Why Geographic Arbitrage Didn't Work For US digital workforce
May 8. 2014 by Bojan
Daniel Genser talks about Geographic Arbitrage and trying to realize why it didn’t happen for US workforce. But in fact it did, just the fruits of it don’t end up to American labour. Personally I’ve been outsourced workforce on my first job. I’ve been arbitraged, so I am talking about this whole process from personal experience.
In order to understand the arbitrage, we have to comprehend that there is a disparity first. And in that case we need to compare two income disparities. First disparity is between the costs of living in Silicone Valley (tech bubble land) and a small town in USA. Afterwards you need to compare the living costs in a small US town (and a quality of life in it) and a major city in a developing country. The costs of living in a developing country are significantly smaller than of someone living in a smaller US town. However big cities in developing countries offer much more than small towns in US. Now when you compare the two, you get the better bang for the buck by outsourcing the extreme talent in developing countries for less, than average US for more (because the talent is already in Silicone Valley).
Now in the era of internet and geographic distribution of labour, US employees are not only competing locally, but they are competing globally. We’ve all seen how US workers underperform Chinese factory employees when it came to manual labour. Now we are witnessing the second wave of attrition of jobs in the internet sphere. Majority of this attrition can be appropriated to the poor education and lack of value being delivered as an employee.
Now the reason why Silicone Valley is “on site” is because of the nature of the money and environment. When you pay for something, you want to “see it”. Still numerous investors want to see what is going on. The lure of money is also bringing in a lot of talents on site. This is disruptive, as it drains the best and brightest from other locations and creates virtual monopoly over the brain power.
For past four years I’ve done both types of work. I’ve worked from home, and I’ve worked from the coffee shop, as well as from the beach. For the other part, I’ve also done my fair share of the office work. And at the end of the day, I feel that there are advantages of both, however if we are to compare one and another, “on site” work is significantly stronger than telecommute.
As we’ve previously discussed in the Issue 2 of AlphaEfficiency Magazine, communication is significantly different in person, compared over the phone and over the instant messaging platforms. There needs to be a balance between “in-house” work and telecommuting, as both are increasingly important for the sanity of the employee. So remote work is not the way of the future in the absolute.
The nature of the “mastermind groups” mostly occurs when people have same (corporate) cultural background, and best teams are working together in person and act and feel as a family, loyalty levels are increased, as they are coming from the peer group itself. It is dramatically different compared to loyalty compared to chat avatars and videos and voices from the people that are distributed thousands of miles apart.
And this is why Silicone Valley is making a disruption, it gathers the most ambitious and success driven individuals in a single place. It offers something that other localities can’t:
- Satisfaction of the monetary need
- Incredible talent pool that significantly amplifies the results of each and every individual within it.
By being in tech bubble land and being surrounded with people who are on the forefront of the innovation in your industry. When People are together the flow of ideas is spreading faster. The mere fact that talented people are sharing the same locality guarantees the better environment more suited for success. Environment is the king when it comes to personal development. The people you choose to be your friends and coworkers are a predetermining factor for your success. Some people may argue this, but it is the fact. And environment is critical and quite disruptive factor of growth.
How long will this “monopoly” last?
Big money has finally figured out that not everything needs to happen in LA. There are more influential and financially capable people that realize that things that happen in LA can be successfully replicated in other areas of the world. Which doesn’t resolve in favor of “remote work”.
My hunch tells me that major hubs in Europe as well as European capital will start pooling the talent towards the big cities, where we will see replicated experience. The big difference about Europe is the fact that not everybody knows English, but that doesn’t make their intellectual resources any smaller. Countries like France and Germany actively work on suppressing the spread of English language by not promoting it at schools and not incentivizing it.
However European economies are strong and do not have the dependency over English in a way that developing countries do. Hence there is no stygma for European citizens for not knowing the language. This is creating a significant brain pool that Silicone Valley can’t tap into. Beside that I feel that European Capital started understanding how little is required to start a ground breaking project when it comes to resources.
With this shift in mentality of capitalists across Europe we will see Paris, Brussels and even London, becoming strong centers of internet entrepreneurship. We can easily expect to see the shift from Silicone Valley to Europe, where there is not only more quality undiscovered talent, but also a larger variety of them to choose from.