Time zones as a source of comparative advantage
Two of the most important trends in the global economy in recent decades have been (1) the dramatic increase in the role of information-intensive inputs in economic activities, and (2) the decline in transaction costs such as transport and communication costs. In particular, advances in digital technology have driven large decreases in the costs of data transfer and telecommunications. To put it plainly, globalization is closely related to the increased connectivity of individuals and organizations achieved through improved communications networks such as the Internet. There is a consequent increase in many kinds of international trade, particularly in business service sectors such as banking, engineering, and software development, which do not require physical shipments of products. The rise of the Indian software industry provides a prime example. One of the fastest-growing parts of this industry is “remote maintenance” whereby Indian companies debug software for companies in other parts of the world, often taking advantage of the time difference to offer an overnight service. For instance, the programming problems of some U.S. corporations are e-mailed to India at the end of the U.S. workday. Indian software engineers work on them during their regular office hours and provide solutions. By the time the offices reopen in the U.S., the solutions have already arrived, mainly as e-mail attachments. This type of trade in business services requires two basic conditions: a difference in time zones between the trading partners and good connections via communications networks (e.g., the development of the Internet and satellite communications systems).2 Related to these phenomena, Cairncross (2001) wrote:
In some parts of the world, communications offer a new competitive advantage: time zones. It becomes possible to take advantage not only of geography but of the full twenty-four hours of the world’s working day. . . . that means more efficient use of global resource.