Economies of Expertise vs. Economies of Scale

Professor Venkatraman alluded to a very interesting concept in class today when he said that the newspaper industry is going to be more about "Economies of Expertise and not Economies of Scale."

I did a quick search to see what discussion there has been on contrasting these two ideas and didn't find much material on "Economies of Expertise" other than this blog post from InvestmentInnovation.

It speaks about Michael Cannon-Brookes of IBM (VP – Business Development, China and India) and his ideas about what make up the core ideas behind "Economies of Expertise" which include:

• Work flows to places where it’s done best.
• The information age should be renamed the talent age. Talent is mobile, and it is driving the shift to global resourcing. The economics of every industry is being redefined. I have coined a new phrase – ‘economies of expertise’ – to describe firms that take advantage of skill sets wherever they are. IBM Asia Pacific has its human resources function mostly in Manila, procurement in Shenzhen, accounts payable in Shanghai, accounting in KL (a ‘fantastic source’ of such skills) and help desk/customer services in Brisbane. In the case of Brisbane, it has a ‘very good multilingual pool’.
• the horizontalisation of business (away from vertically-integrated structures) needs collaboration to deliver maximum results.
• India is producing one million engineers a year, whereas the US and Australia produce 70,000 and 5,000 respectively (Gulp!)
• Factors determining business flows to countries, regions or cities are 1. Economics. 2. Expertise (esp. differentiated skills) 3. Openness (business environment, trade, tax policies, innovation).
• Not many companies or local development authorities have caught up on these realities. Regions, cities and even towns should aim to develop the skill sets that differentiate them from the pack.