During the 1970s and 1980s, the economic miracle of the East Asian Tigers captured global attention, offering valuable lessons for other developing nations. At the heart of their remarkable economic development was a strategic focus on labor-intensive industrial outsourcing from industrialized countries like the U.S. to countries such as China, which emerged as a manufacturing powerhouse for labor-intensive products.
This shift was driven by a combination of comparable productivity levels and significantly lower labor costs in these developing nations. As a result, blue-collar jobs were increasingly outsourced from developed countries to the East Asian Tigers, leading to substantial economic growth and development within these countries. I believe the proliferation of the internet and connectivity worldwide offers an opportunity for an economic miracle.
A few decades later, the world is witnessing another mass exodus of jobs fueled by the internet and the doors it unlocked. Since its creation in the 1960s as a tool for information sharing by American scientists, the internet has undergone numerous transformations and become an integral part of our daily lives. Various sectors, including industry and finance, are currently experiencing their fourth revolution, known as Industry 4.0. This phase is characterized by connectivity, big data, and advanced analytics. The primary factor enabling internet access is connectivity itself, along with the speed of the internet.
Thanks to advancements in technology worldwide, the gap in terms of connection speed and access has significantly diminished. As a result, the vast amount of information accessible in the United States of America is now just a click away in Ethiopia as well. In addition to increased information symmetry, the embeddedness of the internet in our daily lives has created various new job requirements that can be worked fully remotely. I believe this has resulted in the cusp of what I call the Remote Revolution, the outsourcing of traditionally office (white-collar jobs) from developed countries into the developing world.
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When it comes to talent gaps, it’s important to consider two types: the first being related to the shortage of tech-related jobs, and the second pertaining to white-collar workers adapting to technology-driven workflows, managing diverse teams, and optimizing productivity.
The first type of talent gap is prevalent worldwide, with a significant shortage of tech-related positions. For instance, according to the U.S. Labor Department, there is an expected shortfall of 1.2 million software engineer roles by 2026 in the U.S. alone. This trend extends beyond the US borders, as McKinsey & Co. indicates a shortage of 700,000 tech-related jobs in Germany in 2023, anticipated to grow to 780,000 by 2026. The shortage is so severe that Germany has simplified immigration laws to attract non-EU citizens for tech roles. With improved internet access and reduced knowledge disparities, professions such as data scientists, product managers, and software engineers stand to benefit from the remote revolution.
In the case of the second, various workflows and systems are increasingly being digitized. This has made the demand rise for white-collar workers who are digitally skilled and tech-enabled in their workflow. Many top global businesses and organizations around the world are seeing the benefits of technology (in terms of cost savings and increased productivity) and are integrating digital skills into their day-to-day operations. However, a gap remains between digital skills and tech-ready employees worldwide. A study by McKinsey & Co. estimates that around 85 million workers are estimated to not be sufficiently digital-ready for the demand from their employees by 2030.
To this end, remote workers in various fields who are digitally ready and capable of seamlessly integrating with the workflow of organizations are going to be in top demand compared to workers that aren’t digitally ready world-wide.
The second main reason the remote revolution will be in full flow is related to the astronomic wage differences observed between developed and developing countries. A survey done in 2021 by the U.S. Labor Department states that the median wage of a software engineer is estimated to be around $102,000 per year. In writing this article, I managed to consult around five different software engineers working in Ethiopia, who estimated that the median wage for a software developer was from 30,000 birr to 50,000 birr ($545 to $900) per month. This means that for a similar level of job position, Ethiopia offers developers a cost that is around 10x cheaper compared to the United States median salary for developers. I believe the astronomical wage difference will serve as a cause for employers in developed countries to look more and more at outsourcing as a viable option, hence fueling the remote revolution.
The Main Threat: Generative AI
The remote revolution is currently facing a significant challenge in the form of the advancing capabilities of Generative AI. Unlike previous applications of AI, Generative AI has a broad knowledge domain and can generate various types of content, such as text, images, and data, based on input commands. Prominent examples of Generative AI include Chat-GPT and Google’s Bard.
According to a recent report by McKinsey and Co., Generative AI has reached median performance levels in terms of its ability to perform tasks. One of the primary areas subject to automation is knowledge work, encompassing fields like customer service, research and development, and software engineering. Generative is expected to achieve top human performance in these sectors at an early stage. Furthermore, foreign firms are motivated to reduce costs in their operations, which will accelerate the development and adoption of generative AI in developed countries. Consequently, this trend poses a threat to outsourcing opportunities for workers in developing countries, potentially undermining the progress of the remote revolution.