MiFID II is Here And Layoffs Are On The Way


layoffsWe’re now a full month into 2018. For a long time, we’ve been saying that MiFID is coming. Well, it’s here!. MiFID II is a huge set of regulations but the big change was supposed to be transparency in transactions. In 2017 if you bought stocks or debt in Europe, you got a single fee that bundled transactions with research and other cots. After MiFID II, all 2018 will separate transaction from everything else. That means that customers, rather than research directors, will determine the size and direction of Equity Research. How big a difference will this make?

FUND MANAGERS

  • Lower Research Fees: As Fund Managers receive and review fees from traders, there are going to be differences. If two traders provide the same service, but one charges more, why not just keep the lowest cost provider? Isn’t that the core takeaway from years of working with procurement?
  • Fewer traders: There is an argument for some redundancy. What if something goes wrong? You need more than just one trader. You may need two or three, or if you use ten what do you gain? Before MiFID, it really didn’t matter since bundled fees made true cost analysis difficult. Now, dealing with fewer traders could significantly cut operating costs.   
  • Kill low-value reports: In the lead up to MiFID II, everyone agreed that far more reports were written than read. The 15 biggest investment banks produce 40,000 reports a week, with less than 1% read by customers. We’ve created a multi-billion dollar research and publication industry (with tens of thousands of employees) that has no readership.
  • High-value reports: Some reports are better written and more insightful than others. Apple has is covered by 50 analysts. The top five or ten probably have more original insights than the remaining 40+ reports. Do we benefit from more than 5-10 analysts covering a stock? Yet we have so many small-cap stocks that are barely covered.
  • Spread To USA: MiFID II is specifically a European regulation. However, the US and European market are so tightly integrated that it would certainly make sense to just follow MiFID rules in Europe AND the US. If so, the combined jobs losses in research will be huge.
  • Profitability: If equity research departments are aggressive, a hundred thousand or more positions would be terminated, and software and data service licenses reduced. Billions saved here could keep the stock market’s momentum going through 2018.

Traders

  • Fewer Reports: Fewer equity reports will be written and distributed, slashing costs. Firms like \Bloomberg and Thomson/Reuters will also need to reduce staffing. At a minimum, data firms can expect urgent demands for contract renegotiation.
  • Specialization: it’s hard to guess the “voice of the customer”.  But I’d bet that customers are going to say something like, “Kill that mediocre stuff!” Big, highly paid research departments need to produce reports with insight, with info directly from the c-suite and above. Few research department can do that across a large number of stocks. But maybe someone can develop a new approach to equity sales research that surprises the market?
  • Unfamiliar Faces: 2018 will be a year of unfamiliar faces. Many sell-side analysts will disappear, but some may reappear as buy-side analysts. Researchers on both sides may swap places, swap specialties or be retrained to fill new positions… after the “voice of the customer” is heard we will know which firms, industries, and specialties are worth the cost of research. 
  • Higher Efficiency: MIFID isn’t the only big thing happening in 2018. For decades automation and Artificial Intelligence has been at the forefront of Wall Street’s evolution. Automation is taking over processing (buy, sell, compliance, billing); AI is taking over decision making (what to buy or sell, when to change strategies, building portfolios); and customers are moving towards indexed funds that don’t require traditional research.     

During the first quarter, customers will analyze their billing. By the end of the quarter, trading firms are going to tell us what they do and do not want to pay for. By the Second quarter, we can expect a wave of terminations and position changes. In the third and fourth quarters, we will find out if the cuts are just 20-30%, or if MIFID plus new technology takes away 75-90% of research and other staff.  

Will 2019 be a quiet year for Wall Street to recover, or are this year’s changes just a ramp up to even deeper transformation? If you have insight into the next set in Wall Street’s evolution… we’re all ears! Tell us what you think!

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2018 – The Year of The Male Glass Ceiling?


Equality

It’s been going on for a few months now, even a few years, maybe forever… depending on how you look at it. Women have finally had enough and are demanding basic worker rights. However, demanding rights and EFFECTIVELY getting men to pay for many years of harassment and underpay is just beginning. We are nowhere near the peak of this revolution.

Cultural change in America is often led by celebrities and the pretty people. Taylor Swift raised eyebrows when she refused to follow the script. Instead of, “Your honor… I’m sorry I’m pretty. But could you please protect me from this terrible molester?” Instead, she said, “He stayed latched onto my bare ass!” Perhaps most importantly, Taylor said, “I am not going to allow your client to make me feel like it is any way my fault because it isn’t.”   

The real story is that her being angry in court. Or that her molester felt that he could get away with putting his hand up Taylor Swift’s dress while they stood on a public stage. It’s not even that he molester sued Swift for telling his employer what happened. The real story is that the molester’s point of view accurately maps America’s beliefs about how often and how deeply sexual abuse is woven into our culture. 

We’ve heard interesting stories from Hollywood. Harvey Weinstein seems to be the source of at least one hundred molestation cases, probably more. And there seems to be a problem in Washington as well. If this was a movie, the Trailers haven’t even started. No, we’re just wandering around finding our seats, hearing an occasional cough in the distance. Everything so far, that’s just background coughs. The real story is about to play in IMAX with 3D sound. 

A new year of indignities is about to start. In high paying professions… lawyers, doctors, accountants, stock brokers, media firms, marketing, etc. … this is when bonuses are calculated, checks are handed out, and new promotions are announced. Bonuses are usually not made public, but top executives may be legally required to announce their compensation.

As the list of molesters grows and becomes ever more public, will victims and co-workers keep their silence as new Harvey Weinstein’s and Roger Ailes are put into positions of power? Will HR departments finally take actions against misbehaving executives? Is it time that the Board of Directors or major stockholders demand a code of standards to force out predators? Will executives see victims as liabilities that need to be eliminated? When it’s time to hand out raises and promotions, corporate America will either…

  • Hand out overdue promotions: Don’t expect this to happen too often as long as current managers and HR departments are in charge. If managers are able to promote without the approval of others, they will be legitimately frightened that they are providing evidence that they are fixing an obvious problem.  
  • Promote undeserving workers: The focus has been on unwanted sexual advances of managers. But what about managers that traded undeserved promotions for sex? When managers pay for sex with company resources, qualified workers are penalized. Putting unqualified workers in management positions weakens good companies. What does your HR handbook say about “pay for play”?   
  • Unfairly and illegally terminate victims and witnesses: Nothing new here. This has been corporate America’s default action. Molesters often threaten victims with termination and tarnished reputations. Hiding indiscretions and then punishing victims is the only “solution” that some managers understand. Rather than reform, expect some managers to double down on bad decisions.

How will victims and coworkers react? We can expect many more leaks about executives and their abuses. Some workplaces, such as the US government, will probably pass “protective” laws that silence whistleblowers. Like the 1995 Congressional Accountability Act. You may get an official statement that the molester is guilty,  but the minute the victim starts the process they are bound to silence. We don’t need more silence. When workers see bonuses and promotions for the year, we can expect many “revelations”.  

#MeToo and #TimesUp are spreading around the world to even the most isolated locations. Like Silicon Valley and corporate IT. You don’t think they’re isolated? Care the count the number of female executives? Even the tools created by Internet Billionaires (Facebook, Twitter, etc.) follow rules that protect people molesters and punish victims. Women are constantly shamed, trolled and generally abused by a largely male audience. 

Many of these actions may be illegal under the 1963 Equal Pay Act, which guarantees equal pay for equal work (and a fair workplace) regardless of sex, race or creed. But Congress and our court system have had little interest in seeing if it applies to how women have been treated. Now, Congress is frantically working on new legislation to address sexual abuse and pay inequality.

Will they succeed? Maybe. Will it get done in 2018? No, they won’t. But to quote Winston Churchill, “… this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.” Consider how much needs to be done.  In 1960, women only earned 60% of what men made. In 2016 it rose to 80%. Unless you have a highly paid job, like a stockbroker. Here, women make just 55% of what their male counterparts make.

Let’s face it, women just aren’t going close this gap as long as men keep moving the goalposts. To make serious gains, women must have the ability to change the game. What a minute… if women held more than 20% of the seats in Congress, maybe Congress would have a different agenda, with different priorities.

Why not go for it in 2018? I know, I know, you feel that you can’t take a position if you are unqualified. But GOOD NEWS! That’s no longer a barrier in Washington. No one has ever been less qualified for political office than President Trump! Yet, even when his supporters that he doesn’t know what he’s doing, they still say he’s doing a great job! It’s time to join the Trump revolution and run for office!

There are some signs of early progress. Imperative Entertainment tossed Kevin Spacey from the movie “All The Money In The World” due to his bad behavior. But ***sigh*** negative Kudo’s for not paying any of the women for reshooting scenes, yet having the money to pay at least one male actor (Mark Wahlberg) $1.5 million!

Michelle Williams, who respot the same scenes,  only received an $80 a day per diem (total of $1,000). This serves as a gentle reminder that even when Hollywood says it will do the right thing, their sense of justice is so corrupted that they cannot see how bad their daily decisions are.

As you read through this story, you might notice a pattern emerging. Men are all about personal rewards, be it money or title and most often both. When they have power, men use it for personal gain, often putting their interests ahead of their peers, employees, and stockholders. Women tend to think in terms of personal sacrifice, the success of the group, and mentoring. Not just in these few examples. Studies repeatedly show that women are better leaders, even when it measuring traditionally “male” characteristics like initiative and getting results.

Don’t agree? Fair enough. Men and women are, after all, individuals. If women dominated at work for a few centuries, they might make decisions that are just as bad as those made by men. Male culture has enforced two very corrosive policies which make the workplace unfair to all women, and most men.  

(1) Cult of the individual: Since the emergence of the modern corporation, CEO’s were paid around 10 times as much as the average worker. That is the way it was for a very long time. However, towards the end of the 20th century, CEO pay began to rise. By 1980, CEO’s were paid 27 times the average pay in their corporation. But as corporations continued to grow, executive pay outpaced corporate growth and profitability. 

Do stockholders really believe that in a company of 50,000 workers, just 1 person deserves such a large share of the profits? In the day of high sea pirates, the exact process of handling pay… excuse me Booty… was very specific. Everyone in the crew got a share, and the Captain received two shares. CEOs are now paid 300 to 400 times the average worker pay.  

Are CEO’s and other top executives really three or four hundred times as responsible for corporate performance than other workers? If that is true, when profits fall or corporations are penalized by regulators, do executives take a disproportionate share of the responsibility and the penalty? Very rarely! Pirates, on the other hand, were tried for their misdeeds and hung. Starting with the Captain.

When corporations fail and global economies fail, CEOs and other executives are rarely jailed, to say nothing of executed. When things go bad, executives usually say that they aren’t responsible for the actions of their corporations, or didn’t know what their employees were doing. Maybe, just maybe, when big corporations make big mistakes, it should be reflected in compensation. Over reward and over protection of executives created the environment where they are free to sexually prey on workers without fear of penalties.

(2) Little worker recognition: If the CEO and a few key executives are singularly responsible for the success of the firm, then it is logical that other workers must contribute very little. Ensuring that mediocre workers are well paid seems… pointless… given their limited impact on the bottom line. This is what has happened in corporate America.

According to the PEW research center, pay for the average worker stagnated in the mid-1960’s, about the time that executive pay started to accelerate. This is also when women started to move into the labor force and into professional positions. Whatever the thinking of corporate executives, their actions showed that they consistently favored their own compensation over everyone else.

Before unions were in complete decline, in bad financial years executives demanded lower pay, lower benefits, and no bonuses. For workers. Yet in the same year, executives often received full pay or even pay increases. When executives consistently get more and workers get less… less pay, few worker rights, and no protection from sexual predators in the workplace… we shouldn’t be surprised to find that executives rarely pay attention to the rights of women.

Interestingly, when executives were guilty of molesting workers, corporations wrote the checks to pay the victims. Executives have created an unfair working environment, violated worker rights, and then used he corporate balance sheet to bail out their mistakes. At FoxNews, the board of executives eventually found out that Roger Ailes alone cost them over $20 million in hush money payments.

If we looked at all of the payoffs, the unwarranted terminations, the bad promotions, and all of the other tangible costs of the abuse of women, how many billions of dollars are we all paying to keep this corrupt system going? I’m guessing that in boardrooms across America, this question is being asked. 

So, here we are. The first major worker revolt of the 21st century. Will it keep growing and become a political revolt? Will inequitable pay go away as long-delayed promotions are awarded? Will midterm elections lead to a Tsunami of female winners? How about the Oscars having just a single best “Male or Female actor” category? Change is coming… let’s see how many glass ceilings we can break in 2018!

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Why Do We Need 11 Billion People?


People 2

If we ever have a contest for the “Golden Age of Man”, my vote is for the last 200 years. Ancient Greece would probably get more votes for inventing philosophy, Democracy, dramas and comedies, and classical architecture. Which is a pretty good argument. But I have a stronger argument. We have more people! I don’t mean that people today are any better (or worse) than those from any other time. I mean that there are numerically more people today than ever before!

Greece might have great art, the Romans might have a mighty empire, but the 21st century has more living people than any other period of history. Every generation since before the pyramids has valued people as the primary source of wealth. Only people could labor! Only people performed work! True… tools, or a horse, or maybe a tractor can make a farmer more productive, but it is only the farmer that can harvest the crops.

The same is true with blacksmiths, bankers, ship makers, artists and any other human occupation. Global population has slowly risen throughout history, with occasional big drops due to plague, war or natural disaster. A growing population produces more and consumes more. Rising population has always gone hand in hand with rising wealth.  Before the year 1 A.D, global population rarely got above 250 million yet now it is 7.6 billion. And never before have we been so wealthy, with such a small percentage truly poor.  

We also live longer than ever before. Long-life may not in itself make you wealthy, but if you are wealthy a long and healthy life certainly has more value than a short one. 2000 years ago Romans lived 30 to 40 years. Today we live until we are 80 years old. Mostly because children that are born today live until they become adults. That’s something new. In other societies, few children grew to maturity. Childhood diseases and the dangers of life meant that only one child out of 5 or 6 became an adulthood.

Between the need for food and resources and high rates of childhood death, humanity was on a treadmill. We needed a lot of children and new adult workers. The population grew dramatically in the last two hundred years, but productivity grew even faster. More people produced more wealth faster than ever before.

This steady march towards higher population and greater wealth will all come to an end as we reach 11 billion in the year 2100. After that, population retreats, and billions will disappear from around the world. Never again will there be so many people on earth. But if we can keep our wealth even with fewer people, it might be a very good thing.

Technology has been an important wealth multiplier. Today’s worker is far more productive than their predecessors. Transporation is faster and cheaper.  It takes less effort to produce a given good. New farming techniques and seeds produce far more food. America’s greatest efficiency expert, Peter Drucker, said that farms and factories became 50 times more productive in the 20th century. Every human being on earth benefits from this greater productivity.

Consider how this increase in efficiency has impacted our workforce. In 1850, 70% of all American workers were farmers. Today farmers are 1-2 percent of the labor force, and these remaining farming jobs will be automated away in a few years. Next, factories became the main source of American employment, peaking in the mid-1960’s. Today, factories are a mere 8% of the workforce and falling. Robots and artificial intelligence will replace the remaining industrial jobs in 10-15 years.

Today, we have a service economy, combining low paying workers (cashiers, fast food workers, taxi drivers, warehouse workers) and highly paid knowledge workers (lawyers, stockbrokers, researchers, software developers). All of these positions have been targeted for replacement by automation, robots and artificial intelligence.

Tools and machines have always improved human productivity, but only lately have they replaced human beings directly, and in large numbers. Early farmers managed their own fields, but with a tractor, more fields could be plowed. Today’s farming equipment has created farms without farmers. Factories have introduced robots that replaced large numbers of workers, but outside of the structured environment of the factory, older robots have had limited impact.

Newer, intelligent, robots are able to able to deal with the ambiguities of the “real world”. Self-driving cars work in all weather, and traffic conditions. “Lights out” factories are able to work without human supervision. In corporations, sophisticated work functions such as performing sophisticated procedures, researching lawsuits, or selecting stocks for an investment fund have all been performed by machines with increasingly little or no human intervention.   

This breaks the labor treadmill. If machines are workers, more robot-workers can be built without growing our human population. Of course, such a major change will create major “disruptions” throughout the economy. By the second half of the 21st century, the old and new economies will clash. 

Look at China, the world’s most populated nation. China will continue to grow for just five or ten years, reaching a peak population of 1.5 billion. Then population will tumble by 500 million citizens by the end of the 21st century. Before population growth stalls, Chima will have an aggressive automation program in place. China is already the largest buyer of industrial robots but has started to buy robotics companies. By the 2020’s, they will build the majority of the world’s robots.

In order to meet their own needs, China must create the ability to produce millions of robots every year. After their own needs are met, by the mid-2020’s China will produce many times more industrial robots than the entire world produces now. Each of these millions of robots will replace 10 or more workers, driving a wave of automation across the world. Today we worry about jobs moving offshore. In the future, it won’t matter where the work is performed, if robots replace people.

Some believe that transitioning to robotic labor will take much longer, that people won’t accept such massive changes in a short period of time. But some nations have already achieved high levels of robot integration. For every 10,000 workers, China has only 75 robots; in the US that rises to 175.  But the nation with the highest robot ratio is South Korea, with 531 robots.

These ratios are not guesses at the future, rather they are milestones in industrial production. Just as farmers in all developed nations have dwindled to just 1-2 percent of the labor force, we can expect manufacturing workers around the world to achieve these ratios. And then exceed them.

For China to match South Korea’s average robot ratio, 4.5 million robots must be installed. But that’s just an average. In the automotive industry, which is more heavily automated than the average workplace, the US has  1,300 robots per 10, 000 workers. Attaining the automotive ratio in just the US and Europe will replace tens of millions of workers. While just industrial models have been discussed, the same level of automation will be achieved in banking, legal, insurance, and other “knowledge” based professions.

With robots and automation, the treadmill of ever-larger populations to achieve ever greater wealth is forever broken. We can add machines instead of adding people to mine resources, grow crops and build housing. In the past, the expansion of human population has forced humanity to transform the earth. When our population was in the low billions we began to run out of food. So we found out which seeds grew best on what land. Then we invented artificial fertilizers and pesticides. Now we are altering the genes of plants and animals to increase productivity. Without this boost from science, the world would have starved to death years ago.

Not enough food, fighting over water, worn out farmland, air and water pollution, whole species fished out of existence, all the result of population pressures.  Yet by the end of the 21st century, we will reach peak global population at 11 billion. We will no longer need to grow. In about 25 nations we already see a stable or falling population.

If it wasn’t for immigration, population growth in the US would have stalled. Our fertility rate, the number of children women give birth to, is 2.0. That’s our replacement rate.  But Russia is just 1.75,  Germany 1.5, and Spain just 1.2. Take Bangladesh. In 1982 their fertility rate was 6.1, but in 2015 it was just 2.1… and falling. All of these numbers are just milestones along the normal curve for developed nations.

The United Nations projects that by 2200 the world’s population will be between 2 and 5 billion. And population will continue to shrink. That gives fish room to repopulate the ocean, exhausted farmland has time to regenerate, and for the carbon in the can be absorbed by trees and plants.

In the 23rd century, human population may continue to drop. But along the way, we will hopefully have found a source of free power to join with unlimited labor. Whether that power is renewable, nuclear, fission, or something else… joining free power with robotics will create goods that are so cheap that they are essentially free. The rich may be even richer than today, even the poorest of people will be able to have more than enough to meet their needs. So, here’s to the 23rd century, to sub-1 billion and to the next Golden Age of Man!

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Intelligent Automation Inspires New Plans For Onshoring


 

Flying car

Photo… All rights, Newsweek

 

(Previously published in Outsourcing Magazine, 11/4/2017)

Offshoring and outsourcing don’t exist in a vacuum. These are processes that take advantage of and are influenced by technology, politics and the larger economy. Look at the last big round of offshoring at the start of the century. It didn’t just “happen”, without any reason. Very specific changes that facilitated this age of outsourcing.

The three biggest changes… globalization, ubiquitous computers, and cheap telecommunications… created an environment that uncoupled work from work management. Managers could stay in their traditional locations (onshore factories, corporate headquarters) while the work was moved around the world. Initially, work was outsourced to nearby cities, then to other states. Eventually, it went offshore, spreading to nations around the world. This process of “uncoupling”, over greater and greater distances, allowed work to keep moving, in search of still lower wage locations.

Another wave of change is now approaching! Intelligent automation and artificial intelligence. Call it, “The Robot Revolution.” Now, human labor, in both manufacturing and knowledge work (accounting, law, software programming, financial analysis, etc.), is being uncoupled from the local labor market. As machines replace people, the cost of labor is essentially the same everywhere. The same robots, with the same cost of operation, can be installed anywhere.

There will be a few instances where the cost of electricity is a deciding factor. But it will be the cost (and time) of transportation that is the deciding factor. Today’s outsourcing, at least of physical products, requires shipping materials and finished products around the world. Avoiding any part of shipping reduces costs and brings products to market more rapidly.

When shipping matters, the best place to manufacture is in the home market, where the products are sold. Outsourcing moved work to China and India years ago. Since then, both complex electronics and simple textile manufacturing have been moved even further, to the lowest cost locations on earth… Cambodia, Vietnam, and Bangladesh. The next round of outsourcing must come from efficiency, not wage arbitrage. That’s why robots and artificial intelligence will drive the next relocation. However, it is not just the lower cost of machines vs. human labor that is driving work back home.  

Political Risk Is Back – In the early days of 21st-century offshoring, moving work to India or China was still a radical idea. Corporations wanted to quantify the level and cost of risk, but there were no clearly established risk metrics. Still, there were discussions about the range of Pakistani nuclear weapons, if you wanted to outsource to India. The C-Suite wanted to know if China’s communist government would be overthrown. Or if both countries would reverse their recent movement towards globalization and one day nationalize western factories. 

The outsourcing industry has continued to be deeply interested in risks such as rising wages and international currency exchanges, but after 5 or 10 years of successful operations, meta-issues like global stability tend to be forgotten, or at least discounted. Now, political risk is back.

China, as we all know, has become far more expensive in a very short time. A contract with China could lead to sub-contracting to Vietnam or Cambodia. Or you may be tempted to move to the Philippines when your contract renews. Now that parts of China, India, and Russia, and all of Japan, and Taiwan… fall (or will soon fall) within the range of missiles from North Korea, will this affect your outsourcing choices? On October  30th of 2017, we found out that 200 North Koreans were killed in an accident near a nuclear test site. It was probably a tunnel collapse, but it may have released radiation. We’ll see.

The general instability has Japan seriously considering rearmament, possibly building nuclear weapons. In recent years the China Sea has been the site of regular military conflicts between China and just about all other local nations, plus the United States.  Ongoing conflict is degrading the value of these locations.

Cyber Security – One of those “early days of outsourcing discussions” was, “What if your outsourcer steals your information?” Sometimes it took the form of, “What if your outsourcer has bad data security and they let in hackers who can steal your data?”  

American and European corporations have been repeatedly hacked, often by China or independent hackers in Eastern Europe. European hackers usually wanted money.  China wanted technology and the ability to silence anyone interfering with “internal Chinese” issues. When the New York Times wrote about Chinese government corruption, they became targeted by the cyber warfare division of the Chinese People’s Liberation Army. 

One very clear message from repeated attacks from China was this… even if you are a big, internationally known corporation, your cyber defenses will not stand up to an attack from foreign military hackers. Yet, Richard A. Clarke, one of America’s best-known authors of cybercrime books, said that China wasn’t the threat that we should keep our eyes on. Instead, we should watch Russia, the only other nation in the world that could match the US in cyber spying. Just a few years ago when he said this, everyone thought, “How can that be? we’re constantly hearing about Chinese spying, but we never hear about Russia?”

Clarke’s answer was… That’s because only America and Russia are good enough at this to steal data without leaving a trace.” And then we had the 2016 Presidential elections. We’re still trying to sort that one out. There was direct hacking by the Russians, but also the “not-yet-illegal” use of social media to spread fake news.

The newest news from Russia comes via Israel. It seems that Israeli spies, who were possibly spying on US computers, noticed that these computers were sending data to Russia.  The computers had Kaspersky’s Anti-Virus installed, which was made in Russia. Kaspersky denied infecting the machines. That leaves Russia. Did they have spies in the factory or did they add hacking tools somewhere in transit? To add insult to injury, the Israelis said that the hacking tool that Russia used was stolen from the NSA (National Security Agency), American’s top spy group. So now it’s spies, spying on spies, who get caught by other spies. Great.

Did you know that most popular anti-virus tools come from Eastern Europe or Russia? Other communication and server maintenance tools were written all over the world. Big corporations have tools from global banks and organizations. Apparently, we really don’t know what is on our networks, especially if our data is “in the clouds”. Add to that whatever we will learn about how Russia was involved in the 2016 US Presidential Elections, and we all want to lock away our data in a lead-safe at the bottom of the ocean.

Like it or not, firms will outsource massive amounts of data to cloud services to stay competitive. But, given the rising number of government based cyber hacks, a growing number of customers may want “onshore only” storage. There are enough onshore risks. Plenty of hackers in your own backyard that you need to worry about. The best hackers are the biggest threat, and these hackers appear to be government sponsored. The best protection against having a foreign government placing spyware in your data is to not send your data offshore. Banks, media, utilities, hospitals and other prime targets in a politically motivated cyber attack will increasingly look for cloud services that offer an option for “home shore only” data centers.    

Logistics – We’ve already discussed the cost of shipping goods around the world. When goods are manufactured where they are used, there are big savings in transportation. However, goods may still need to be shipped between offshore sites for final completion. The US and Europe are about to have a huge drop in internal shipping costs.

Before the turn of the last century, the US Post Office partnered with Rail Road companies to provide low-cost shipping of mail-order catalogs. Nearly a century before Amazon, Sears, Roebuck and, Co. created America’s first virtual marketplace. Sears grew into one of the world’s largest firms, even though they would not open a physical department store for another 30 years. Everything had to be shipped to customers, from pocket watches to full-size prebuilt homes.

FedEx and other “overnight” carriers launched a new age of logistics. When the speed of business picked up in the 1980’s and 1990’s, customers couldn’t wait for slow rail deliveries. They wanted overnight delivery. FedEx, DHL, and others firms gave customers what they wanted.

Then, email drained revenue as many of their most profitable corporate customers. Instant mail was better than overnight mail. Luckily, online shoppers picked up the slack. Internet purchases could be made anywhere in the world, but you needed your purchases to be delivered to your hometown. Now we’ve come full circle, and we’re back to the days of the Sears’ virtual store.

Now, a new age of driverless vehicles is dawning. Drones, self-driving cars, electric planes, and other vehicles will be both more energy efficient and (without the cost of a driver) far less expensive to operate. This will not only reduce the time and cost of any local transportation, it will also make logistics one of the top outsourcing industries for the next decade.     

 

logistics

Logistics looks at the efficiency of “total” transportation systems… cars, planes, trains, ships, etc. 

The market is looking for a combination of UBER and Amazon. UBERzon? It would take over advertising, marketing fulfillment, and delivery. Amazon already performs these functions and is looking to add drones for delivery. UBER wants to take over ALL vehicles in the US, replacing individuals and corporations as the owners of vehicles and vehicle fleets. UBER has piloted services where a single vehicle is both a taxi and a UPS delivery truck… with a personal messenger service rolled in. UBERzon would need to eventually compete with (or buy out) FedEx and DHL, for national and international air cargo deliveries.

 

Offshoring Goes Both Ways: A lot has changed in how we outsource. Offshoring used to be defined as moving work from the West to lower cost geographies, especially China, India and nearby countries. However, when modern offshoring took hold a couple of decades ago, “offshore” countries had no brand name recognition in the west. Now offshore brands, especially Chinese brands, have strong name recognition in the West.  

Lenovo (formerly IBM laptops) is a top-selling Chinese computer brand. At about the time that Microsoft and Apple abandon China and build the products back in their home markets, we can also expect Lenovo to do their equipment assembly in the US and Europe. Huawei, China’s leading hi-tech phone manufacturer, is expected to win a big slice of the Android market with their flagship Mate 10 Pro. By the time the Mate 12 is released in a few years, expect Huawei to assemble phones in the US.

China is already heavily investing in the US and Europe. Hotel chains (Hilton), media firms (Dreamworks, Legendary, and Lionsgate), General Electric’s consumer goods and just about everything else. In the UK, over 280 firms have been bought out by the Chinese.

In the last round of outsourcing, these relationships existed. Relationships were awkward and there was little certainty.  Now that both sides have a deeper understanding of each other,  many more deals in many different forms are possible. While no one knows exactly what form new alliances and contracts will take, it is almost certain that they will be much more complex and multi-layered.

China VS. India: China and India both became offshoring powerhouses, with China dominating in manufacturing and India in knowledge work (especially IT services). China went on to aggressively invest in the west. India, however, has made few visible investments and does not seem to be actively pursuing the next wave in offshoring. 

China has done more than merely invest in western corporations. They prepared for the next wave by building out its expertise in robotics. Today, China buys more robots than any nation on earth. Soon China will manufacture most of the world’s industrial robots.

Today, China is the premier global manufacturer, giving them significant control over the global manufacturing workforce that builds the goods the world buys. As offshore manufacturing fades, China will switch from providing workers to providing robots. Soon, robots will build the goods the world buys. Then,  regardless of where work is performed, China will have even greater control over manufacturing across the entire globe.

India, on the other hand, has not invested in the west or created partnerships in the US and Europe at anywhere near the same rate as China. Instead, India is “all in” on traditional outsourcing. Accenture, TCS, and Wipro have become recognized brands among the Fortune and FTSE 500. Regulations make it difficult to take money out of the Indian economy to invest abroad. Still, if India does not invest in other areas, it may be shut out of big outsourcing deals by China.

Ironically, much of the talent that is creating new AI software comes from India. Work outsourced to India is building many of the most advanced AI and machine learning systems. In raw numbers, the 43,000 patents India creates annually are a great improvement over the past. However, it pales before the 578,000 from the US or the 928,000 from China. Furthermore, according to the Times of India, 80% of the patents that India has secured are for foreign corporations doing work in India. Indians have been pivotal to the development of the AIs that will rule the world, but unlike China, India may not directly benefit from this achievement.

Brave New World: Twenty years ago, modern offshoring caught fire and became a massive, global business. There were earlier waves of offshoring, but each new wave becomes bigger than the last. In the coming wave, offshoring from the west will recede, as a wave of offshoring approaches from China, South Korea, Japan and the rest of Asia. 

We don’t know how this new outsourcing will express itself, but the earliest forms we will see in the next year will be more sophisticated than the most complex contracts we saw this year. Especially if onshoring is super-charged by tariffs against offshoring in 2018.

Foxconn, the largest employer in the world, is finalizing a $3 billion incentive deal for a mega-factory in Wisconsin. Will Foxconn completely manage the construction and operation of this factory complex? More likely, the government of Wisconsin will negotiate co-management to stimulate local businesses and employment. This is just the start of the new onshore mega-deals. If you’re ready to step up to a new level of outsourcing, a whole new world of opportunity is about to come knocking on your door!

Posted in cars, Environment, Improvement, Robots, Uncategorized, Unique Ideas | Tagged , , , , , | Leave a comment

High Tech Cars Fascinate Buyers and Save the World


 

Photo, all rights, TechCrunch

Photo, all rights, TechCrunch

You’ve heard that robots are taking over? It’s true! A lot of people are frightened about a “workless” future, but parts of the Robot Revolution will be useful. Like cars that can drive themselves. Just a couple of years ago, car experts said that they wouldn’t heavily impact the market until 2050. It made sense. Car companies take decades to introduce new features. Yet, just last year, A.I. experts said that 2030 would be the key transition year. Now, Unicorn firms plan to have production vehicles on the road by 2020. It looks like self-driving cars will hit the road, at least in several major cities, by 2018. 

In past articles, we’ve discussed how cars that can drive themselves will impact employment. Vehicles with paid drivers will go autonomous far more quickly than consumer cars. The financial incentives are huge for taxis, trucks, the UPS and FedEx. And government vehicles! Critical public and government organizations want to go autonomous, but they have special constraints that make their implementation date a toss up.

The United States Post Office (USPS) has been looking for autonomous vehicles for years. They NEED autonomous vehicles to stem their financial bleeding. They haven’t had a break-even year in the last two decades. Since 2001 they have lost over $50 billion, $6 billion just last year. Half of all post offices will close. Perhaps very soon.

The USPS needs a game changer, and autonomous vehicles may be their only hope. Small towns have a similar problem. The ups and downs of the economy have left many with big financial problems. Towns operate a lot of vehicles… school buses, garbage trucks, repair vehicles. They can barely afford to operate this fleet.

These days town vehicles are usually operated by union drivers or managed by 3rd parties under inflexible contracts. It can take years, even decades, to work out new agreements. The US military purchases a huge number of vehicles and has begun asking suppliers about electric and autonomous vehicles. Robot war machines? Seems a bit too sci-fi? Really? Remember, not too long ago, when you first heard about military drones?

When will consumers buy cars that drive themselves? Not in 2018, but not too far in the future either. Right now quite a few models can drive themselves… in some places, at least some of the time. Cars that park themselves or that can apply the brakes in an emergency have been around for years. Your next car will probably be able to drive under “safe” conditions… slow driving stuck in a traffic jam, certain roads with little traffic. 

VW BuzzBy 2022 we can expect to see fully autonomous vehicles from the big manufacturers, starting with Volkswagen. Remember the “Hippy Bus” from the 1960’s? VW has committed to delivering a slick looking, all-electric, self-driving version by 2022. Of course, the production vehicles can look very different from the concept vehicle, but it it is a VERY good looking concept vehicle. It can be a 6 seater van, a camper, or even an “office on wheels”. It has the potential of being a huge success.

Which brings us to an amazing detail that few experts have mentioned. The autonomous car revolution IS the electric car revolution. A gas-powered car can be self-driving, but it is much more efficient to make it an electric vehicle. Here’s why…

  1. Simplicity: In order to turn the steering wheel or press the brake pedal, you need actuators or electric motors, plus circuitry for the computer that runs the car’s Artificial Intelligence. If the car is all electric, you can skip a variety of mechanical “in-between” parts. That lowers the cost of manufacturing.
  2. Weight: Fewer parts means lower weight and higher reliability. The engine is removed from under the hood and replaced by 4 smaller electric motors inside of the wheel hubs. This eliminates most of the gear system and the entire powertrain (heavy parts that distribute power to the wheels). Electric motors also provide braking power, eliminating today’s separate braking system. Finally, the 12-volt electrical system is replaced with more lightweight cables. All told, nearly 1,000 lbs can be cut from the car’s weight.   
  3. Reliability: Internal combustion engines (ICE) have a few hundred to a few thousand moving parts. Electrics have just a handful of moving parts. That means less effort to design and build electric vehicles and lower maintenance costs. Imagine… no more oil changes!
  4. Efficiency: A lot of power in an Internal Combustion Engine (ICE) is turned into waste heat. Gas powered cars waste 75% to 85% of the energy from their fuel. Electric vehicles waste a more moderate 40% of their power. There’s still a tweak or two for the ICE, but after a century of evolution, it’s just about as efficient as it can get. Alternatively, electric motors have more room for improvement.

The same experts that missed the autonomous/electric connection have missed an even bigger point. They usually tell us that if America moves from petroleum to electricity, it could spell the end of the oil industry. That could be good. That could be bad. It depends on what you think about the oil industry. And if you own any oil funds. But what about electricity? When we plug in our cars, what happens? Won’t we need more power plants? What kind of power plants will we build?

Plug And Pray?: First, we have the simple matter of recharging our vehicles. Our 263 million vehicles! America’s 150,000 gas stations can easily add recharge stations as we transition from petroleum to electric. In fact, they need the business. In the 1990’s America had 200,000 gas stations. Consolidation in the oil industry eliminated 25% of all gas stations. The higher efficiency of electric vehicles will probably mean that a recharge will be less profitable than a fill-up. 

As our vehicles transition between power sources, gas stations will have competition. The perfect time for a recharge is when you park. Parking lots and municipal parking meters could easily add rechargers, providing a big boost to municipal revenues and private parking lot profits. Consider the sales of air filters, spark plugs, fan belts and oil changes. Electric cars don’t use these products.

But the big, BIG, change is that you can recharge your car at home. Plug it into the wall and recharge your car overnight. That could be 50% or more of all car recharges. Put all of this together and in 20 years when almost all American cars are electric, there may be as few as 50,000 traditional gas stations.

Astronomical Numbers!: Problem one solved. In fact, more than solved! Replacing petroleum-based vehicles with non-polluting electric cars will take a huge bite out of global warming! Think about it, millions of carbon spewing vehicles retired and replaced by zero pollution cars. Finally, freedom from foreign oil! Well, freedom in around 20 years.

The average new car is sold after 6 years. It then passes down through other hands for another 10 or more years. But 20 years, just about every car is ready to be scrapped. Most cars will be self-driving and electric. Isn’t it great that we can have a win/win with no environmental cost whatsoever? Yep. No cost! None!

Uhhh. Unless. Hmmm. If every gas-powered vehicle in America, all 263 million, become electric… won’t we need to produce more power than we do today? On a typical hot summer day when air conditions are cranked all the way up, cities across America have blackouts, which means that more power is used than is available. If millions of electric vehicles plug in somewhere to recharge, we’re going to need more power. Or we’re going to have blackouts all year round.

Miami trafficHow much power will we need? Every year America consumes 170 billion gallons of petroleum (gasoline and diesel). If we convert this into electricity, we get 5.4 million Gigawatt hours (GWh). To meet this demand, we would need to more than DOUBLE the That’s more than all of the electricity… that’s coal, nuclear, hydroelectric, natural gas, geothermal, wind, solar, everything!… consumed by Americans every year!   

Luckily, we won’t need to add quite that many new electric power plants. We already know that electric vehicles are more efficient than petroleum vehicles. At least twice as efficient. Also, our power grid still has some excess capacity. Not on those hot summer days, but just about every night, especially very late at night. Just when we will program our cars to recharge themselves. So, lets cut our needs in half again. Now, we need just 1.3 million GWh. Spread that over the next 20 years, we only need to build 67,000 GWh of new power every year.  That’s still a lot, but it is far less astronomical than the total power gap.

Power Is  A Breeze: Of course, this leads to another question, “What type of power plants will we build?” Let’s start with wind turbines. Wind turbines are rapidly evolving. Every year they are bigger and more efficient. New turbines are averaging 2-3 MegaWatts (1/1000 of a gigawatt). The largest wind turbine (so far) can generate 7 MWh and is a massive 650 feet tall. For now, let’s stick to more modest models. Something in the 2.5 MWh range, and just 300 to 400 feet tall. How many will we need?

The first rule of power generation is, “No power system produces at full capacity all year round.” Even a nuclear power plant needs downtime for maintenance. And then there are low demand times when the plant runs at less than 100% capacity. Since the wind isn’t always blowing and some days are cloudy, wind, tide, and solar power generation all have low utilization.  

Wind TurbineRule number two, “Location, location, location!” Some locations are windier (or sunnier) than others. The same turbine in two different locations will generate different amounts of power. Wind and solar are more land intensive than nuclear or petroleum based power. Identical wind turbines, in different locations, could have dramatically different costs per MWh.  For example, if the turbine is placed on the coast, just offshore where the wind blows continuously, utilization is high and the land may be given to you by the government. Onshore, most locations will have a much higher cost.

Most turbines are likely to average 30% utilization. That means that America needs 1.8 million wind turbines to power our 263 million cars, or 90,000 installed every year (1,900 every week) for 20 years. That would create quite a very large wind power industry. But, it wouldn’t work quite this way. 

That’s our next rule, “Costs are rarely linear.” The first new turbine we added would be in a great spot, where the wind blows often, the land is cheap and we’re near the users (farther away and you lose too much in transmission). The next turbine will be put in a slightly less ideal location. You go from great to good, to barely break-even locations. After 100,000 turbines… maybe 200,000 possibly 500,000… either the wind isn’t reliable or the land costs too much, or something else is wrong. Wind and solar power can be a big part of the solution, but other power sources will also be needed.

Carbon Is Back: Other options? Hydro-electric is out. Rather than building new dams, dams are being torn down across America because of environmental concerns. There’s always nuclear, but its reputation is so far from spotless that it’s a non-starter. Which is a pity. That bad image comes from reactors built to 1950s design specifications. The latest designs, using Thorium instead of Uranium or Plutonium, are simpler, cheaper and far more reliable. Still, it takes such a long time to approve and build a reactor, even without public opposition, that if we planned a new reactor today the first watt of nuclear power won’t appear until well after our 20-year time frame. Let’s move on.

So. Ahhh. Ahem. Coal.  A third of our electricity comes from coal. Even if we don’t build a single new coal-fired power plant, we are likely to ramp up the utilization of existing coal plants, especially overnight. We could also close the oldest and dirtiest coal power plants and replace them with newer, cleaner facilities. However, the newer the plant, the more it will be automated. Which is another rule… Newer = Cleaner = Less jobs. Clean coal is technically possible, it’s just not likely to be economically feasible. Of all of the forms of energy we can expand, coal offers the fewest jobs.

Nonetheless, ever since the 2016 Elections, Washington has talked about putting coal miners back to work. But more coal, clean or dirty, isn’t going to create a lot of new jobs. The problem isn’t the power plant, it’s the mine itself. Political ads show coal country miners from Virginia, Kentucky, and Tennessee taking crowded elevators deep underground into claustrophobic tunnels. That’s an accurate picture of the coal industry… a century ago. But not today.   

Today, two-thirds of America’s coal comes from open pit mines and draglines. It works like this. Find a mountain with a seam of coal running under it. Now, carefully lift the top off of the mountain and gently put it down in the valley. Sorry… got that wrong. I meant to say, use tons of high explosives and turn the mountain into gravel.

Now put a gigantic crane, weighing as much as 1,000 school buses, on the highest spot overlooking the coal seam. This crane is the dragline. It throws out a massive bucket that is dragged across the floor of the mine, scooping up hundreds of tons of rock and coal. The largest dragline ever built is operated by a crew of five.  That’s why the Department of Labor lists a mere 3,150 jobs in “Excavating,  Loading Machine, and Dragline Operators”.  From cramped mines filled with miners to one machine digging up more coal with a crew of 5, it seems obvious that the next step is fewer, if any, workers. 

 

Big Muskie Bucket

Dragline bucket

Likewise, the giant trucks and other vehicles to move coal from the mine to the nearest train are the heavy duty trucks we’ve already said will be the first vehicles to be converted to self-driving. If we use more coal to meet the demand for electricity, it will unquestionably accelerate automation throughout the coal industry.

Natural Gas?: Of all the petroleum products we can use, natural gas seems to be the best option. It’s abundant, inexpensive, and the cleanest petroleum fuel. For all of these reasons, it has been natural gas… more than pollution regulations… that killed coal.  

Then, fracking came along. Well, that’s not quite true. Fracking…  using hot pressurized water to crush shale deposits deep in the earth… was invented in the 1950’s. This process produces oil and natural gas. Fracking picked up speed when horizontal drilling was developed, allowing the profitable extraction of small pockets of petroleum.

However, the new technology made so much new drilling possible that new problems were created. Oil spills. Petroleum showing up in drinking water. Even earthquakes! We’re not talking about a tiny but statistical number of quakes. Ohio used to have 2 quakes a year. Now it is well over 1,000 every year, with each quake under an active fracking site.

Clearly, fracking has been misused. And environmentalists can point to some pretty bizarre side effects, like drinking water that catches fire. Or pipelines that are being forced onto Native American tribal lands, completely ignoring tribal rights. The 200 trillion cubic feet of natural gas in US shale deposits could recharge our cars for the next 300 years. If we were just a bit more selective in where we drill, we could greatly reduce these effects. Or we could ignore fracking and just use non-fracked natural gas, which is enough to keep things running for the next 50-100 years.   

Getting There:  There are tremendous benefits to self-driving cars. It seems inevitable that all developed nations will quickly adopt vehicles that are intelligent enough navigate our streets and highways. However, the transition to intelligent vehicles entails another transition, from petroleum to electricity.  THAT transition requires a massive expansion of our national power grid… the biggest expansion ever!

Most of the power grid is nearly a century old. It’s not just the powerplants, it’s the distribution infrastructure. Cables that carry current from the power plant to our homes and offices are still made of copper. Using copper cables means that we lose between 8% and 15% of all the power we generate in the transmission and distribution process. Newer alloys and even some early superconductors can reduce power losses, saving billions of dollars every year.

And then… Change is on the way! Self-driving electric cars are all but inevitable. But the changes that these cars will bring are based on decisions we have as yet to make. We can build new industries, change how we work, and perhaps… just perhaps… save our environment.

But before we reap all these benefits, we have to make those decisions. How will we grow our power grid? Should we utilize the unused capacity of our coal power plants or should we focus on building a next-generation power plant that we can roll out in force? Should we even consider what happens after our 20-year timetable? We will have consumed much of our remaining global petroleum reserves. Is it time to start talking about fusion power? What do you think? Comment and share your opinions!

Posted in cars, Decision Making, Improvement, Robots, Uncategorized | Tagged , , , | Leave a comment

The Other Shoe Just Dropped


Reshore

(Previously published in Outsourcing Magazine)

For years, the outsourcing world has been buzzing about reshoring (or “backshoring” in Europe), taking the jobs we sent offshore years ago and bringing them back to the US and Europe. Low wages, cheap property, and favorable taxes made offshore manufacturing very attractive. But in recent years property values rose, staff turnover increased, and wages just keep heading up. Despite weakening economics, offshore still made sense. Until today!

By far, the greatest financial advantage to offshore manufacturing was derived from labor arbitrage – lower wages from “replacement” workers. Low wages plus workers who can do the work are a winning combination. To access low-cost labor, manufacturers will happily build the factories, roads, and infrastructure needed for manufacturing. China has been the gold standard for outsourcing, but western manufacturers are being lured by still lower wages in Vietnam or Thailand. Now, technology has taken a big leap forward, and suddenly… wages don’t matter!

Today’s robots are intelligent machines that can perform almost every function a human being can. The latest intelligent machines don’t just help workers to be more productive, they completely replace workers. Robots eliminate the need to build factories where low-cost workers live. You can just build the factory where you want and install robots instead of workers. When wages no longer matter, onshore factories make a lot of sense.

Onshore factories certainly make sense to Adidas. Last year Adidas built their first SpeedFactory in Germany. A SpeedFactory is their name for a new generation of onshore factories that provide three benefits. First, it is highly automated, delivering a lower cost of operation than an offshore factory. Second, by building the factory in major consumer markets, transportation costs are greatly reduced. Lastly, because SpeedFactories are built near consumers, Adidas can quickly restock sold-out products and reduce customer frustration.

Not surprisingly, Adidas is building a second SpeedFactory in Atlanta, scheduled to open in 2017. Reebok, a subsidiary of Adidas, has announced the construction of a similar factory in Rhode Island. Nike has been talking about building a new factory in Oregon for the last year. (Come on Nike… Just do it!) What looks like a pretty good idea today, will be an irresistible financial proposal in a year or two.

One of the biggest difference between a human worker and a robot is the way costs change over time. Workers want raises and promotions. Over time, the same factory producing the same number of goods has higher labor costs. When the factory is offshore, this happens even faster due to higher offshore inflation and increasing competition for workers. Robots, however, cost less every year. Next year’s model will work faster, have more capabilities, and still cost less. As time goes on automation looks better and better.

If this is the beginning of a new era, where onshore can be more efficient than offshore, what will happen to all of the work that is already offshore? If a location only offers lower wages, we can expect that work to be reshored in a few years. Offshore factories need more compelling advantages to resist reshoring? Since China has the most to lose from reshoring, let’s see if their plans tell us anything about the future of offshoring.

  • Domestic Market. When offshoring took off at the turn of the century, products were manufactured almost exclusively for the West. Today, China is the largest consumer of Chinese manufactured products. For example, while America has peaked at 100 million iPhone users, China has 135 million users and plenty of room for expansion. China is able to be a “local” supplier for East Asia and India… if they maintain their manufacturing edge.
  • Energy. Manufacturing requires electricity, and next to labor, energy is often the highest cost for manufacturing. America has a significant cost advantage for electricity compared to most of Europe. Underdeveloped countries have high-cost power and unreliable power grids. In many offshore locations, manufacturers must invest in generators and other infrastructure. The cost of electricity in China is comparable to America. However, in the past decade, China built hundreds of new coal plants, is building 20 nuclear plants and has more solar and wind power in production than any other nation on earth. Old and inefficient plants are being closed. By the 2020’s, China may set a record for low-cost power generation.
  • Technology. China’s population has almost plateaued, and by 2100 will decline by 500 million. China already has problems hiring for manufacturing jobs, which has led to runaway wage increases. China has very ambitious plans to add between 1 and 4 million robots by 2020. If China succeeds, China will need to build and install enough robots to become the world’s undisputed #1 manufacturer and consumer of industrial robots. Furthermore, because of this robotic work, by 2020 China must develop the ability to build the most efficient factories in the world.
  • Financing. If hundreds (if not thousands) of robotic factories are going to be built in America and Europe, that will require capital financing. Four of the top 10 banks in the world are Chinese, two of which have “Industrial” or “Construction” in their names. China also happens to be home to six of the world’s largest construction firms. With leading positions in banking, construction and robotics China is going to build most of the world’s new factories.

Adidas pointed out the value of reshoring, and other big-brand athletic gear companies are hot on their heels to find new onshore manufacturing efficiencies. If China dominates in robotics, energy production, financing, and construction, they will move beyond the title of “The World’s Manufacturer”. China is positioned to also dominate in building the next generation of factories throughout the world, or at the very least to be the default option for every factory that is built in the 2020s.

The latest generation of technology will level the playing field for manufacturing, making a factory built onshore as financially attractive as locations halfway around the world. After a very long time, the tide has turned and new factories will be built in America and Europe. The trend has just begun, but every week we’re going to see new models of industrial robots at ever lower price points.

Everyone who manufactures offshore will soon start thinking, “Does it make sense to stay offshore?” If you are an outsourcing provider, you need to ask yourself, “If low wages no longer matter, what is my new value proposition?”

When it comes to robotic factories, onshore and local has big advantages over offshore and distant. As all factories become robot factories, the change in locations is just the beginning of changes that factory owners, outsourcers, consumers and experience as technology replaces workers, and the world’s factories are made in China!

Posted in Delivering Services, Employment, Improvement, Robots, Unique Ideas | Tagged , , , , , | Leave a comment

The Evolution Of The Millenial


plantilla

The Robot Revolution is on their heels and catching up! By the second decade of the 21st century, everyone can see that “change” is speeding up. By the third decade, a quick glance in the rearview mirror and all you can see is the Robot Revolution. Robots are expected to take over half of the world’s jobs. Self-driving cars, banking on your mobile phone, order kiosks at McDonald’s, virtual reality, and automated factories are our future.

What about the human beings? You remember them? The rulers of the planet… the top of the food chain? It’s obvious that technology is changing our world, but is technology changing us? As more of our economy and our culture becomes robotic, will humanity could become nothing more than a wetware interface to the corporate machine? Technology could change the very definition of what it means to be human. But this isn’t the first time that the evolution of man has been dictated by technology.

Humans started out as nomadic hunters. After tens of thousands of years we developed tools to produce more food. Farming became a better option than hunting. We settled down. First in small settlements and then in cities. We discovered metals, which made better tools than bone or wood. Humanity experienced the bronze age. Then an iron age. And, a long time later, we built our civilization on steel. Soon, it will be carbon fiber and robots.

When the human race moved from settlements to cities, we went from individual self-sufficiency to becoming specialists. Specialists… such as blacksmiths… would make their specialty products (swords, shields, nails, and iron wheels) and then trade for foods and other necessities. Trade-based society requires other technologies… shipbuilders, gold miners, coin makers, horse breeders, paper mills, insurance… which fuel the trading routes that spread goods and technologies around the globe. Well, after we invent the globe, of course.

Other species ruled the earth before, but they changed themselves. They evolved into new species to fill in gaps in the environment. Humanity, on the other hand, makes the environment change until it suits us. We leveled mountains, changed the course of rivers, turned forests into farmland, and then our well-clothed ancestors moved into colder climates. As difficult as it is to believe, the next century will bring even bigger changes.

Human beings can change faster than any other species. In fact, humanity has changed so quickly in the last few centuries that the rest of the planet is having a hard time keeping up with us. We’ve heated up our atmosphere, wiped out countless species, emptied the ocean of fish, cleared away rainforests. 

When archeologists examine ancient civilizations, they look for artifacts. These bits and pieces, a fragment of pottery here and an arrowhead there,  tell us how this civilization came into being, how it’s people lived and how a new civilization came to replace them. For example, let’s consider Otzi. 

Back in 1991, archaeologists discovered the body of Otzi. Otzi lived 5,000 years ago, during the end of the last ice age. One cold winter night, he froze to death. For thousands of years, Otzi and all of his possessions were entombed in ice, beneath an Alpine tundra. When the ice above Otzi melted, he was found by mountain climbers and whisked away to a local museum. His perfectly frozen body… and a knapsack full of artifacts… tell us all about his civilization and even Otzi’s last days on earth.

What if we could do the same? What if we could look at our world from the point of view of a future archaeologist? What would they think about our lives and culture? Imagine if one of our Millenials was found a thousand years from now? Along with an iPad clutched in his frozen hands? Let’s call our future corpse, Milo.

Meet Milo: Milo is a typical Millenial. He is ambitious, well educated, overly stressed, too often medicated, and a tad… ahhh… fat. Still, even though he has a few problems Milo, and all the Millenials, lived a long life. Longer than any generation before him.

Millenials are generally considered to be weak, soft and temperamental. And they are, at least compared to earlier generations. But they had problems unique to their generation. If we look back at our iceman, Otzi, we believe that he died escaping… someone. He was injured just before he died, possibly by a flint knife. He was carrying an ax with a copper blade, indicating that he was either wealthy or important. He might have trespassed on someone’s property, or he just might have made a good hostage. In either case, he escaped his pursuers by hiding in a ditch in the hills. Unfortunately, that’s where he froze to death and was later covered by an Alpine Glacier.

Milo never feared these life or death situations. Except when he plays Call Of Duty. His office job did not leave scars upon his body, although his bathroom scale would beg to differ. The unique thing about the Millenials, Milo included, were their brains. Just about every generation of workers in the world worked with their hands and their muscles. Milo’s was the first generation where Knowledge Workers dominated the workforce.

Food: You can tell a culture by what the people eat. And drink. Otzi had a simple diet, and he burned off his calories running cross country, up and down and across the Alps. Otzi’s last meal was fatty meat, providing lots of energy for mountain climbing. It was probably an early form of bacon. Milo was not unfamiliar with bacon. While many Millenials were vegetarian, bacon was very popular. Still, when it comes to energy, Milo and the Millenials had a special secret. They called it…  

Caffeine! The Millenials didn’t discover caffeine, but they may have perfected it. Sure there was coffee. Millenials love coffee. And soda. But it was Millenials that doubled down and became the energy drink generation. Milo loved coffee. On an average day, Milo drank 2 cups of coffee, a half cup of tea, 2-3 glasses of cola, plus an occasional energy drink.

You can understand why Otzi would need caffeine to elude his pursuers, but why did Milo need so many stimulants? When Milo graduated college with an MBA, he expected to become a corporate executive. Instead, he spent years in other low-level positions, including a job as a barista. A bit ironic, eh?

Milo had a much more varied diet that our Iceman. Otzi would have been jealous of Milo’s dietary choices. Rather than being thrilled with his choices, food made Milo anxious. Is today’s lunch special organic, or all natural? Is it gluten-free? The shrimp look good, but doesn’t shrimping destroy the sea floor? Can’t have the hamburger. Cattle make methane. Maybe almond milk? Nope! Almond trees use too much water. Millenials are hyper-aware of their environment and know that everything will doom them… eventually. For Millennial, life is like that line from GhostBusters, “Choose and perish!” Then the Stay Puft Marshmallow Man attacks New York. I wonder if the Stay Puft Marshmallow Man is free trade?

Education: Milo was privileged to belong to the most educated generation in history. Milo had an MBA, a degree in business. This late 20th-century invention was intended to make business management more predictable, reduce financial risks and make business more profitable. For Milo, an MBA was synonymous with debt. He needed two barista jobs to pay his school loans, while he waited for several years to land a “real” corporate job. Milo spent endless sleepless nights worrying about his loans. Good thing barista’s get a discount for that midnight coffee run!

But coffee alone won’t get you through school. It takes focus, determination, and willpower. Or Adderall. Traces of Adderal in Milo’s system tell our future archaeologists that he first tried Adderall in grade school, and became a daily user in high school and then in college. Of course, Milo didn’t have a prescription for Adderall. Milo didn’t have attention deficit or any other specific complaint. He just needed Adderall to give him the super-human focus needed to get into a highly ranked college.

Unlike the opioid crisis, or the anti-depressant crisis, or the sleeping pill crisis, or even the diet pill crisis, Adderall isn’t addictive. But Milo was never an “A” student, before Adderall. It got him into a good college. Of course, staying in a good college, meant 4 more years of Adderall. OK, 6 years. Milo had a few setbacks.

If we go through the files on his iPad we can see that it was easy for any Millenial to obtain Adderall. Just turn to Craigslist. Put in an order and have it delivered to your dorm room. Along with just about any other drug you need. Eventually, after Milo graduated and went through a few dead-end jobs, Milo went back to his Adderall addiction to compete for a high paying corporate job.

Work: Slavery and warfare fueled the prosperity of many civilizations. Work was long and hard and took place out in the fields. You worked on a farm, or dug in a mine, or traveled with a caravan. Perhaps you were a soldier. Very few workers, such as craftsmen and artists, worked indoors. Glorious, glorious indoors! You didn’t get rained on. There weren’t any wild animals. You rarely dealt with floods and avalanches.

Milo lived in the golden age of work. Milo works indoors in airconditioned splendor! As a knowledge worker, Milo is even allowed to sit… all day long. Most of America’s workforce has similar indoor jobs. That’s historically unprecedented! Yet, these spectacular working conditions led to the greatest paradox of the early 21st century.

Factory workers used to be the core of the economy. They manipulated materials, creating higher value goods. Knowledge workers manipulate data, also creating value. In the last quarter of the 20th-century knowledge workers… financial analysts, lawyers, computer specialists… were relatively rare. By the time Milo was promoted to a corporate executive, the workforce was full to the brim with knowledge workers. For example, Milo’s bank had tens of thousands of financial analysts. To manage this number of knowledge workers, positions needed to be more standardized and templated.

The irony, of course, if that you hired knowledge workers for their brains, for the independent decisions they could make. But as their numbers swelled it was more important to get everyone to work the same way. Like a factory. A Knowledge Factory. Banks, accountants, consulting and law firms have all “evolved” into knowledge factories. The rise of knowledge workers happened alongside the rise of computers.

Knowledge workers combined with computer processing made a powerful… and irreversible… alliance. Now every corporation was becoming a knowledge factory. If we look at the files on Milo’s iPad, we can see that his job required him to fill out computer templates and fix templates from other workers. Everyone used the same software and the same templates. Milo was a cog in the machine. Or maybe a CPU cycle in the corporate computer. When all of the workers work in exactly the same way, it certainly increases efficiency. But it also means that the computer that assisted the Millenials could soon do their jobs. And, as we’ll see, they did.

Recreation: Previous civilizations had little time for leisure. Work was too tiring. By the time you were middle-aged, assuming that you lived that long, you were bent over and arthritic. When Milo was middle-aged, he stood up straight, need neither walking stick nor wheelchair. His blood pressure was too high, but he felt relatively good. And his lifespan was the longest in history so far.

Milo had more time for recreation than any generation before him. Workers in the mid 20th century watched Baseball and participated in urban team sports like Bowling and Pool. If Milo ever played bowling or pool it was on a game console. Milo’s preferred his recreation as video games. He also has binge nights streaming NetFlix and media services. A big part of Milo’s recreation is keeping up with his friends from college and the gaming world, who are spread around the globe.

Milo spends hours every week on his social network, what he did, ate and met. His iPod (and his iPhone and his computer) was central to his recreation. At work, he spent all day on the computer and at home he spent all night on a computer. Hey, those selfies aren’t going to take themselves! While the Millenials were very intelligent, they failed to notice that they were being shaped to fit the way that computers worked, and computers were being shaped to fit the way that Millenials lived. Millenials and microchips were co-evolving. Soon their work would be interchangeable.

Robot Revolution: And then it happened. The technology took over. The first self-driving cars were cool! It was great when his smart TV told Milo about a new movie to watch. As artificial intelligence improved, AIs arrived in the workplace. At first, AIs helped knowledge workers. But just a little while later, AIs replaced many of Milo’s friends.  Every year computers became faster and cheaper. Alternatively, a Millenial’s brainpower peaks in the late 20’s or early 30’s, and every year they ask for a raise. If buying an AI isn’t a better deal than hiring a Millenial, just wait a year or two and it will be.

Every year computers got faster and cheaper, while the brainpower of a Millenial probably peaked by their late 20’s or early 30’s. Millenials expected a raise every year, compared to computers which got cheaper and faster with time. Inevitably, computers stopped assisting and started directing. With a small twist in job descriptions and a slight change in HR rules, Milo found himself reporting to an AI.

The computer revolution was a good thing. Computers improved our lives. Computer-driven cars eliminated the 35,000 deaths a year that human drivers caused. The stock market prospered when financial analysts like Milo selected the stocks for Mutual Funds. But computer managed funds consistently outperformed humans, including Milo.

As AI’s took over, the world became a safer place and everyday goods became cheaper. On the downside, a lot fewer people were employed. It used to be that new technology meant new jobs. AIs created new jobs, but they also took those jobs as quickly as they were created. Eventually, the government realized that it wasn’t getting anywhere with 6 months of unemployment insurance and job training for jobs that no longer exist. Slowly, the Federal government piloted UBI payments. UBI (Universal Basic Income) is basically a paycheck for being a citizen. The idea is that no matter how cheap things get in an AI world, people still need some money.

Some of Milo’s co-workers tried to keep up by taking higher doses of Adderall, using enough stimulants to work all night and even using electrical stimulation to improve brain functions. For a while, they were hyper-productive, but a year or two later a new  AIs could outperform them.

By the mid-21st century, Millenials were pushed out of employment and forced to play game and binge TV watching all day long. With his bills paid by the UBI, Milo and his generation retreated to their man caves and worked no more. A terrible end for a promising generation, but a better ending than getting flash frozen and buried under a Tundra.

Life After Milo: Wipe away your tears for Milo. Remember, Milo life is a possible future. Like Scrooge said to the Ghost of Christmas Future, “I yet may change these shadows you have shown me, by an altered life!” Maybe. Millenials still have a few years to change. The Robot Revolution will be focused on big corporations and manufacturers. Small firms will adopt far aggressive automation and will take longer to replace jobs. The creative economy will continue to make millionaires and billionaires, in art, music and innovative services.

Our Iceman, Otzi, was a victim of the dangerous times he lived in. He probably spent his entire life just one step ahead of the bandits that eventually killed him. Milo, on the other hand, never had to deal with physical violence. Just the same, those robots are catching up with Milo and the temperature is dropping. Will the Millenials learn and change their ways? Don’t ask me! In my house, Alexa gives all the advice!

 

 

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