The fast view
- The concept of an office as a place requiring the physical presence of labour has been slowly eroded by the globalisation of services.
- Three factors have been driving this trend: online freelancing platforms, machine translation services and communications infrastructure – which are all well established. Despite these changes, the current workplace has been slow to imagine a different reality.
- COVID-19, however, has suddenly shown just what is possible in terms of remote work. By working remotely, space becomes compressed, and borders fade — what starts in New York arrives in Dallas and ends in Johannesburg.
- The implications for white-collar workers, commercial real estate and the digitisation of services are profound.
- We are witnessing a major socio-technological paradigm shift – within a decade our current world of work could look unrecognisable.
The COVID-19 tailwind
Fantasising about the obliteration of office life is not new, yet according to the Bureau of Labour Statistics, as recently as September last year, just 4% of people in the United States mainly worked from home.1 COVID-19 has been a sufficiently large shock to overcome longstanding behavioural and technological barriers to working from anywhere, and it has become a consensus view that the pandemic will prompt many companies to reassess geographic footprints, normalise flexible working arrangements and shift commuting patterns. Markets are anticipating this will hit commercial real estate particularly hard. But that is just the thin end of the wedge. Domestic or regional telecommuting may well become international telecommuting.
The globalisation of services is being hastened by COVID-19, propelling businesses, countries and society at large to evolve in ways that would have happened much more gradually over time. Services employment, which has often been excluded from international labour market competition, will now be increasingly subject to this global transition. The squeeze on white-collar wages in advanced economies will likely become more pronounced. Countries that are ill-equipped to prepare their workers for this new world of work will face a higher risk premium. Meanwhile, the globalisation and automation of service-sector jobs will put pressure on urban property values as it becomes possible to work collaboratively in more places. Finally, the companies that underpin this new digital economy will be well rewarded. As with all major socio-technological shifts, the impact will play out over many years.
Services are globalising
Unlike goods, people cannot be easily packed into a container and shipped around the world. However, three factors are now making it easier to trade services across borders:
- Online freelancing platforms are assisting in matching labour.
The last few years has seen the rise of online freelancing platforms such as Upwork, Freelancer, Fiverr, and PeoplePerHour. In China, the largest platform is ZBJ.com, with 16 million people registered. Online freelancing platforms are different from local gig economy platforms like Uber, Deliveroo and Taskrabbit, which mediate onsite, in-person services for a set price. Online freelancing platforms like Upwork usually feature expertise or higher task complexity. As such, they are a source of direct competition to traditional white-collar labour.
A 2017 study of four platforms from the iLabour Project at Oxford found that 24% of online workers are in India, followed by Bangladesh (16%), United States (12%), Pakistan (8%), the Philippines (6%) and the United Kingdom (6%).2 By lowering the cost of hiring foreign service workers, freelance platforms are allowing firms and individuals to take advantage of international wage differences. Nevertheless, the presence of the United States and United Kingdom on the list of top online workers suggests that some high-wage countries may also be able to gain headway in the international services trade. While early adopters of the online freelancing platforms were mostly individuals and SMEs, large firms have begun to use these platforms in substantial ways.
- Translation software is enabling a broader labour pool.
The fact that international service jobs have typically been intermediated in English has led to work being disproportionately concentrated in English-speaking developing countries like India and the Philippines. Yet translation software is now widely available and good enough to involve cross-language work, as anyone using Google Translate will attest. Another interesting example is DiDi Mobility Japan, a joint venture between Didi Chuxing and SoftBank Corp, which uses Microsoft translation to help foreign visitors communicate with drivers. So, while translation software still has shortcomings, it works well for most business transactions that are fairly straightforward.
- Improved communications technology reduces the significance of physical distance.
COVID-19 may well bring forward more investment in augmented reality (AR), virtual reality, and holographic telepresence. These are technologies that, powered by sophisticated smartphone cameras and ultra-realistic computer graphics, allow us to step into a digital world that replicates our offline world faithfully. Augmented reality in the form of remote surgery has been around since the 1970s when NASA scientists began to tackle the issue of performing operations on injured astronauts. But not until recently has it been possible to collaborate virtually and straightforwardly on complex tasks like surgeries. This allows patients to get the best expertise available despite being treated by local doctors on site. For instance, Proximie has been used since 2016 by doctors in Beirut to assist surgeons operating in the Gaza strip. During COVID-19, Proximie technology was used by NHS trusts to connect self-isolating healthcare clinicians to support those on the front line.3 The diffusion of this technology across different professions could be transformative.
“How did you go bankrupt? Two ways. Gradually, then suddenly” – Ernest Hemingway, The Sun Also Rises
This coming wave of globalisation of services labour will have an enormous impact on markets and society. In a sense, as the Hemingway quote suggests, change will initially be slow, but then be subject to a series of irreversible tipping points that will result in the bankruptcy of older working arrangements. Formal services employment is likely to change substantially over the coming decade.
Key market impacts
Three important shifts that market observers should consider
First, pressure on white-collar wages in advanced economies is likely to stay and even accelerate, keeping real wages low for many years to come. This will lead to domestic political pressure for societies that cannot adapt, scrambling risk premia for countries hitherto considered to be politically steady. Economically, think of this as a “China shock” but for the much larger services sector. The “China shock” refers to the jobs displacement that occurred when Chinese workers were introduced en masse into the global tradable goods sector. The resulting economic decimation of places like the midwestern US directly led to swing votes for Donald Trump’s election in 2016. The episode demonstrated that the US labour market was not as homogenous or as flexible as many had thought. Displaced workers in the most exposed regions often dropped out of the workforce rather than finding new, let alone better jobs. The globalisation of services will be like the “China shock” but on a larger scale. Services now make up around 80% of British, Swedish and US output, and around 70% of German, Italian and Japanese output, implying a much larger hit to employment if these new communications technologies take off.
Second, there is clearly going to be downward pressure on urbanisation and commercial real estate as it becomes possible to work collaboratively in more places and as firms try to save costs. James Gorman, the chief executive of Morgan Stanley, has already declared that his bank would have “much less real estate” in the future.4 It does not take much imagination to see that the COVID-19 shock might catalyse substantial efficiencies. After all, workspace occupancy studies have consistently found that desks are in use on average just 60% through the core working day.5
Figure 1: Shrinking space requirements
Source: Adrian Ponsen, CoStar Group.
Finally, as employers build the infrastructure to make telecommuting seamless, the companies that become the backbone of this new services trade – the commercial platforms, the data platforms, and the technical tools – will deserve a premium. We know that extraordinary events like COVID-19 have typically marked a turning point for many successful businesses. The outbreak of SARS in 2002 was a turning point for Jack Ma at Alibaba, who began to push for its online e-commerce platform Taobao. Similarly, Richard Liu at JD began to move his business online at the time. We also know that technologies often require several strands to come together before widespread diffusion. While e-commerce sowed its seeds during SARS, it did not take off until 3G and smartphones arrived in 2007. Today, advanced economies have for years been on the cusp of adopting a number of new technologies in cloud computing, enterprise software, and 5G-enabled devices – they may be about to enter a new era.
Conclusion
This coming wave of globalisation of services labour, for which COVID-19 is providing a particularly large tailwind, will have an enormous impact on markets and society. Even if just one of the three shifts we envisage materialises, it would be transformative. Put them together, and they amount to a paradigm shift. Though it might not yet be time to swap suits for the surf completely, within a decade our current world of work could look unrecognisable.
This is an edited extract from the Ninety One Investment Institute’s “The digital economy and the future of work”, part of “The Great Shutdown” series. Visit www.ninetyone.com/the-digital-economy-and-the-future-of-work to read the full paper.
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1 Bureau of Labour Statistics, September 24, 2019. Workers worked more than 3 days a week exclusively at home.
2 Lehdonvirta, V., “Where are online workers located? The international division of digital gig work,” Oxford Internet Institute, July 11, 2017.
3 “The technology allowing self-isolating NHS staff to support the front line,” Med-Tech, April 15, 2020.
4 Schatzker, E., “Morgan Stanley CEO sees a future for the bank with ‘much less real estate’,” Bloomberg, April 16, 2020.
5 Defined as occupied, or temporarily unoccupied, while the occupier is elsewhere in the building. Harris, R., Bedford, M., Gillen, N., Jack, F., Rees, S., Whitehead, C., “Office occupancy: Density and utilisation,” British Council for Offices, February 2018.
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