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change will be forced deeper into commoditization. Those who can create value through

leadership, relationships and creativity will transform the industry, as well as

strengthen relationships with their existing clients."

What you're telling me, I said to Rao, is that no matter what your profession-doctor,

lawyer, architect, accountant-if you are an American, you better be good at the

touchy-feely service stuff, because anything that can be digitized can be outsourced

to either the smartest or the cheapest producer, or both. Rao answered, "Everyone

has to focus on what exactly is their value-add."

But what if I am just an average accountant? I went to a state university. I had a

B+ average. Eventually I got my CPA. I work in a big accounting firm, doing a lot

of standard work. I rarely meet with clients.

They keep me in the back. But it is a decent living and the firm is basically happy

with me. What is going to happen to me in this system?

"It is a good question," said Rao. "We must be honest about it. We are in the middle

of a big technological change, and when you live in a society that is at the cutting

edge of that change [like America], it is hard to predict. It's easy to predict for

someone living in India. In ten years we are going to be doing a lot of the stuff

that is being done in America today. We can predict our future. But we are behind

you. You are defining the future. America is always on the edge of the next creative

wave ... So it is difficult to look into the eyes of that accountant and say this

is what is going to be. We should not trivialize that. We must deal with it and talk

about it honestly ... Any activity where wecan digitize and decompose the value chain,

and move the work around, will get moved around. Some people will say, Yes, but you

can't serve me a steak.' True, but I can take the reservation for your table sitting

anywhere in the world, if the restaurant does not have an operator. We can say, Yes,

Mr. Friedman, we can give you a table by the window.' In other words, there are parts

of the whole dining-out experience that we can decompose and outsource. If you go

back and read the basic economics textbooks, they will tell you: Goods are traded,

but services are consumed and produced in the same place. And you cannot export a

haircut. But we are coming close to exporting a haircut, the appointment part. What

kind of haircut do you want? Which barber do you want? All those things can and will

be done by a call center far away."

As we ended our conversation, I asked Rao what he is up to next. He was full of energy.

He told me he'd been talking to an Israeli company that is making some big advances

in compression technology to allow for easier, better transfers of CAT scans via the

Internet so you can quickly get a second opinion from a doctor half a world away.

A few weeks after I spoke with Rao, the following e-mail arrived from Bill Brody,

the president of Johns Hopkins University, whom I had just interviewed for this book:

Dear Tom, I am speaking at a Hopkins continuing education medical meeting for

radiologists (I used to be a radiologist) ... I

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came upon a very fascinating situation that I thought might interest you. I have just

learned that in many small and some medium-size hospitals in the US, radiologists

are outsourcing reading of CAT scans to doctors in India and Australia!!! Most of

this evidently occurs at night (and maybe weekends) when the radiologists do not have

sufficient staffing to provide in-hospital coverage. While some radiology groups will

use teleradiology to ship images from the hospital to their home (or to Vail or Cape

Cod, I suppose) so that they can interpret images and provide a diagnosis 24/7,

apparently the smaller hospitals are shipping CAT scan images to radiologists abroad.

The advantage is that it is daytime in Australia or India when it is nighttime here-so

after-hours coverage becomes more readily done by shipping the images across the globe.

Since CAT (and MRI) images are already in digital format and available on a network

with a standardized protocol, it is no problem to view the images anywhere in the

world ... I assume that the radiologists on the other end . . . must have trained

in [the] US and acquired the appropriate licenses and credentials. . . The groups

abroad that provide these after-hours readings are called "Nighthawks" by the

American radiologists that employ them. Best, Bill

Thank goodness I'm a journalist and not an accountant or a radiologist. There will

be no outsourcing for me-even if some of my readers wish my column could be shipped

off to North Korea. At least that's what I thought. Then I heard about the Reuters

operation in India. I didn't have time to visit the Reuters office in Bangalore, but

I was able to get hold of Tom Glocer, the CEO of Reuters, to hear what he was doing.

Glocer is a pioneer in the outsourcing of elements of the news supply chain.

With 2,300 journalists around the world, in 197 bureaus, serving a

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market including investment bankers, derivatives traders, stockbrokers, newspapers,

radio, television, and Internet outlets, Reuters has always had a very complex

audience to satisfy. After the dot-com bust, though, when many of its customers became

very cost-conscious, Reuters started asking itself, for reasons of both cost and

efficiency: Where do we actually need our people to be located to feed our global

news supply chain? And can we actually disaggregate the work of a journalist and keep

part in London and New York and shift part to India?

Glocer started by looking at the most basic bread-and-butter function Reuters

provides, which is breaking news about company earnings and related business

developments, every second of every day. "Exxon comes out with its earnings and we

need to get that as fast possible up on screens around the world: 'Exxon earned

thirty-nine cents this quarter as opposed to thirty-six cents last quarter.' The core

competency there is speed and accuracy," explained Glocer. "You don't need a lot of

analysis. We just need to get the basic news up as fast as possible. The flash should

be out in seconds after the company releases, and the table [showing the recent history

of quarterly earnings] a few seconds later."

Those sorts of earnings flashes are to the news business what vanilla is to the ice

cream business-a basic commodity that actually can be made anywhere in the flat world.

The real value-added knowledge work happens in the next five minutes. That is when

you need a real journalist who knows how to get a comment from the company, a comment

from the top two analysts in the field, and even some word from competitors to put

the earnings report in perspective. "That needs a higher journalistic skill

set-someone in the market with contacts, who knows who the best industry analysts

are and has taken the right people to lunch," said Glocer.

The dot-com bust and the flattening of the world forced Glocer to rethink how Reuters

delivered news-whether it could disaggregate the functions of a journalist and ship

the low-value-added functions to India. His primary goal was to reduce the overlap

Reuters payroll, while preserving as many good journalism jobs as possible. "So the

first thing we did," said Glocer, "was hire six reporters in Bangalore as an

experiment.

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We said, 'Let's let them just do the flash headlines and the tables and whatever else

we can get them to do in Bangalore.'"

These new Indian hires had accounting backgrounds and were trained by Reuters, but

they were paid standard local wages and vacation and health benefits. "India is an

unbelievably rich place for recruiting people, not only with technical skills but

also financial skills," said Glocer. When a company puts out its earnings, one of

the first things it does is hand it to the wires-Reuters, Dow Jones, and Bloomberg-for

distribution. "We will get that raw data," he said, "and then it's a race to see how

fast we can turn it around. Bangalore is one of the most wired places in the world,

and although there's a slight delay-one second or less-in getting the information

over there, it turns out you can just as easily sit in Bangalore and get the electronic

version of a press release and turn it into a story as you can in London or New York."

The difference, however, is that wages and rents in Bangalore are less than one-fifth

what they are in those Western capitals.

While economics and the flattening of the world have pushed Reuters down this path,

Glocer has tried to make a virtue of necessity. "We think we can off-load commoditized

reporting and get that done efficiently somewhere else in the world," he said, and

then give the conventional Reuters journalists, whom the company is able to retain,

a chance to focus on doing much higher-value-added and personally fulfilling

journalism and analysis. "Let's say you were a Reuters journalist in New York. Do

you reach your life's fulfillment by turning press releases into boxes on the screen,

or by doing the analysis?" asked Glocer. Obviously, it is the latter. Outsourcing

news bulletins to India also allows Reuters to extend the breadth of its reporting

to more small-cap companies, companies itwas not cost-efficient for Reuters to follow

before with higher-paid journalists in New York. But with lower-wage Indian reporters,

who can be hired in large numbers for the cost of one reporter in New York, it can

now do that from Bangalore. By the summer of 2004, Reuters had grown its Bangalore

content operation to three hundred staff, aiming eventually for a total of fifteen

hundred. Some of those are Reuters veterans sent out to train the Indian teams, some

are reporters filing earnings flashes, but most are journalists doing

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slightly more specialized data analysis-number crunching-for securities offerings.

"A lot of our clients are doing the same thing," said Glocer. "Investment research

has had to have huge amounts of cost ripped out of it, so a lot of firms are using

shift work in Bangalore to do bread-and-butter company analysis." Until recently the

big Wall Street firms had conducted investment research by spending millions of

dollars on star analysts and then charging part of their salaries to their

stockbrokerage departments, which shared the analysis with their best customers, and

part to their investment banking business, which sometimes used glowing analyses of

a company to lure its banking business. In the wake of New York State Attorney General

Eliot Spitzer's investigations into Wall Street practices, following several

scandals, investment banking and stockbrokerage have had to be distinctly

separated-so that analysts will stop hyping companies in order to get their investment

banking. But as a result, the big Wall Street investment firms have had to sharply

reduce the cost of their market research, all of which has to be paid for now by their

brokerage departments alone. And this created a great incentive for them to outsource

some of this analytical work to places like Bangalore. In addition to being able to

pay an analyst in Bangalore about $15,000 in total compensation, as opposed to $80,000

in New York or London, Reuters has found that its India employees tend to be

financially literate and highly motivated as well. Reuters also recently opened a

software development center in Bangkok because it turned out to be a good place to

recruit developers who had been overlooked by all the Western companies vying for

talent in Bangalore.

I find myself torn by this trend. Having started my career as a wire service reporter

with United Press International, I have enormous sympathy with wire service reporters

and the pressures, both professional and financial, under which they toil. But UPI

might still be thriving today as a wire service, which it is not, if it had been able

to outsource some of its lower-end business when I started as a reporter in London

twenty-five years ago.

"It is delicate with the staff," said Glocer, who has cut the entire Reuters staff

by roughly a quarter, without deep cuts among the reporters. The Reuters staff, he

said, understand that this is being done so

that the company can survive and then thrive again. At the same time, said Glocer,

"these are sophisticated people out reporting. They see that our clients are doing

the exact same things. They get the plot of the story . . . What is vital is to be

honest with people about what we are doing and why and not sugarcoat the message.

I firmly believe in the lesson of classical economists about moving work to where

it can be done best. However, we must not ignore that in some cases, individual workers

will not easily find new work. For them, retraining and an adequate social safety

net are needed."

In an effort to deal straight with the Reuters staff, David Schlesinger, who heads

Reuters America, sent all editorial employees a memo, which included the following

excerpt:

Off-shoring with Obligation I grew up in New London, Connecticut, which in the 19th

century was a major whaling center. In the 1960's and 70's the whales were long gone

and the major employers in the region were connected with the military-not a surprise

during the Vietnam era. My classmates' parents worked at Electric Boat, the Navy and

the Coast Guard. The peace dividend changed the region once again, and now it is best

known for the great gambling casinos of Mohegan Sun and Foxwoods and for the

pharmaceutical researchers of Pfizer. Jobs went; jobs were created. Skills went out

of use; new skills were required. The region changed; people changed. New London,

of course, was not unique. How many mill towns saw their mills close; how many shoe

towns saw the shoe industry move elsewhere; how many towns that were once textile