The process of services commoditisation is happening faster than that for manufacturing

A factory is an expensive thing.  Massive machinery is immobile, often custom-built and rooted in place.  New technologies or alternative work practices can be impossible to incorporate into existing systems.

When profits start falling and debts pile up the only choice is between closing down or moving the entire factory somewhere cheaper.

The average line-worker at a factory in the US earns about $18 an hour.  In Mexico it is $3 an hour for the same skill level.  With the capital equipment paid off, labour becomes the biggest fixed cost.  A wage difference like that can be very attractive to investors facing the loss of their business.

Yet moving a factory to another country isn’t particularly easy.  The physical movement of equipment is expensive.  Requalifying for regulatory approval can be slow.  Ensuring that goods can be exported from the new plant may require lengthy negotiations with state and regional authorities, support for new logistics companies and sourcing of new suppliers.

Sometimes new technology will be so much more efficient that the old plant is simply abandoned while a new one is built.

Intel has just opened a new wafer-fabrication plant in northeast China at a cost of $2.5 billion.  The factory was built from scratch and the physical construction took three years.  1,200 jobs will be created there.

The process of deciding to move can be even slower.  Egypt’s National Cement Company is still planning a factory move from Cairo after government there passed an anti-pollution law in 2005.

Once a company has committed its resources to the move it can suddenly all go horribly wrong.  Local management proves ineffective.  Changes in laws remove the advantages of being there.  Power failures destroy productivity.

While the process of offshoring existing manufacturing to emerging markets is full of promise and has created millions of new jobs, it is hardly an explosion.

By comparison, outsourcing services jobs is easy.  All that is required is a computer and a phone line; these are now ubiquitous.

Since the credit crisis banks have been scrambling to reduce their costs.  The Royal Bank of Scotland has shed 22,000 jobs since 2008 and outsourced their call centres and IT departments to India.

Software can be emailed and users trained remotely.  An entire call centre of 20,000 staff can be repurposed for a new company in a matter of days.

Thanks to the Internet age, education and training are easily available and often at very low cost.  Graduate qualifications are more widely available than at any time in history.  Some countries are aggressively pursuing opportunities in the “Knowledge Economy”.  China and India collectively produce almost 10 million university graduates annually.

The result of this is turmoil amongst white-collar middle-classes.

Manufacturing offshoring started in the 1960s with the slow growth of world trade after the end of the Second World War.  Blue-collar workers have had plenty of time to get used to the threat and organise to offer alternatives or simply fight against it.  Unions have their arguments down pat.

The speed with which what used to be highly-regarded skilled work is moving to cheaper places will have an impact on everything from taxation to the spread of wealth in a society.

The new high-tech jobs in call-centres, programming, investment and market research, data analysis, research and development, and the like have only just gotten going in developed countries.  They are hardly mature industries.  They are already moving swiftly to low-cost centres.

As far as services are concerned there is no such thing as an “emerging” market.  There are just countries competing with each other for opportunity.  This is a wonderful opportunity for poorer countries.  Investing in infrastructure can take decades but improving access to universities and schools can be done quickly even if the talent has to be imported.

Those that don’t will be left every further behind.