a coast:

1. Tokyo, Japan – Coastal
2. Mexico City, Mexico – Inland
3. Mumbai, India – Coastal
4. Sáo Paulo, Brazil – Inland
5. New York City, USA – Coastal
6. Shanghai, China – Coastal
7. Lagos, Nigeria – Coastal
8. Los Angeles, USA – Coastal
9. Calcutta, India – Coastal
10. Buenos Aires, Argentina – Coastal

If John Kasarda is right, and we see the rise of massive airports located inland, that top ten list might shift dramatically over the next 100-200 years. We might also see the health of our oceans improve as fewer people are living directly on them.

How else might we see these Aerotropolis’ change the world?

August 29, 2006

How Much is a Seat on the Security Council Worth? Foreign Aid and Bribery at the United Nations

A paper from a doctoral student at the Harvard Business School, and an employee of the National Bureau of Economic Research has found a correlation between serving on the United Nations Security Council, and the amount of aid received from the United States and the UN. The paper will be printed in an upcoming edition of the Journal of Political Economy.

From the abstract:

Ten of the fifteen seats on the U.N. Security Council are held by rotating members serving two-year terms. We find that a country’s U.S. aid increases by 59 percent and its U.N. aid by 8 percent when it rotates onto the council. This effect increases during years in which key diplomatic events take place (when members’ votes should be especially valuable) and the timing of the effect closely tracks a country’s election to, and exit from, the council. Finally, the U.N. results appear to be driven by UNICEF, an organization over which the United States has historically exerted great control.

The Harvard Business School working paper can be found here. Commentary from Steven Levitt (the co-author of Freakonomics) can be found here.

July 24, 2006

Rentacoder

Interesting post from SlackerManager yesterday morning:

Rentacoder works wonders (or how I outsourced a bit of blog design to India)

I had a simple bit of php/css coding that needed doing on the blog. Usually I just try to stumble through that stuff on my own, but I just didn’t have the time or inclination on this one. Plus, I’d been curious about using sites like Rentacoder, so this seemed like a good excuse. I set up an account, had my PayPal account verfied and submitted a project for bid.

I began getting project bids within about an hour and eventually racked up about a dozen or so bids, ranging from $8 to $50 (I know!). The first coder that responded was the one that I ended up using–devdive was super responsive and easy to work with. I ended up paying $25 via PayPal for a few modifications to a stylesheet and a php file. Easily worth the time savings for me.

I understand that the professionals on Rentacoder aren’t limited to coding, either. They’ll write whitepapers, ebooks, etc. Seems like if you need a digital bit of whatever, you can contract it out on Rentacoder (among other sites). I also understand that some folks who are bootstrapping businesses are actually outsourcing all of their software development to sites like this in order to cut down on initial overhead. Excellent idea.

Reminds me of something I ran across a while back, and posted about here: An Economic Shift Is Underway (20 March 2006)

July 18, 2006

Time is Money

Think you're ready to enter into a global market? Think about this:

There's a big difference between making the sale and collecting the cash. For decades, companies have been telling their customers that they have to pay up in 'net 30 days.' But in the United States, the average age of outstanding receivables is 53 days. In parts of Europe, that number climbs to 77 days, and in Japan, companies sometimes take more than 180 days -- 6 months -- to collect.

You can have all the infrastructure you need. Doesn't mean that the bills are going to get paid any faster...

From Time Is Money in Fast Company

March 20, 2006

An Economic Shift is Underway

An interesting shift is taking place, and it wasn't until I was surfing Craigslist Boston that I realized it. I came across this ad this morning (in case it has expired, I PDF'd it and you can get it here.) Here's the gist of it:

Hi, My name is Rathin Dey.

I have more than 4 years of experience in Internet Marketing, Database building and Web-site Updating for companies in USA.

I am looking for a job @ $5/hr wage rate.

I have experiences in the following fields :

[list]

I am interested in both Part-time & Full Time work.

If you have any kind of work which I could do from my office in India, please get back to me at the contact information given below :

Up until now, most people have thought of (cue Imperial Death March music) outsourcing as when WE go to THEM. But now, thanks to the growth of free, global communications platforms (like Craigslist) and global languages (like, increasingly, English), that dynamic is changing. We now have an increasingly highly-skilled workforce around the world, capable and willing to do jobs that we want done but don't really care who does them, so long as they are done well.

And now, they have a way of coming to us. And that's the key.

For a Dell or an IBM or a Ernst & Young to outsource to India required large scale engagements. Dell is aiming for 20,000 employees in India. Wal-Mart is aiming for 150,000 for it's China operations. These are large scale projects. But what about smaller ones? Software dev that only needs a couple dozen people? Or DB management that requires a half-dozen? Those jobs stayed in the US because the effort to find the right people in a foreign country outweighed the benefits of moving it offshore.

No more. Now, a coder in Bangalore can upload his resume to a Craigslist or a Monster or something else just as easily as can a coder in Boston or Baltimore or Burbank. And if all things are equal, and they're all qualified, it makes a lot more sense to go with the employee who wants the work for $5/hour as opposed to the employee who demands or expects the work for $50/hour.

On behalf of Rathin Dey and I, welcome to the next stage of Globalization.