July 2004 Defense Horizons 1

Defense

regulatory prescriptions. China is aggregating capability around Asia 

and between Asia and the United States via China Netcom and China 

Telecom, the two major Chinese carriers with global aspirations. An 

Indian firm, Reliance, recently purchased the assets of the global 

undersea services provider FLAG, the first infrastructure purchase 

of assets outside India by a private Indian telecommunications company.1

 This supports a longstanding Indian political and economic 

goal of equality in global information technology (IT).

Within these subsystems, or hubs, communications clusters 

develop in which a set of countries communicates predominantly 

with each other. Islamic countries communicate with one another, 

and the former Soviet republics still communicate with each other 

far more than they communicate with other countries of the world. 

These clusters are becoming regionalized under the umbrella of globalization. This will lead, for example, to the extension of Chinese 

culture throughout East and Southeast Asia and to a solidification 

of a regional Islamic culture.2 The research and development capabilities of the regional telecommunications hegemonies will be much 

more balanced than today. 

India—Software Services 

In the last three years India has emerged as a global IT power, 

with Wipro, Infosys, and other companies taking significant shares of 

software development from American companies. Most of this work 

takes place over the international telecommunications network, 

and much of it relates to telecommunications. Reliance Gateway, 

a subsidiary of Reliance Infocomm—the telecommunications arm 

of Reliance and one of the largest industrial conglomerates in 

India—recently purchased the assets of FLAG Telecom Holdings. 

This gives India its first corporation with ownership of international 

assets, other than leases on satellites and paraticipation in undersea 

cable consortia, and positions the company to provide a wide array of 

global telecom services to Indian and other clients. 

Outsourcing of American and European software development 

to India is a politically sensitive issue, but little emphasis is given to 

emerging telecommunications patterns that indicate a strengthenOverview

If current trends in communications technologies and services persist, the United States will be hard pressed to keep a 

strategic advantage in network capability. The international 

telecommunications system is rebalancing into four major centers of influence and innovation. Within ten years, Europe, India, 

and China will have the same technological and innovative capabilities in telecommunications as the United States. This shift is 

problematic for U.S. national security, because the global telecommunications infrastructure is becoming an important strategic battlespace—the physical battlefield of information warfare. 

Understanding the dynamic of regional balancing is critical to 

shaping U.S. responses 

Underscoring this dynamic is a shift from hierarchical 

science and technology development based on U.S. educational 

dominance to globally distributed centers of technological 

development facilitated by the international telecommunications 

network.

This article assesses the changing geopolitical structure 

of the international telecommunications system and analyzes 

the problems and opportunities for the United States in a vastly 

different telecommunications environment. Much of the writing 

on U.S. network-centric warfare and information warfare capabilities reflects unbounded enthusiasm, with little emphasis on 

vulnerabilities and the capabilities of potential adversaries. A 

thoughtful evaluation of new strategic constraints is imperative.

Regional Telecommunications Hegemonies

At present, the United States is the leader in telecommunications technologies, but its leadership is being challenged. A trend 

toward a subsystem of regional telecommunications hegemonies is 

emerging under the umbrella of the global telecommunications and 

Internet infrastructure. Aggregations of technological capability 

are taking place in Europe, under European Community legal and 

Global Networks: Emerging 

Constraints on Strategy

by Bob Fonow

A publication of the

Center for Technology and National Security Policy

National Defense University

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2 Defense Horizons July 2004

ing of relationships between India and the Middle East. It is easy 

to discount this by noting the conflict between Hindu and Muslim 

nationalists, yet India has the second largest Muslim population in 

the world, after Indonesia. 

Even though India still has one of the lowest teledensities 

(telephone main lines per 100 people) in the world, the main focus 

of India’s industrial policy for the last twenty years has been on IT 

provided over advanced telecommunications services. Recent reform 

of its regulatory apparatus and the privatization of state assets are 

leading to accelerated access to new services. Arguments are beginning to appear in the Indian press comparing India’s industrial 

policy to China’s and positing an argument that India may surpass 

China in entrepreneurship and innovation, and already has done so 

in the software industry.3 

Indian business journalists argue that economic development 

initiated by homegrown entrepreneurs may give India a long-term 

advantage over China, which is considered hamstrung by reliance on 

foreign direct investment (FDI) and by inefficient banks and capital 

markets. Indian executives believe that China’s export-led manufacturing boom is largely the creation of FDI, which has served as a 

substitute for domestic entrepreneurship. Indeed, India has approximately 3 percent of China’s recent annualized FDI, but it is weighted 

asymmetrically toward information technology, which is much less 

capital dependent than are manufacturing investments.4

To many Indian observers, China’s economy is large and 

dynamic, but it doesn’t support transnational entrepreneurial success. Only recently have a few local Chinese firms, such as ZTE and 

Huawei, become significant international companies. China’s private 

sector still has very few domestic companies capable of rivaling 

large multinationals. China’s wealthy diaspora has been eager to 

fund development of the mainland, so Chinese entrepreneurs have 

become spoiled by easy money. 

India’s diaspora, in contrast, was resented for its success until 

recently and mostly did not invest in the homeland. New Delhi took a 

dim view of Indians who had gone abroad, and of foreign investment 

generally, and preferred to create a more nurturing environment for 

domestic entrepreneurs. In the process, India spawned a number of 

indigenous companies that compete internationally with the best 

American and European companies. Many of these firms are on 

the cutting edge of knowledge-based industries, such as software 

(including telecommunications software), pharmaceuticals, and 

biotechnology. 

China—Manufacturing and Services 

Chinese companies are likely to replace Western companies 

as vendors of choice for infrastructure expansion in developing 

countries, based on China’s rapid development of its own infrastructure. The list of major competitive wins for telecommunications 

infrastructure projects in developing countries in Asia, Africa, and 

Latin America by Huawei and ZTE in 2003 and early 2004 indicates 

a focused and well-financed export program. The low cost of equipment manufactured and increasingly designed in China provides 

an attractive financial alternative to equipment manufactured in 

Europe, Japan, and the United States. Western companies will 

become an increasing small part of the value and revenue chain of 

infrastructure development. 

Money spent on research and development (R&D) frequently 

is taken as an indicator of the efforts by companies to innovate and 

develop knowledge-based industries. According to the OECD, R&D 

spending in China has been expanding at an inflation-adjusted rate 

of 10-15 percent per year, a much higher rate than that for most 

OECD countries.5

 Chinese R&D spending has grown from 0.6 percent of GDP in 1996 to 1.1 percent in 2002, with 60 percent coming 

from companies and the rest from the government. The OECD ranks 

China third in the world in total R&D spending in 2001 at $60 billion. 

The United States was first at $282 billion, Japan second at $104 billion, and Germany fourth at $54 billion. At current comparative rates 

of GDP growth and R&D spending, China will begin to approximate 

American GDP and R&D capabilities between 2015 and 2020 and will 

spend more than the United States in both these categories by 2024. 

Should an international event push China into a strategic relationship with India or Russia, or even into an alliance with a number 

of smaller regional powers, the United States would be at a great 

competitive disadvantage. 

In a very interesting development, several large Indian IT service companies have decided to tap into China. Gartner Group predicts that Indian firms eventually will control 40 percent of China’s 

IT service exports. Satyam Computer Services, India’s fourth-biggest 

supplier, set up a development center in Shanghai last year, with 

plans to expand, believing that China presents more opportunity 

than any other country, mainly in working with multinationals that 

need reliable software support for their expanding mainland businesses.

Europe and Russia—Subsidiary Roles? 

Information technology is an important factor in the U.S.-EU 

productivity gap; real annual growth rates in the EU have stagnated 

at about 1 percent for the last three years.6 Europeans seem reluctant to use telecommunications and IT to operate more efficiently 

and to exploit market opportunities, especially in cross-border 

service industries. One obvious reason is a state preference for job 

retention, which leads to high structural barriers to market efficiency. In many European countries, residual state socialist policies 

place more importance on welfare than on market efficiency.

European technological development in telecommunications 

also is hindered by national protection of dominant state carriers, 

which puts a brake on entrepreneurship and on the aggregation of 

regional intellectual property. European interstate telecommunications charges rank among the highest in the world and are not 

necessarily related to distance or technical complexity. However, a 

European technological momentum is developing as more countries 

comply with common regulatory policies implemented by the European Commission. This will accelerate as more countries join the 

European Community.

Nonetheless, Europe has sectors of innovation in telecommunications that lead the world. Finland is the most “wired” country in 

the world and is home to Nokia, the leading innovator in cell phones. 

GSM, the European cell phone standard, is the most widely used 

standard in mobile networks outside the United States and has the 

widest international roaming capability. 

In Russia, banks are stabilizing and investment is returning, 

but as yet there are no indigenous global telecommunications or IT 

Robert C. Fonow is managing director of Revenue Growth International, Ltd.

He may be contacted at rcf@rgiltd.com.
July 2004 Defense Horizons 3

companies to drive innovation and bring capital into the sector. We 

know, however, that Russian scientists produce innovative technologies in a number of industries when capital resources are available. 

The important development to watch is R&D collaboration between 

Chinese and Russian companies. ZTE, a leading Chinese telecommunications manufacturer, established a research facility in Moscow 

in 2004 to exploit Russian engineering expertise. Technical ties 

between India and Russia are long standing. 

 The Periphery—Indonesia, Brazil, and Romania 

Indonesia has a substantial technical education capability at 

university level. Many of its best engineers are sent to the United 

States for postgraduate education. Although many Indonesian engineers working for American companies return to Indonesia because 

of restrictions and visa policies introduced in the United Stataes 

after 9/11, there are few jobs for them back home. Indonesia, which 

recently was rated the fifth most corrupt country in the world, has 

little foreign direct investment other than in mineral extraction 

enterprises. Absent a positive outlet for Indonesian technical capability, there is a concern that Indonesian engineers will turn to hacking, cracking, and other criminal cyber activities to make a living. 

This is already happening in Brazil.7

 According to the New York 

Times, Brazil is becoming a laboratory for cyber crime. For the last 

two years, Brazil has been the most active base for hackers and cyber 

criminals. Last year, the world’s ten most active groups of Internet 

vandals and criminals were Brazilian, according to mi2g, a communications intelligence company based in London. More than six 

times as many overt Internet attacks—those that are reported and 

validated—have been traced to Brazil as to Turkey, the next most 

frequent source. The rise in Brazilian cyber crime is attributed to lax 

laws. A crime has to be proven before an arrest can be made. Just 

hacking into a system is not enough.

Information technology has been a Romanian strength since 

the Ceausescu regime. The late dictator saw computers as a tool 

for advancing communist ideology. Software piracy took firm hold 

during the Soviet era, when Romanians too poor to buy licensed 

software simply copied it. Today Romanian universities have top 

notch IT programs whose graduates are recruited heavily by Western companies. Microsoft Corp. recently acquired GeCAD, a leading 

Bucharest security firm.8 Thirty-six universities teach computer science, producing a surfeit of highly trained programmers.

The Emerging Telepolitical Infrastructure 

The international telecommunications system is one of the 

most complex achievements of human science and technology. Yet 

it is still in a nascent stage of development, controlled primarily 

by Western business and government interests and serving only 60 

percent of the world population.9 It is a work in progress, and there 

is a growing symbiotic relationship between the development of the 

telecommunications infrastructure and the international political 

system. Increasingly, they feed off one another. The political system 

defines the scope of market growth and economic geography; the 

telecommunications network sets the pace of international integration. 

During the Cold War, there were two competing telecommunications systems. One was owned by Western interests, primarily in 

the United States, Western Europe, and Japan. The other was owned 

and operated by communist bloc governments, with their own indigenous design, equipment manufacturing capability, and satellite 

system, Intersputnik. The competing systems facilitated competing 

political goals, for example, in Africa where the Soviet Union and 

the United States competed for political advantage in the 1960s and 

1970s. Many African countries still maintain close relationships with 

former executives of Intersputnik.

The breakdown of the Soviet system led to the next stage of 

integration, in which massive network investment, first in Russia 

and then in China, facilitated the switch from command to putative 

market economies in both countries. Of course, the development 

patterns of Russia and China are culturally unique, but each bloc 

decided to integrate its telecommunications systems into the global 

telecommunications infrastructure with surprisingly little regulatory 

interference. There is now a unitary global telecommunications system outside the complete control of any one political sovereignty. 

The international telecommunications system is rebalancing 

into four geographically and technologically balanced centers of 

influence and innovation supporting a new supranational international relations regime. Three aspects of the international telecommunications infrastructure are factors in the rebalancing of the 

system. Each of the elements either contributes to the expansion of 

global network capability or is a consequence of it and, by extension, 

supports political integration and the economic goals of the most 

powerful users of the network. 

Global Technical Infrastructure 

The global technical infrastructure consists of the physical 

layer of routers and switching equipment, fiber optic cables, and satellites. Although the international telecommunications network is 

an increasingly interconnected global phenomenon, many of its basic 

units are still domestic networks that are connected via national and 

international gateways to other networks in the system. 

Historically, governments supported their national telecommunications networks, much as they supported their flag airline 

carriers. British Airways and British Telecom, for example, were 

protected from domestic competition until the mid 1980s, when competition began to be introduced slowly and with limits to protect the 

solvency of the utility. As national governments began to deregulate 

their telecommunications utilities, international carriers were forming for the first time, often under corporate umbrellas. Infonet, the 

prototypical international network service provider, was formed by 

Computer Sciences Corporation (CSC) in the late 1970s. To spread 

risk and raise capital, CSC quickly sold substantial equity in Infonet 

to Telefonica of Spain, Singapore Telecom, and Kokusai Denwa Denshin (KDD) in Japan and sold smaller equity positions to companies 

in Scandinavia.

In the early 1990s, several national companies began to imitate the Infonet model of strategic alliances. Global One (Sprint, 

Deutsche Telekom, France Telecom) and Concert (British Telecom 

and ATT) were notable examples. Concert eventually failed, but 

Global One was eventually merged with Equant under the umbrella 

of France Telecom. Today, Equant is the largest international carrier, with revenues in excess of $3 billion per year. Several domestic 

companies, such as Verizon, SBC, and Southern Bell in the United 

States, as well as NTT, Deutsche Telecom, and British Telecom, 

maintain substantial international wholesale businesses. Aggregation has been typical in both the domestic and international carrier 
4 Defense Horizons July 2004

segments, with the result that commercial and investment power 

resides in fewer companies. 

Within the global telecommunications architecture, domestic 

and international networks are integrated with one another through 

a complex system of undersea cables and satellite transmission systems. Undersea cable systems must be laid and maintained by fleets 

of cable ships that maintain repeaters and amplifiers and repair 

frequent breaks in the cable systems. Very few companies have the 

financial resources to build such systems, with the result that such 

projects usually are undertaken by consortia.

The international satellite consortia (such as Intelsat, until 

recently owned by government signatories) and private satellite 

systems (such as PanAm and Loral) are consolidating. Advances in 

launch technology, satellite transponder capacity, and fiber optic 

cables have led to massive overcapacity in global infrastructure 

capability and to falling prices, which ultimately are reflected in 

lower consumer telecommunications costs for long-distance services 

and in profit-margin pressure on the service operators.

As a result, in the last two years there has been a significant 

rebalancing in infrastructure ownership. In Asia, for example, two 

years ago as much as 85 percent of the Asian undersea services 

infrastructure was owned by American investors; today the situation 

is reversed. Chinese interests have bought the assets of Level 3, PSINet, Asia Global Crossing, and Global Crossing, all at substantially 

reduced prices from the initial capital investments.

When describing this infrastructure, the Internet is increasingly described as the essence of the telecommunications network. 

It is not, however, and it is important to understand the distinction 

within the global infrastructure. In an information warfare environment, the most vulnerable and productive targets are in the physical 

layer. Without the physical layer there is no Internet. It is a faddish 

and dangerous intellectual vanity to conceive of the Internet as 

something separate or unique.10 The Internet is a subsystem of the 

telecommunications network, much as the satellite broadcast television and ordinary telephone service are subsystems, or applications, 

of the international telecommunications network. The Internet is 

essentially innumerable individual repositories of knowledge, digitally residing in serving computers at nodes interconnected by the 

physical telecommunications layer of cables and satellites.

This does not diminish the importance of the Internet. The 

technical infrastructure of the Internet is closely integrated into 

the architecture of the international telecommunications network. 

Within this architecture it has its own operational hierarchy based 

on domains and domain root servers, tier-one and tier-two carriers, 

interexchange hubs and network access points, and other components that are important to developing information warfare tactics. 

However, it should be seen as part of a greater whole, within the 

mesh of the international telecommunications network that carries 

all the diverse traffic of rapidly converging voice, video, and data 

applications. The Internet depends on the international telecommunications network for its existence and continued development.11

In mid-2002, Internet geography consisted of an estimated 600 

international IP carriers that owned, leased, or otherwise managed 

transborder network capacity. IP carriers placed routing computers 

at either end of this capacity and used these segments to cobble 

together logical networks. Analysis published in the Telegeography 

Internet Report suggests a highly concentrated market. Only 42 

percent of international carriers manage more than one cross-border 

Internet connection, and just 11 percent have six or more international links.12

At the top of the chain are the 50 IP carriers that manage ten 

or more links on their international Internet backbones, which are 

large bandwidth circuits within the international telecommunications network. The global backbone market is also concentrated on 

a capacity basis. Only a third of the world’s international Internet 

carriers internally manage at least 155 Mbps on international 

Internet capacity. Furthermore, in most regions the top ten carriers control more than 70 percent of the Internet bandwidth. This 

suggests that the Internet and the global telecommunications 

infrastructure are susceptible to disruption at a surprisingly few 

number of key nodes.13

Innovation and Intellectual Development

R&D is no longer an exclusively national function. The international telecommunications network has facilitated the rise of 

international scientific research consortia in a variety of disciplines, 

including research in telecommunications technologies.14 There 

is a growing, global dispersion of skilled engineers, scientists, and 

researchers—many trained at American universities—who work 

together via the telecommunications network. The exchange of 

information on this scale is impossible to control. 

Scientists from around the world are collaborating on difficult 

areas of fundamental and applied research to more rapidly achieve 

a shared scientific objective, whether for commercial or strategic 

interests. This is in part a result of the decline in national government funding for R&D, which is being replaced by funding from 

multinational corporations, which have a very strong competitive 

edge closely aligned to profit goals. Hundreds of global technology 

alliances among corporate partners are formed each year in the 

telecommunications and information industry. Most of these are not 

limited by security concerns. Scientists from developing countries 

and potential adversaries are participating in the design of information and technical systems that are increasingly difficult to separate 

from classified U.S. technical projects. 

The race for product innovation has led multinational firms to 

seek the competitive advantage gained from round-the-clock roundthe-world R&D. Time is money. The information and telecommunications revolution has made this possible. The telecommunications 

network is both a driver and a facilitator.15

The argument that the United States will retain its innovative 

edge because it welcomes immigrants, or provides opportunities 

for education to the world’s best students or scientists, becomes 

meaningless when international intellectual consortia of the highest 

caliber can combine intelligence across any distance at a keystroke. 

This changes the dynamic of design and production economics, and 

favors the developing world at the expense of the developed.16 It’s 

also not certain that today’s division of international labor—highvalue-added design and system integration in the United States and 

low-cost manufacturing and routine software coding in developing 

countries—will remain a viable model, when many other countries 

will have sophisticated university engineering and design departments. Of all technological capabilities, systems integration is the 

easiest to learn and imitate. 
July 2004 Defense Horizons 5

The Changing Geopolitical Environment 

International telecommunications and the Internet are becoming intertwined with international relations in a way that we don’t 

fully understand yet. We can begin to link telecommunications and 

international relations in a general framework and conjecture that, 

like many central arguments in the field of international relations, 

the development of international telecommunications has its progressive and realist proponents. The arguments have become more 

intense in the last twenty years with the rise of telecommunications 

and information technology from low politics to a standard agenda 

item in international summitry, especially since the early 1990s. 

A progressive argument is advanced by cultural historian Robert Wright, whose key point is that history’s direction is intellectual 

advance—scientific, technical, political, and moral. Over time, 

people build better machines, better governments, better societies, 

and better moral codes. The international telecommunications 

system enhances and extends these values. As commerce expands, 

more and more people have a shared interest in protecting it from 

disruption.17

This argument has its philosophical genesis in the nineteenthcentury liberal economic argument that international commerce 

would eliminate war—an idea that proved short lived in the twentieth century.18 Yet, the liberal argument, modified to consider war 

economically unproductive, continues to inform thought about the 

consequences of war, especially in modifying the destructiveness 

of its means in relation to its political goals. This was seen recently 

in Iraq, where targeting was carefully controlled to minimize collateral damage, a function highly dependent on telecommunications 

and IT. There is a growing moral and political tendency, in Western 

conceptions of warfare at least, to minimize human losses. If one 

follows Wright’s logic this trend will continue—despite periodic 

setbacks—and manifest itself in alternative forms of political and 

military competition, of which information warfare over the telecommunications network is a primary form.

An organic theory of international development as a metaphor 

of human experience is based on the concept of rise and fall, birth 

through death. As the Athenian era ended, the Roman empire rose 

to take its place, and as the United States reaches its zenith, China 

is waiting to assume the role of the world’s leading power. The main 

thrust of history doesn’t change, but telecommunications accelerates the process by facilitating faster and more efficient information dissemination. Historical change that once took centuries 

now happens in decades. As the acceleration of global knowledge 

increases, primaril because of the expansion of various networking 

technologies, the relativities of power change with the complexity. 

The United States doesn’t fall, but other societies become equal in 

innovation, particularly China and India. 

The historicist World System Theory argues that the core 

changes systematically and inevitably. In the 13th century, China 

was the core state and Eurasian hegemon. The core shift from East 

to West has lasted until now, taking centuries. With the development of global telecommunications networks, and the acceleration 

of information dissemination and the immediacy of global financial 

markets, the transitions are occurring in decades. Today’s core, the 

United States and to some extent Europe, is being challenged by 

semiperipheral countries, such as India and China. 

Realists start from an historic assumption about international 

relations: political entities have competitive interests that lead to 

conflict. Historically, the resolution of critical disputes has been 

decided by warfare. Societies and nations have always cooperated 

but have always challenged each other. According to the Realist 

theory, there is no evidence that this has changed. Telecommunications may facilitate functional integration of customs, postal 

services, manufacturing, and the dissemination of knowledge, 

but it also makes opposition to the state or international system 

easier and more difficult to track. Technology advances and political organizations change, but international relations at their most 

fundamental—war and peace—are constant. Telecommunications 

facilitates information warfare and network warfare as much as it 

facilitates trade. 

Whatever theory one chooses, political geography is a marginal 

concept in a world spanned by a global telecommunications system. 

Previously understood patterns of production and trade are being 

replaced by unfamiliar and disruptive ones—for example, international outsourcing on a massive scale. Large corporations are 

subdivided into networks of dispersed lowest-cost units. All this is 

made possible by information that rides the global telecommunications network. Telecommunications networks weaken geographically based processes and make possible the rise of distributed and 

decentralized ones. Political control of corporations and production, 

including the control of military technologies, becomes increasingly 

difficult.

There is a fundamental difference between the forthcoming period of international politics and those that preceded it. 

The international telecommunications system obviates against any 

single country completely controlling the international financial 

system and the direction of investment that leads to alternative 

centers of innovation, at least without destroying the entire edifice. 

A state-centric, nationalist model of politics is taking a subsidiary 

role to something new and different. An increasingly complex and 

sophisticated international telecommunications network is a major 

facilitator of the process. 

Implications 

In The End of History and the Last Man, Francis Fukuyama 

implies an ability to understand and even control the underlying 

forces of history.19 The book suggests that liberal democracy, as 

manifested most completely in the United States, is the end game 

of international politics. This seemed possible during the 1990s, but 

less so now. It might be difficult in a world of seven billion people 

where certain technological and telecommunications capabilities 

approach equilibrium. 

We may be at the beginning of a shift in international relations, 

where U.S. strategy becomes much more constrained than it is now. 

When technological conditions change fundamentally, the economic, 

social, and political relationships premised on them change as well. 

Historical forces drive the system to a new dialectical equilibrium. 

In this case, a superseding, eco-political influence, based on a global 

telecommunications system that facilitates an independent financial 

and market economy, will bring dominant nations into more balanced relationships with regional powers. 

A consequence is the closing of the technology gap between 

the United States and other countries, especially India, China, and 

a broad Europe. This may result in the closing of the gap between 

high-speed communications R&D for military applications and devel-
6 Defense Horizons July 2004

opment of products for commercial use. This would give regional 

competitors, criminal networks, and terrorists an improved position 

in information warfare. At the very least, American technical power, 

and by extension its military power—especially aspects that are 

based on international communications networks—may be severely 

constrained. 

One concern is that the United States continues to view the 

world exclusively through the prism of terrorism. The rest of the 

world does not, and other economies reflect this fact. If the rest of 

the world presses on with regional and interregional integration and 

continues to advance technically along a broad swathe of technologies, will this leave the United States as a massive military power 

without the leading economic and information infrastructure to support it? And what can be done to prevent this from occurring?

Implications of Outsourcing

One hundred years ago, England was the acknowledged leader 

in global manufacturing, trade, technological innovation, and 

finance. It had a prosperous middle class throughout the country 

and the finest education system in the world. Now it has the City 

of London and the West End theater district and doesn’t make anything. Its universities export technical talent to other countries. For 

many reasons, America isn’t going to replicate England exactly, but 

it’s worth thinking about how the United States might develop in 

relation to its relative future technical capabilities. As strategy and 

tactics shift toward information warfare, it’s important to emphasize 

and understand the role of human talent. 

The argument about outsourcing breaks into two polarized 

camps. One argues that outsourcing is detrimental to the American 

economy and national security, the other that outsourcing is a natural and benevolent feature of a capitalist, democratic, international 

system in which growth results in non-zero-sum benefits for all 

participants.20

Forrester Research estimates that 3.3 million infotech jobs will 

move overseas in the next 12 years, taking $136 billion in wages with 

them. The fiber optics glut and low wages in developing countries 

make it cheaper to perform back-office functions for telecommunications and information services companies in Manila, Jakarta, 

or Chongqing than anywhere in the United States. Networks can be 

managed with equal expertise in Beijing, Shanghai, New York, or 

Atlanta. More than half of Fortune 500 companies are outsourcing 

software development or expanding their own development centers 

outside the United States. Sixty-eight percent of IT executives who 

responded to a 2003 survey by CIO magazine said their offshore 

contracts will increase annually. By the end of 2004, 10 percent of 

all IT jobs at American IT companies and 5 percent at non-IT companies will move offshore, according to Gartner Group, a research 

and analysis firm that specializes in high-technology trends.21 This 

is happening in all business that depend on telecommunications. 

Of the estimated 13 million jobs in financial services in mature 

industrial economies (the United States and the European Union, 

Switzerland, Singapore, Japan, and Hong Kong), around 2 million 

are forecast to go to India by 2008.22

American companies are under intense pressure to cut costs. 

In 2000, senior American software engineers earned $130,000. The 

same job now pays $100,000. Experienced Indian software engineers 

get between $10,.000 and $15,000; top IT professionals might earn 

$20,000. Bearing Point (formerly KPMG consulting) pays $500 a 

month for an entry-level, degreed software engineer in China. In 

India it would be $700, and in the United States $4,000. The key 

point is that Indian and Chinese companies provide the same quality 

of work for 15–25 percent of the cost of a western employee.23

The migration of outsourced white-collar jobs has moved up 

the value chain from call center operators to such occupations as 

equity research, accounting, remote medical radiography analysis, 

software, chip design, and telecommunications network design. 

These are not sweatshops. Working conditions at India’s IT development companies—whether managed directly by Western companies 

or by Indian-owned contractors—are considered the best in India, 

and wages are high by Indian standards.24

China is joining India and the Philippines as a destination for 

outsourced service jobs. Cap Gemini Ernst & Young, Accenture, and 

Bearing Point are expanding in these countries to take advantage of 

low wages. By 2007, Gartner, Inc., predicts China will generate $27 

billion in IT services, matching India. In the political battles developing over outsourcing, India has been the main target, but China, 

which many Americans view as a political rival, is likely to be an even 

bigger target for outsourcing opponents. 

According to the beneficial theory of outsourcing, there is no 

better form of trade for a developing country than to sell services 

provided by an educated population. Compared to anything else 

a developing nation can sell—natural resources or hard labor in 

manufacturing, for example—white collar jobs are more sustainable 

and eco-friendly. 

Therefore, engineers in the developed world should be arguing 

not for protectionism but for trade agreements that seek to establish 

rules that result in a real rise in living standards. Proponents of 

outsourcing argue that this will ensure that outsourcing is a positive force in a developing nation’s economy and is not exploitative. 

The beneficial political argument is that middle-class, white-collar 

workers often become proponents of the traditional liberal values of 

freedom of speech, democracy, and transparency. They tend to care 

most about global issues such as the environment and often have 

influential political access to their governments.25

Proponents also argue that, even if the number of outsourced 

jobs increases, the overall percentage of high-tech jobs going abroad 

is likely to remain relatively small. That’s because outsourcing 

increases the probability of loss or theft of intellectual property, as 

well as of sabotage, cyberterrorism, hacking, and organized crime. 

Sensitive jobs will remain in the United States.

The corrolary to this argument is that, as smart U.S. companies 

outsource their more standard high-tech work, they’re simultaneously shifting their in-house IT employees to more innovative, 

higher-value-added functions, such as invention, creation, integration, and key R&D. There is no limit to the number of high-tech jobs 

around the work, because there’s no limit to the ingenuity of the 

human mind.26

Perhaps this true, but isn’t it also reasonable to ask, on the 

evidence of corporate malfeasance in the last two years, whether 

unregulated transnational profits will trump security when cost is 

a factor?

Do Export Controls Matter?27

Science and technology are the basic tools of modernization and 

are useful predictors of how economically and militarily advanced a 

society may become over time. However, although scientific progress 
July 2004 Defense Horizons 7

requires technology, technological innovation does not necessarily 

require science. It is possible to adapt and even improve on existing technology without fully understanding it. The Chinese have 

been doing this for 20 years through a “knowledge ladder” provided 

by technology transfers and foreign direct investment, while at the 

same time expanding basic research capabilities. For this reason, it 

is important when analyzing competence to include both the fundamental scientific capacity of a state (intellectual understanding) 

and its technological output (high-tech products or materials) to 

determine how advanced a country is likely to become.

In general, there are three categories of national R&D capability. Basic research pursues knowledge for general human understanding and advancement. Applied research meets a purpose or 

need by taking basic research and applying it to practical problems, 

for example, using research in materials science to build a better airplane wing. Technology development leads to a specific application, 

design, or purpose, for example, a team of Chinese engineers reverse 

engineering and improving on a fiber optic CATV receiver. 

As many American high-tech companies can testify, in India 

and China it is not essential to follow a linear path from a solid 

foundation in basic research to technological development. Technological development is opportunistic. However, it probably is true 

that continued innovation becomes much less likely and limited over 

time if the fundamentals are lacking, which is why India, China, and 

other countries spend increasingly significant resources on basic 

research and see it as a policy goal. Alternatively, a society that is 

able to develop new products with the aid of external inputs, but 

that also enjoys a substantial scientific infrastructure, is much more 

likely to gain the capacity to exploit these technological inputs over 

the longer term. 

A global telecommunications infrastructure accelerates the 

advancement of basic research by making almost any information 

available instantly to almost anyone who wants it. Even the poorest 

nations can access most of the world’s most advanced technological 

know-how, products, and processes. Information needed to build 

multiprocessor systems from components and subsystems is readily 

available on the Internet. 

Economic and technical development today depend less on 

where one resides than on how well connected and, ultimately, how 

intelligent, responsive, innovative, and inventive one can be. It is 

this increasingly transnational nature of scientific and technological capacity that is the critical distinguishing feature of the current 

wave of globalization. This is a new global dynamic that will have 

a substantial and long-term economic impact, as well as political, 

social, and security implications.28

This is not just about selling a router. It is about the ability to 

produce competitive operating system software improvements, organize after-sales support services, and attend to billing and administrative functions—in short, the entire fabric of a sophisticated 

information infrastructure. 

Multinational corporations, increasingly outside the control of 

any one state, play a central role in the internationalization of hightech R&D. This is the result of a widespread change in the source of 

funding for most R&D activities. By 2000, government-funded R&D 

as a share of U.S. GDP had dropped to 25 percent, the lowest level 

since the National Science Foundation began keeping records on 

R&D spending in 1955. Today, corporate investment outpaces government funding for R&D. 

As industry became the primary source of R&D funding, more 

of this investment began to flow overseas, where production and 

employment costs are a fraction of American costs. U.S. corporate 

R&D expenditure abroad increased four-fold between 1986 ($4.6 billion) and 2000 ($19.86 billion), outpacing the average rate of growth 

for U.S. corporate R&D spending at home. Between 1994 and 2000, 

the average percentage change in U.S. R&D expenditures abroad 

(11 percent) outpaced U.S. industry R&D domestic spending (8.6 

percent).29

In such an environment, would a broad approach to export controls prove too expensive and impossible to manage? The argument 

for a targeted approach makes some sense as a short- and mid-term 

policy. In terms of information warfare, such a system would restrict 

control of a few critical technologies that are used at interdiction 

and major interconnection points on the international network This 

is similar to controls recommended by the Defense Science Board 

for the containment of weapons of mass destruction (WMD), which 

would shift from a policy of technology protection to one of essential 

capability preservation. This would involve establishing a continuously evolving list of essential military capabilities and developing 

strategies for preserving each.30

Education 

The rebalancing of technical innovation facilitated by the international telecommunications network will enable several countries 

to achieve sophisticated information warfare capabilities. Judging 

from their prodigious efforts and achievements in the last twenty 

years in catching up with most of the world in information technology and telecommunications, China and India will be able to develop 

offensive information warfare capability.31

What is the potential impact on U.S. information warfare 

capabilities? Many scientists and technologists working for potential 

adversaries were trained by American universities and companies. 

They understand the culture of American science and engineering: 

research methods, intellectual patterns, and entrepreneurial drive. 

Many have designed critical components of the U.S. information 

warfare equipment and therefore know both its capabilities and 

limitations. 

Ultimately, the security of the United States, in a strategic environment dominated by information and network warfare, depends 

more than ever on the education of its population. No human 

resources can be left to stagnate or fail to reach their optimum capability because of a lack of opportunity or outdated conceptions of 

leadership and organization. This is especially true in the military.

The problem is that, as the sole superpower, the United States 

faces numerous competitors, and thus an enormous human resource 

deficit within ten years. Demographics indicate that the United 

States will simply be vastly outnumbered by nations with people 

interested and educated in science, engineering, and technology. 

At present, there are 8 million postsecondary students in India, and 

approximately 14 million in China. At least another 5 million are 

in reasonably good undergraduate institutions in other countries. 

There are 13 million university and college students in the United 

States. This will have the effect of depressing wages in the American 

technology sector, forcing good students into career areas other than 

engineering and information technology. This poses particular problems for services tasked with information warfare missions.
8 Defense Horizons July 2004

Certainly, the United States will continue to have exceptional 

technological capability at the level of elite university education, 

such as at MIT and Stanford and the more prestigious technical universities and colleges. But the advent of information warfare takes 

the concept of total warfare to a new level of societal integration 

and requires a broader-based approach to technical education at the 

tertiary level. 

From a public policy perspective, it will become increasingly 

important to fund American postgraduates for studentships and 

postgraduate programs abroad to understand the international telecommunications system in depth. This is exactly the reverse of what 

has happened since the Second World War, when students around 

the world came to the United States because it was the leader in 

innovation and research in theoretical and applied sciences. If only 

to keep abreast of potential technical developments, Americans will 

have to follow developments in other countries much more closely. 

Scholarships are needed to send both civilians and junior officers 

to technical and management programs in such countries as China, 

Russia, India, Romania, Brazil, and Indonesia. These programs might 

be similar to the Olmsted Foundation programs, but on a much 

larger scale and more specifically related to technology and culture. 

America’s future leaders must be aware of technological trends and 

of the social and cultural implications of technological innovation. 

The human resource and training functions of the military also 

must change to ensure a very high degree of information warfare 

capability. The military should send more junior officers abroad on 

Master’s degree and Ph.D. programs—and to civilian universities, 

not just military academies. They should study in Islamabad, Bucharest, Moscow, and Shanghai, not just Oxford or Bologna, and not in 

programs set up and run by American universities. More Americans 

need to get “down and dirty,” to learn the languages, lifestyles, and 

intellectual patterns of other cultures. To paraphrase a particularly 

apt aphorism, “keep your friends close and your potential adversaries closer.”

An information warfare capability that depends on knowledge 

workers will be far too large to depend only on a degreed officer 

corps for technical excellence. Much better use of the more intelligent members of the enlisted ranks will be required. 

Enlisted recruitment and retention, key factors in maintaining service-level information warfare capabilities, will increasingly 

depend on educational and promotion opportunities. One way 

forward is to have a Department of Defense undergraduate college 

focused on accelerated degree programs for enlisted and junior 

noncommissioned officer staff. Prototypes of this program could be 

developed by the National Defense University. The objective would 

be to produce highly trained cadres of information warfare specialists in the mid- and senior enlisted ranks. Successful completion 

could lead to early promotion or, perhaps, borrowing from the Army, 

advancement through joint service warrant officer grades. 

Conclusions 

The information and network warfare domain that the United 

States dominates today will be much different in ten years, or even 

sooner. By early next decade, China, India, and an expanded Europe 

will match American capabilities in many areas, especially in telecommunications-related technologies essential to effective information and network warfare. 

At the same time, the United States is putting increasing 

emphasis on all aspects of information and network warfare. An 

information domain that is not dominated by the United States and 

is constrained by three other powerful regional information powers, may put limits on a number of important strategic and tactical 

programs. To prepare for this outcome, the United States must 

constantly reevaluate its rules of engagement with these emerging 

information powers. Much more research is required, not only in 

technology, but also in the way the United States prepares its next 

generation of public policy and military leaders for engagement in a 

much different world.

Notes 

Selected notes appear below. All notes are available online at www.ndu.edu/

ctnsp/publications.html/.

1

FLAG (Fiber Loop Across the Globe) is an undersea cable network comprising 

over 50,000 kilometers of fiber optic cable that spans four continents and connects the 

key regions of Asia, Europe, the Middle East, and the United States, providing services 

to major telecom carriers, internet service providers, and television broadcasters 3

The argument was presented in “Can India overtake China?,” Foreign Policy, 

July-August 2003.

 10For interesting discussions about the nature of networks and, by extension, 

how language and terminology influences descriptions of the Internet, see AlbertLazlo Barabasi, Linked, the New Science of Networks (Cambridge, MA: Perseus Publishing, 2003) and Malcolm Gladwell, The Tipping Point (Boston, MA: Little, Brown 

and Co., 2000). 11This description of the bifurcation of the Internet and International Telecommunications network is increasingly blurred. It is possible that at some point the 

Internet will be synonymous with International Telecommunications. Already, the 

terms are practically interchangeable in much recent writing, but for purposes of 

strategy and tactics, precision in language is important, and at this time it’s important 

to maintain the distinction. 12The Telegeography Report and Database, published by Telegeography, a 

research division of PriMetrica, Inc., are used by most telecommunications companies 

in market planning. See www.telegeography.com. 14See the work of Dieter Ernst, East West Center, Honolulu, Hawaii, on development of new patterns of technical innovation in the telecommunications and 

electronic industries. Mr. Ernst’s most recent work was not ready for attribution as 

the time of publication of this document, but his work can be found on the East West 

Center web site: www.Eastwestcenter.org 15Kathleen Walsh, “Foreign High-Tech R&D in China”, (Washington, DC: Stimson Center, 2003), 31 17Robert Wright, NonZero: the Logic of Human Destiny (New York: Pantheon 

Books, 2000). 19Francis Fukuyama, The End of History and The Last Man (New York: Free 

Press, 1999) 27This discussion relies heavily on a recent publication by Kathleen Walsh, “Foreign High-Tech R&D in China” (Washington, D.C.; Stimson Center, 2003).

 30Leslie David Simon, “The Net, Power and Policy in the 21st Century,” chapter 

23, 630, in Challenges of the Global Century, Washington DC; NDU Press, 2001.

Defense Horizons is published by the Center for Technology and National Security Policy . This and 

other CTNSP publications are available online at http://www.ndu.edu/inss/press/nduphp.html.

The opinions, conclusions, and recommendations expressed or implied within are those of the 

contributors and do not necessarily reflect the views of the Department of Defense or any other 

department or agency of the Federal Government.

Center for Technology and National Security Policy

 Hans Binnendijk

Director