(FORTUNE Magazine) – A FUNDAMENTAL shift is under way in how and where the world's work gets done -- with potentially ominous consequences for wealthy, industrialized nations. The key to this change: the emergence of a truly global labor force, talented and capable of accomplishing just about anything, anywhere. Says Larry Irving, an executive of Daniel Industries who moved from Houston to run a factory that his company bought in eastern Germany: ''The average American doesn't realize that there is a truly competitive work force out there that is vying for their jobs. The rest of the world is catching up.'' Just what is driving U.S. companies -- and some from Europe and Japan -- to locate that new plant not in Waltham, Massachusetts, or Tucson, Arizona, but instead in Bangalore, India, where 3M makes tapes, chemicals, and electrical parts, or Guadalajara, Mexico, where Hewlett-Packard assembles computers and designs computer memory boards? It isn't only the search for cheap labor. Corporations also want to establish sophisticated manufacturing and service operations in markets that promise the most growth, often emerging nations. The migration of jobs to new lands isn't a straightforward one-for-one proposition either, one job gained there for every one lost to an industrialized country. New technology and the continuing drive for higher productivity push companies to build in undeveloped countries plants and offices that require only a fraction of the manpower that used to be needed in factories back home. In part because of this, the statistics on the number of foreign workers employed by multinational companies don't adequately reflect the shift of work abroad. It is far from clear what form the new world of work will ultimately take. But there's already plenty to be concerned about, and excited by, in the transition taking place. What happens when the corporate drive for greater efficiency collides with the expansion of the supply of labor available around the globe? Will there be enough jobs to go around? Some experts aren't so sure. Says Percy Barnevik, CEO of ABB Asea Brown Boveri, the $29-billion-a-year Swiss-Swedish builder of transportation and electric generation systems: ''It is a fallacy to think that industry will increase employment overall in the Western world, at least in our industry.'' Barnevik foresees ''a massive move from the Western world. We already have 25,000 employees in former communist countries. They will do the job that was done in Western Europe before.'' More jobs will shift to Asia, he says. ABB, which employed only 100 workers in Thailand in 1980, has 2,000 there now, and will have more than 7,000 by the end of the century. Put it all together, and Barnevik's forecast borders on the apocalyptic: ''Western European and American employment will just shrink and shrink in an orderly way. Like farming at the turn of the century.'' A. Gary Shilling, an economist in Springfield, New Jersey, predicts the overhang of workers will hold down wages all over the developed world. ''Four years ago people were talking about a shortage of labor'' in the U.S., he says. ''But with the push for productivity in the West and Japan, and the rise of the newly industrialized countries and Mexico and Indonesia, we will have a surplus.'' Technology and capital move easily around the world, he observes, and the only things likely to stay put are locally produced services, like haircutting. ''Unless you have labor that is uniquely suited to what you're doing, there is no assurance the entire process won't move to another place.'' The trend unfolding is likely to be more complex, uneven, and subtle than Shilling and Barnevik paint it. Interviews with executives around the globe & reveal that increasingly sophisticated work is indeed being parceled out to faraway nations, whose labor forces are exceedingly capable. Says a top executive at Siemens, the giant German industrial and electronics company: ''Thirty years ago they could barely spell 'steam turbine' in India. Now we are building the biggest ones in the world there.'' The move toward a global work force takes many forms and consists of far more than a stampede to backward low-wage countries. For example, American direct foreign investment still appears to be creating jobs at factories and operations in high-wage countries, primarily Canada and Europe. In 1990, the latest year for which U.S. Commerce Department data are available, American companies employed 2.8 million people in Western Europe, up 4% from the previous year. That was a bigger jump than the 2% rise, to 1.5 million, in Asian workers they employed, or a similar 2% increase in Latin American employees, to 1.3 million. The explanation, in part, is that up until now most direct foreign investment has been aimed at expanding a company's presence in relatively affluent markets. WHEN WORK does move to less developed lands, it's by no means automatic that the shift will bring Western levels of employment and prosperity to new host countries. Martin Anderson, a vice president specializing in global manufacturing for the Gemini Consulting firm in Morristown, New Jersey, notes that new factories abroad, even in low-wage countries, tend to be far more labor efficient than their counterparts in the company's home country. That's one reason why counting noses is not a good guide to the value of goods and services produced offshore. ''Some of the most Japanese-looking American plants are going up in Brazil,'' he observes. Not only is the number of blue- collar workers reduced, says Anderson, but staff and managerial employees are as well. Says David Hewitt, another consultant at Gemini: ''If companies reduce one million jobs at home through reengineering their work, they may add 100,000 overseas.'' The other reason figures on foreign employment don't fully reflect the dispersal of work abroad: Unlike ten or 15 years ago when companies were more vertically integrated, factories abroad owned by Americans, Europeans, and Japanese are increasingly likely to outsource -- to contract for parts and labor from independent local suppliers. Outsourcing requires no bricks-and- mortar investment, nor does it add to the employment tallies of the corporation buying the goods or services. Subramanian Rangan, a doctoral student in political economy at Harvard who has studied the phenomenon, says outsourcing is difficult to measure but already large enough to amount to ''new channels of trade.'' Anderson calculates that at least half the value of goods shipped from American-owned electronics factories abroad was actually added at independently owned plants. How difficult is it to find so-called sourcers abroad? No trouble at all in some industries. Charles Komar, president of a big clothing company in New York that bears his name, says agents for foreign factories prowl through department stores studying the labels in clothing. ''I get calls all the time from people saying they know of a factory in Turkey that can sew the clothes for less than I'm paying now.'' Janet Palmer, a professor at New York City's Lehman College specializing in the movement of office work abroad, was called by a consultant from California looking for a cheap place to have text and numbers typed into a computer. She told him of typing mills in the Philippines that would do it for 50 cents per 10,000 characters -- approximately five pages, double spaced. A few days later the man called back and announced he had found an outfit in China charging only 20 cents. Those foreign sourcers are becoming increasingly capable. An example: For years, Ron Ahlers was an industrial designer for J.C. Penney. His job included designing the control panels on the private-label microwave ovens that Penney bought from Samsung Group in Korea to make them easy to use and consistent across several models. One year a while back, when Samsung engineers came to New York to see Ahlers's work, they were embarrassed by how much better his designs were than the ones they created for their own brand-name appliances. Ahlers and his colleagues were astonished when one of them said, ''The designer will be punished.'' The proposal from Korea in the next model year was much better. Penney, in fact, soon began shifting microwave design to Samsung. Eventually the U.S. company shut down its entire in-house design office. VISITS TO THE GLOBAL labor force in places like Eastern Europe, India, and Jamaica reveal just how ready these folks are to handle complex work, but they also suggest the looming oversupply of workers. Says Anderson of Gemini Consulting: ''Sit in any boardroom and it is absolutely clear that those countries are the kinds of places in competition for capital. Smart companies see they have to keep technology and capital fluid, and move them to where they can make best use of the advances countries achieve.'' ''Look out the window from any tall building here, and what do you see?'' asks Larry Irving, a Texan, in his not-so-tall office in Potsdam, a town a few miles south of Berlin in what used to be East Germany. ''Smokestacks!'' That's good news for Irving's company, Daniel Industries, which makes meters that measure the flow of natural gas through pipelines. The smokestacks exist because most of Eastern Europe relied on coal for heating and electricity, and Irving figures there will soon be rapid construction of new pipelines throughout the region -- and a market for his meters. That new market looks all the more attractive in light of a slowdown in the company's business back home. Daniel Industries debated setting up a factory in West Germany, but the cost of land, labor, and buildings was too high. Instead, early this year the company bought the assets of Messtechnik Babelsberg, a measuring-instrument firm that was formerly part of a huge state-run conglomerate in East Germany. Irving is dazzled by the skills and training of the East German workers he inherited. They underwent years of demanding apprenticeship, much like West German workers, before entering the work force. Though not up to speed on the use of computerized technology in the factory or the final product, they are so well grounded in engineering that they are easily trained. Not least, they cost about half as much as West German workers. But foreign investment can't repair all the problems of the former East Germany fast enough to avoid painful dislocations. Three years ago the plant Daniel Industries acquired employed 600 workers. Bringing in better technology, Daniel needed only a fraction of them to make the meters it expects to sell next year. So despite their impressive skills, the company kept only 60 of the 600. Their low wages have not eliminated the need for large and continuing capital improvements to stay competitive. The company is installing a million-dollar computerized machining tool that will do the work of many workers. Across eastern Germany the actual unemployment rate is approaching 40%. ''If you include workers who were forced into early retirement or who will be unable to get work when current training programs end, it is that high,'' says Hermann Wagner, an executive at Treuhandanstalt, the German agency that is privatizing East German factories. In Hungary, General Electric saw an opportunity to acquire a recognized brand name and existing lines of distribution to west and east European markets when in 1990 it bought Tungsram, a big Budapest light bulb maker. What GE also got in the bargain turned out to be a work force that was one of the best in the world at designing and making advanced lighting fixtures. Hungarian engineers are excellent, says Peter Harper, acting finance director at the Tungsram plant. ''Give them a concept and they will go out and develop it.'' The Budapest plant makes automotive lamps used in cars built in Japan and Europe. A Tungsram factory in Nagykanizsa, Hungary, has become GE's leading center for making advanced compact fluorescent bulbs, with many of the bulbs now going to the United States. Tungsram managers are understandably weak in marketing and financial management, but GE has replicated there the executive training programs it offers in the U.S. ''With their analytical background as engineers, they handle it very well,'' concludes Harper. But Hungary too is suffering an insufficiency of jobs for skilled workers. The official unemployment rate, less than 1% three years ago, is now at 12% and will probably go higher. Tungsram employed 18,600 workers when it was acquired, but a third have been let go. IF YOU THOUGHT your job was immune from globalization because you were in a service business, don't go back to sleep. Recent advances in telecommunications technology and aggressive efforts by out-of-the-way nations to boost their educational systems have put wings on everything from insurance work to engineering and computer programming. In Jamaica, 3,500 people work at office parks connected to the U.S. by satellite dishes. There they make airline reservations and process tickets, handle calls to toll-free numbers, and do data entry. More than 25,000 documents a day, including credit card applications, are scanned electronically in the U.S. and copies transmitted to Montego Bay and Kingston for handling. More sophisticated service work travels even farther. A New Yorker calling Quarterdeck Office Systems, a California-based software company, with a question about how to work a particular program will often detect a brogue on the answerer's voice. Beginning at four in the morning, New York time, before Californians are at work, the calls are routed to Dublin, where Quarterdeck < has its second phone-answering operation. At the same place, scores of multilingual workers take calls from all over Europe. That would have been almost impossible a few years ago, until the Irish government spent billions to upgrade the country's phone system. It did so expressly to turn the island into atelecommunications-based service center. Quarterdeck originally used Ireland as a center for translating instruction manuals and software for use in Europe. It gradually came to realize the Irish schools were turning out impressive numbers of technically trained graduates. Increasingly complex software chores were assigned there, and Irish nationals were sent to California to develop original programs. Quarterdeck eventually leased special high-quality telephone lines to link offices in Dublin and Santa Monica, California. Once that connection was in place, it was a small step and little added cost to use the line to reroute customer calls from the U.S. All across Ireland are dozens of offices devoted to handling complex service work from the U.S. In the village of Fermoy, in County Cork, 150 Metropolitan Life workers analyze medical insurance claims to determine if they are eligible for reimbursement. This is not grunt work. It demands considerable knowledge of medicine, the American medical system, and the insurance business. Met Life's Irish workers also review new policies sold by salesmen in the U.S. for gaps and errors. Near Limerick, workers at another U.S. insurance company monitor the movement of money in and out of American corporate clients' employee pension accounts to make sure they comply with American laws. The job is far more complex, insists the office manager -- who doesn't want to be identified -- than mere medical claims processing.

Why do companies relocate work to Ireland? In part because it is cheaper. Operating costs are about 30% to 35% less than in the U.S., says Frank Verminski, head of the Met Life office. And the Irish Development Authority provides generous tax and other incentives worth about a year's pay for each new job created. Even more important, there appears to be a strong work ethic intensified by a serious shortage of jobs in Ireland. In a nation with only 1.1 million jobs for a population of 3.5 million, Irish men and women consider themselves very fortunate to get a ''permanent and pensionable position.'' The Met Life job requires 18 weeks of training. What is the annual turnover rate in Ireland? ''About 1%,'' says Verminski. ''We've lost three people in three years.'' The manager of the insurance office handling pensions says the work was sent to Ireland in part because workers in Hartford goofed off so much that managers gave up trying to improve productivity there. Now, she says, ''we think all the time of what other work could be handled here.'' Ireland is one of those countries that belie the notion that educating your work force will solve all your economic problems. It sends over a quarter of its 18-year-olds off to college -- far more than most European countries. But as in India and the Philippines, there are political, cultural, and unfathomable reasons why some nations simply fail to create or attract a lot of industry. In such places, college grads too often end up twiddling their thumbs. Smart managers recognize the opportunity such underemployed grads represent: a big and growing supply of hypereducated workers they can tap into. Some workers may even be willing, or eager, to relocate for a job. Recently a recruiter for Philips, the Dutch electronics company, marched into Trinity College in Dublin and guaranteed a job in Holland to every computer science graduate of the class. Don't scoff just because you never heard of the University of Limerick or the Indian Institute of Science in Bangalore. Corporate recruiters have, and they are often impressed. Says Stuart Reeves, senior vice president for Dallas-based EDS, the information technology management company: ''If you're hiring college types, there isn't a lot of difference in quality across nations. The difference among college graduates by countries is a lot less than the difference among day laborers and high-schoolers. And there's a lot of pent-up talent out there.'' In the mid-Eighties, Texas Instruments started setting up an impressive software programming operation in Bangalore, a city of four million in southern India. ''We came because of the amount of talent that was available here,'' says Richard Gall, managing director of TI in India. ''We couldn't hire enough software designers in Europe to meet demand, and India was producing more than it could use.'' And even though TI had to install its own electrical generators and satellite dishes to operate efficiently, wages are low enough that work still gets done for half what it costs in the U.S. SINCE TI'S ARRIVAL, 30 more companies including Motorola and IBM have set up software programming offices in the area, on a cool plateau west of Madras. ! The 3M company created a software writing operation in Bangalore several years ago. Based in part on the managerial and technical talent it found, 3M began expanding its manufacturing operations, which are pictured on FORTUNE's cover. Its new plant employs 120 people and makes electrical connectors, chemicals, and pressure-sensitive tapes. Indian-owned software companies like Infosys, with 350 programmers, have sprung up too and are performing work for General Electric, among others. Are Indian programmers any good? ''They are less expensive, but that's not why we went there,'' says Albert Hoser, president of Siemens's U.S. subsidiary, whose parent company uses them. ''They do some of the best work in the world.'' The potential for a further shift of programming to offshore sites is considerable. Software programming accounts for a third or more of the R&D budgets at many high-tech companies. Says Gall: ''As designs and software get more complex, the cost advantage of India becomes greater. We've only scratched the surface of what could happen here.'' In the face of what some see as a worldwide glut of skilled workers, a few nations actually experience a shortage of labor. But their drive to boost their own prosperity, by keeping good jobs at home and shipping lower-wage work to neighbors, has the effect of expanding the world labor supply. Japan, for example, uses neighboring countries as a place to offload messy and unpleasant work, such as painting and building construction, that it can afford to disdain. Singapore is helping to make Asian labor markets more accessible to Western companies. That small country (pop.: 2.7 million) has done such a good job of attracting foreign investment that it began running out of semiskilled workers. AT&T decided to make telephones there in 1985. ''The operation was successful beyond our wildest dreams,'' says Jeff Inselmann, vice president for AT&T's manufacturing in Singapore. Hundreds of other companies similarly set up plants in Singapore. The result: Managerial and technical skills flowed rapidly to the city-state, hastened by special tax breaks to companies that establish regional headquarters there. But foreigners wouldn't keep expanding operations and assigning more complex and high-wage work to Singapore if the place ran out of factory workers. So the government recently persuaded Indonesia to turn a chain of that nation's islands 12 miles across the Strait of Malacca from Singapore into industrial parks. With a population of 181 million underemployed people crammed mostly on the island of Java, Indonesia was happy to cooperate. In less than two years, more than 40 companies, including AT&T, Thomson, and Sumitomo Electric Industries, have established factories in the new parks, chiefly on Batam Island, two-thirds the size of Singapore. Batam is still mostly raw jungle, crisscrossed by roads carved out of the bright red earth and dotted with factories, dormitories, and radio towers. Labor shortage? AT&T set up its factories and recruited 700 workers from Java and Sumatra in eight months. Their pay is a third the cost of comparable labor in Singapore. Batam's population is expected to grow sixfold, to 700,000, by the end of the decade. Which leaves Singapore free to do what it does very well: design and manage, often for American and European corporations, and help them make efficient use of local labor and talent. Hewlett-Packard's new portable inkjet printer business is run from Singapore -- design, manufacture, and profit responsibility. Singaporeans designed and manufacture two popular pagers for Motorola -- one accepts voice messages, the other is the size of a credit card. Originally meant for Asian markets, they have proved so popular that Motorola is beginning to ship them to the U.S. Though the bulk of Motorola's research is still done in the U.S., the company is expanding the amount of R&D work performed in Southeast Asia. AT&T Bell Laboratories already has researchers there. Should American engineers be panicked that their jobs could go abroad? Says William Terry, executive vice president at Hewlett-Packard: ''Panicked? No. America will always be an attractive market. People will want to buy things designed and made in the U.S. But worried? Yes.'' What happens when these deep, heretofore inaccessible pools of labor and talent are plumbed by the rest of the industrialized world? That will depend in part on the pace of change. Will wealthy nations and companies have the time and the wits to adapt their skills and organizations to take advantage of the change, perhaps moving on to some new, higher form of economic activity? Will prosperity come fast enough to countries long denied it that workers won't riot in a revolution of rising expectations? IT'S CLEAR THAT there is something almost incomprehensibly vast going on -- a realignment perhaps, as Percy Barnevik suggests, on the order of the end of the agricultural era in Western nations, when people moved off the land and into cities for factory work. Says Gemini's Anderson: ''It's some sort of shift from the industrial age to an information age. But it's not that simple. People will still need cars and refrigerators, and people will have to make them. I'm not sure I know exactly what it is.'' In the face of such change, whatever form it eventually takes, one should keep in mind a few emerging verities: More than ever before, work will flow to the places best equipped to perform it most economically and efficiently. For one thing, the speed and thoroughness of information delivery in the Nineties guarantee that managers will now know where work can best be done. To try to restrict the flow of work in the name of saving jobs in this country or that is futile, certainly in the long run. Some nations may succeed at it for a short time, but the cost will be punishing dislocations. It would, for example, be ridiculous and dangerous for the U.S. to try to ''stanch the flow of jobs to Mexico,'' as protectionists might describe it. True, open trade with Mexico will mean that some jobs in the U.S. may disappear, but they wouldn't have lasted long anyway, given the pressures of foreign competition. And with U.S. exports likely to go up substantially, many more jobs will be created -- on both sides of the border. As in the past, countries will do well economically if they concentrate on doing what they do best, pursuing policies that will enhance those industries and services in which they can add the most value. Their particular competence may change over time; consider the example of Singapore. But the prize will consistently go to those countries eager to embrace the new.

CHART: NOT AVAILABLE CREDIT: SOURCE: COMMERCE DEPARTMENT CAPTION: U.S. DIRECT INVESTMENT Up until now, most of the $450 billion that America has invested in factories and offices abroad has gone to Western countries, but the flow of money -- last year, $26 billion -- is likely to shift toward emerging countries that have skilled work forces. Figures reflect cumulative investment.

CHART: NOT AVAILABLE CREDIT: SOURCE: COMMERCE DEPARTMENT CAPTION: EMPLOYEES OF U.S. MULTINATIONALS The number of foreign workers employed by U.S. companies declined in the early Eighties as conglomerates sold off acquisitions made earlier, but rose by half a million between 1986 and 1990 to 6.7 million. U.S. firms withdrew from India when it imposed investment controls, but are coming back.

CHART: NOT AVAILABLE CREDIT: SOURCE: BLS CAPTION: HOURLY COMPENSATION The strong dollar made American workers overpriced in the mid-Eighties, but now they are one of the best bargains in the industrialized world. A shortage of workers is helping boost wages in Singapore. In most cases, compensation includes benefits.

CHART: NOT AVAILABLE CREDIT: SOURCE: OECD AND ILO CAPTION: UNEMPLOYMENT Governments vary in how they report unemployment figures, and some numbers are rough estimates, but trends show that growing investment in Singapore and Mexico is helping to reduce unemployment. Thailand's apparently rising unemployment actually reflects a shift away from agriculture and improved reporting methods.