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Global value chain restructuring and the position of ICT services in the NMS

This article discusses the restructuring of ICT services in the global value chain, with a focus on international sourcing and job growth in the IT sector. It also explores the concentration and centralization of ICT services within large multinational corporations.

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Global value chain restructuring and the position of ICT services in the NMS

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  1. Global value chain restructuring and the position of ICT servicesin the NMS Work Organisation Restructuring in the KBS Monique Ramioul Higher Institute of Labour Studies - KUL ICT forum Prague, 22-23 September 2008

  2. Value chain restructuring in ICT • Restructuring characteristics in ICT • The position of NMS in IT value chains • Some social dialogue issues ICT forum Prague, 22-23 September 2008

  3. Core concepts Global value chain restructuring: • =outsourcing and/or relocation of the different activities/business functions of firms along the value chain • Corefunction: production for the market • Supportfunctions: facilitate production= • Distribution&logistics, marketing&sales, CS, administrative &management functions, engineering&technical service, Research&Development and... • ICT services: hardware and software consultancy, customised software data processing and database services, maintenance and repair, webhosting. ICT forum Prague, 22-23 September 2008

  4. Source of the data • International Sourcing Survey • Eurostat Pilot study, results to date only from SE, DK, FI, NO, NL • International sourcing, both within the group (insourcing) or outside the group (outsourcing) • Movement of activities: business function approach 2. WORKS • Secondary analysis on EU CLFS datasets, estimating job growth and job decline in business functions, using a ‘proxy’ : occupations in sectors (ISCO/NACE classification) • Case studies on the ICT business function and sector ICT forum Prague, 22-23 September 2008

  5. 1. Restructuring characteristics 1. International sourcing survey (Eurostat) • between 14 and 16% of all enterprises source internationally • Main BF sourced abroad is the core production function, esp. by manufacturing firms • The most commonly sourced support function is ICT services: 25-30% of all enterprises having sourced internationally • in service enterprises more than in manufacturing firms: up to 43% of all sourcing service firms, source the ICT services internationally ICT forum Prague, 22-23 September 2008

  6. 1. Restructuring characteristics ... • Insourcing is the preferred mode of international sourcing • In particular support functions are clearly insourced internationnally rather than outsourced • This is especially true for ICT services: almost 70% of firms source ICT inside (exc. DK). • This confirms the trend of centralisation/concentration of ICT services on specific sites ICT forum Prague, 22-23 September 2008

  7. 1. Restructuring characteristics 2. Estimating job growth and job decline in business functions (WORKS) • what is the evolution of employment in ICT occupations in different sectors: • => growing proportion of all ICT occupations is found in the IT sector • => the business functions ‘ICT services’ is increasingly performed in specialised sectors, in casu the IT sector • =>this supports the growing outsourcing trend of ICT jobs from other sectors ICT forum Prague, 22-23 September 2008

  8. 1. Restructuring characteristics Employment in ICT-occupations: • Old EU 1996-2004: • +1.2 million jobs (+76 per cent) • New EU 1999-2004: • +86 000 jobs (+35 per cent) Proportion of ICT occupations working in IT- sector: • Old EU 1996-2004: • 34% -> 42% • New EU 1999-2004: • 29% -> 35% ICT forum Prague, 22-23 September 2008

  9. 1. Restructuring characteristics ... • Sectoral approach: what is the evolution of different occupations within the IT sector • =>There is a growing concentration on core activities in all sectors, also in the IT sector ICT forum Prague, 22-23 September 2008

  10. 1. Restructuring characteristics Employment in IT-sector: • Old EU 1996-2004: • + 1.2 million jobs (+ 106 per cent) • New EU 1999-2004 (excl. Poland): • + 40 000 jobs (+ 48 per cent) Proportion of core IT occupations in total employment in ICT-sector: ICT forum Prague, 22-23 September 2008

  11. 1. Restructuring characteristics Resuming: • ICT services is the most internationally sourced business function • the ICT services business function is increasingly concentrated and centralised (within large TNC) • The value chains in IT are lengthened and internationalised ICT forum Prague, 22-23 September 2008

  12. 1. Restructuring characteristics 3. The WORKS case studies show: • VC restructuring implies concentration on knowledge-intensive activities and business functions while the ‘codified’ work is externalised • Activities (BF) are divided along the chain according to knowledge codification, K. is spread uneven along the chain • This implies a struggle for “the best bits” • Internationalisation leads to more formalisation and bureaucratisation (SLA, classifications,...) • In parallel, there is a trend of standardisation of SW development ICT forum Prague, 22-23 September 2008

  13. 1. Restructuring characteristics These combined characteristics lead to the following strategies: • Logics of global sourcing and internal tendering • Logics of internal competition vs. collaboration • a growing knowledge dependency of employees, sites and customers • pressure toadapt knowledge management in view of improving the position in the chain • Leading to conflicting trends for workers and firms, increasing tension between: • Competition >< collaboration • Market pressure >< innovation/creativity ICT forum Prague, 22-23 September 2008

  14. 2. The perspective of the NMS 1. International Sourcing Survey (Eurostat) Destinations of international sourcing: • Most sourcing is within the EU • New MS and Asia (China) are most popular for core functions; also in the future • Old MS most popular for all support functions • for ICT, the second most popular destination is Asia (DK, FI, NL) • the most frequently expected sourcing destinations for ICT are the old MS ICT forum Prague, 22-23 September 2008

  15. 2. The perspective of the NMS 2. WORKS: GVC restructuring in the transformation economies (Mako&Kirov): In general: growing involvement and integration of local firms into global value chains related to • privatisation • FDI • Subcontracting ICT forum Prague, 22-23 September 2008

  16. 2. The perspective of the NMS Moving up the value chain is a key issue for the NMS and enhanced by: • Centralisation tendencies within TNC, leading to more standardisation and formalisation • ‘import’ of technologies ànd of new organisational practices related to knowledge management and innovation • Trend to (long-term) relations with customers implying shift of responsibilities • Wage increases: low cost is no longer main competitive asset ICT forum Prague, 22-23 September 2008

  17. 2. The perspective of the NMS Moving up the value chain implies: • “absorption” of high value-added functions from other links in the chain • combined with outsourcing of low added-value activities further down the chain • Development of innovative knowledge management systems: • Project work and teamwork • Learning organisation models • Managerial and coordination tasks in matrix organisations ICT forum Prague, 22-23 September 2008

  18. 2. The perspective of the NMS If succesful, this may lead to growing power within the chain • In contract negotiations • In the orders received • In involvement in decision making processes in the chain • In long-term relations with customers • In developing area-specific domain knowledge ICT forum Prague, 22-23 September 2008

  19. 3. Social Dialogue Issues Global Value Chain Restructuring and workers representation (Meil&Tengblad) A lot of challenges: • Careers become boundaryless • Collaboration becomes boundaryless • Employment relationship becomes boundaryless • Traditional issues (wage, WTA) seem to have less relevance for professionals • IR framework in the destination is mostly weaker • What is the basis and level for collectivitisation, collective representation and regulation? ICT forum Prague, 22-23 September 2008

  20. 3. Social Dialogue Issues And some opportunities • There is still a role for source employees • Knowledge transfer, Training • Design and prototyping, Quality control • Volume flexibility, Disaster management • VC restructuring may reinforce importance of scarce skills and competences and highly demanded resources • Growing marketisation, bureaucratisation and formalisation make collective strategies more attractive, even in non-traditional formats • EU directives are there but need national monitoring ICT forum Prague, 22-23 September 2008

  21. WORKS Want to know more? Final Conference 8-9/10/08in ROME www.worksproject.be ICT forum Prague, 22-23 September 2008

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