Bhatkanti

Offshoring…for how long?

Most of you readers (if not all) would know that I work in IT industry as a Business Development Manager and my firm uses Global Networked Delivery Model (Off-shoring/Right-shoring).

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Yesterday, I was with my team in southampton to celebrate with those who completed major milestones (3/5/10 yrs) in terms of careers with my organisation .

We had a great party at the local Indian Restaurant. We played some interactive games and all of us discussed on how IT industry has given us all as much as it has given our clients. We all thanked the industry and the organisation for the wider exposure and constant learning.

We also discussed about some nos. $30 bn USD exports from Indian IT Services companies, more than a million directly employed by IT&ITES, more than 700K directly employed in IT industry etc etc.

It is at this point, one of the team members asked a pertinent question—So far So good but then whats the Future of offshoring?

Nasscom-McKinsey reports suggest that India will add another million jobs in IT&ITES in next two years leading to $70 mn+ exports in IT services by 2008. I believe that there is a great future for next 2 years for fact, 5 years as i can sense and 10 years as i dream.

There are largely three issues that threaten this dream. 1. Political backlash from western countries, largely US 2.Resource crunch and 3. Diminishing cost advantage.

By 2008, average age of Indian IT folks would have still been around 26 years. At that stage there will be more than a million and half who would have spent less than 5 years in IT industry. All that they would know is programming languages like java and .net

God forbid but what would happen to the career of these 15 lakh (1.5 mn) IT engineers if there is slowdown in the export of Indian IT Services due to political backlash? Will we see Kerry campaign in 2008? Will the intesity of the campaigns be so significant in 2012 making it biggest political issue on which US presedential polls will be contested?

I heard a podcast this morning by US economist who argues for offshoring to become a bigger econopolitical policy issue than other monetary and fiscal policies in coming two decades in US elections.

In a nutshell, while Diana Ferrel of McKinsey Global Institute, Economist Jagadish Bhagwati and ONS studies in UK argue for advantages of offshoring for US/UK/..economies, there is still this danger of political backlash.

2. Resource Crunch:
McKinsey study notes that only 13% of Indian graduates are suitable for jobs in MNCs and that could pose a problem of resource crunch. In my question to Indian IT minister Dayanidhi Maran at India House in UK, he also recognised this to be one of the biggest issues to be tackled by the govt. There is this passing the buck one can see between nasscom (industry) and Govt on who should take the responsibility to make investments in improving this conversion rate from 13%.

I do belive that there is an urgent need to make joint interventions by Govt-Nasscom to encourage ventures like NIIT (version 2.0) to ensure that this 13% is brought up.

Though one would belive this risk to be more in control as compared to the first one.

3. Diminishing cost advantage:

Salaries for Indian IT employees is growing more than 10% on average every year but Indian IT chiefs (like now retiring NRN Murthy) dont see it to be the biggest worry. He has been quoting this simple arithmatic in media (including economist of this week)–If salaries increase by 15%, it has impact on 14% of cost that contribute for employee salaries and hence there is this 2.1% increase in cost or reduction in margin if the productivity is to stay at the same level.
Indian IT companies so far have been able to improve the productivity by more than 2% [thanks to tools and higher billing rates] to keep the margins intact and will do so, in my opinion, for at least next couple of years. Other than the salary cost there are cost increasing apsects like investments in other geographies and more services coming from non-india Global delivery centers that will have impact on margins. One reckons that these margins will still be higher than the competitiors.

In conclusion, i think offshoring is here to stay. The only question is how profitable can each party (Service providers and service seekers) make it for themselves. For India, as long as they recognise each of the above mentioned 3 issues and take concrete actions against them, there is no reason to get paranoid.

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1 comment August 12, 2006

The Welch Way

I am still stuck up on the ‘podcasts’. This one is by Jack and Suzy Welch.

If you don’t want to spend much time to read both his books [1. Straight From The Gut 2. Winning] read only second one. If even that’s lot more investment in terms of time and money, try this.

Take out two hours and Click on the following link.
More than a dozen 10 min long posts by Mr. and Mrs. Welch talk about-

1. Is ‘outsourcing’ around forever?

2. What is the secret of success behind Wal-Mart?

This post makes you ponder on-

God Forbid, will Wal-Mart go the GM way ?

Will there be unions in BPO industry in India?

3. Should everyone invest in China?

4. With advent of India and China, what is future of Europe?

5. What are the ‘top 3′ characteristics of successful companies?

On Career:

6. What will create an unique impression on my boss?

7. What will makes a good sales person?

8. What kind of executive coaches are good?

9. Boss Haters—How many bosses can you count whom you didn’t hate for some reason or other?

10. How do I deal with a smarter employee/junior?

I did have an opportunity to listen to Mr. & Mrs. Welch at LSE. Possibly LSE saw one of the longest queues that day. Not that everything i heard made perfect sense to my day to day life as a middle manaager but then it was great to hear first hand someone who has run one of the biggest corporations of America for decades.

That reminded me of my b-school—

While one heard the big names in India’s corporate circles at IIM-A, at least i haven’t heard of lectures by CEOs of GE,MS,Wal-Mart, Intel at R J Mathai center in IIMA. May be there is potential to get a bunch of these guys down there for a weekend lecture series.

But then every-time its not possible and now i think not worth spending so much of time/money in attending these events/lectures,esp while in job market. At times, it involves lot of work—buttering the most networked guy/boss in your office to get the event pass/tickets, travelling the public transport (unless you are already a director/VP), standing there in queue, trying to ask a question and not be sure if others would laugh at it and all of that.

Comparatively, it’s lot easy to click on the link , assume a reclining position on your couch and enjoy it. If you already have an ipod/mp* player, better still! Take Mr. and Mrs Welch along and listen them in your tube line/local train/metro/Bus or Riksha…

Add comment July 28, 2006

Podcasts…

Robert Scoble , ex- strategist of Microsoft retired last month. I heard on BBC. He has joined podtech.

Scobleizer has been one of the most sticky blogs. He thinks Podcasting as a Media for mobile workforce. I can imagine thousands on tube and train stations and bogies busy listening to their favourite podcasts. I dont want to be left behind to know what it is for too long.

Yes! though I had heard enough about podcasts so far, i had not troubled myself to google ‘podcast’ and ‘podcast+XYZ’.

I have come across some expected podcasts (thought not as many of them YET) and some not-so-usual ones.

Expected ones from usual suspects-
Chieftains of TCS,Infy and Wipro talk about Future of IT Services Outsourcing (i didnt expect their first podcast on anything else). It is obvious to see each one of them focussing on the shift from ‘India Centric Delivery’ to ‘Global Mesh of Delivery Centers’. There are facts on market size and thoughts on extending the logic of offshoring from ‘IT Services’ to ‘Consulting’.

1. TCS MD on Global network of IT Services
2. Wipro Chairman’s interview on Offshoring

3. Infy Mentor on Outsourcing Boom

* McKinsey on Demand and Supply of Global Labour [You may not call it a podcast but then you wont regret to listen this 22 minutes of the audio clip that makes it relevant for you if you come from one of the top 8 rich countries or top 22 developing econopmies]

The best part of the podcasts is to listen to those who do not necessarily appear on TV/conferences as often as the above mentioned. Here are two of them here.

4. Prof. Richard Scase on Globalisation: Positions of UK and India

5. Bombay Dreams: Suketu Mehata on ‘Maximum City’

Suketu’s one hour is full of numbers to give you the perspective of Aamchi Mumbai but his lucid style makes it more like a poetry reading. It needs no convincing that 30 months of his research on ‘mumbai’ and his style of articulation makes the book a ‘Must Buy

It will be great to hear the feedback if one of you blog readers have read the book.

Note: I am surprised to see Yahoo ahead of Google on the Podcast search.

Add comment July 18, 2006

[7/11] Managing Disasters (Information)…

Just because I worked as a volunteer managing relief/rehab after natural disasters and then as a UN officer using ICT for governance, doesn’t give me much of an authority to talk about managing manmade disasters and using ICT for it. But then here are my thoughts-

Much is being talked about ‘Preparedness’ in terms of Government intelligence agencies. All of that is a ‘must do’ to avoid next disaster but then lets spend sometime on this one that has just happened and we have yet to recover out of.
Whats happening here?

Blasts at more than half a dozen stations and hence those hundreds of patients are hospitalised in more than a dozen hospitals. In first 12 hours, you try find out about your dear ones and you need to travel all over mumbai (i dont know ‘how’ though, when the train system isnt working, buses are jam packed and there is mayham on the roads). One or two of these hospitals have one information officer each, the rest dont even have that. There are more than 20/30 people waiting for every information officer. One wonders, what stops you from taking 10 photocopies of the same damn thing and setting up 10 info desks per hospital.

after a few hours, you have telephone nos provided per hospital. But then there is only one (or two at most) number per hospital. when thousands are calling ospital to check the whereabouts and wellbeing of their loved ones, can we not have 10 lines/seats per number?

There is something to learn here from what happened at London, post 7/7. A call center was set up that handled all queries related to the disaster and provided the best info they could to all the stakeholders. These lines also were used to gather intelligence from anyone of the 60 million UK residents.

Can India, whose IT/ITES prowess is talked about all over the world not set up an ICT-Call Center hub that manages such dissasters?

Can there not be an Emergency Information Management team flying to the site and ’stand by call center’ activated within minutes of the disaster?

What a shame! a country that has 1.4 million IT/ITES employees, that does 65 % of outsourced ITServices work worldwide doesnt have systems ready to manage (information on) these disasters.

1 comment July 12, 2006

Farm to Retail

IT, Pharma and Auto are the key scetors for India when it comes to Exports. Thats what was heard through series of presentations in the CII- ‘UK Trade &Industry’ conference held in London (27th June) on promoting trade ties bewteen India and UK.

So far, agriculture has been far away from the consideration set when it comes to candidate export industries.

In my opinion there are following reasons/doubts-

1. Protective Import barriers on agri trade by western countries.

2. Lack of Cold Storage/Supply chain. No wonder 40% of India’s food and vegetables spolis before reaching market.

3. Not many industrial houses have looked at this sector as an opportunity and hence lack on investment in pvt. sector capital investment —-resulting into (2)

4. 96 % of the retail stores are run by 12 million families and hence even if one makes investments in the infrastructure and reduces the waste, will the investor (industry house ) be able to compete with the price, convenience, flexibility and agility provided locally by these family run stores?

5. Is Indian consumer ready to pay for that stamp of quality from supermarket/branded retail store?

Before you think it is a distant dream to consider Indian Farming as a candidate Export Industry, let us be reminded that-

i. India has largest arable land.

ii. 65% of cropped area is ‘Organic by default’ and hence well positioned to eye the $26 bn market of Organic Food.

iii. Bharti Mittal has a partnership with Rothschilds and the partnership has invested as much as $50 mn on global distribution of freash agri products.

iv. Gautam thapar has emerged as one of worlds top 10 gherkin producers.

v. The latest one…Reliance has announced plans to set up 1600 farm-supply hubs in India. These hubs should help them connect farm with retail chains to be built in India. They will also be helpful as centers to put a ‘export quality’ stamp on produce that is ready to take the flight!

Now, let me go back to my 5 reasons and present the antithesis-

5. Yes. Indian consumer is more than ever ready to spend that extra rupee in getting that quality stamp from branded retail.

4. India’s 96% family-owned stores looks very large as compared to Newsweek report [dt July17, 2006] of 80% in China and 60% in Thailand.
3. India’s industry heavyweigths like Bharti (airtel fame) and Reliance have deep pockets and strong belief in risk-reward to take the first step.

2. Investments by Bharati, Reliance and others joining the club will be able to bring in economies of scale and reduce the value of fresh food basket by reducing the 40% waste.

1. Kamalnath’s efforts in WTO and increasing shift of balance of power towards India should help in getting entry into markets with 50 million consumer while letting them enter worlds second largest (emerging) market

While today these are weak signals on both farming and retail and hence more so on ‘Farm to Retail’ plans of likes of Reliance, one wont be surprised if this industry does wonders to Indian Farmers that IT industry did to Technology graduates with the offshoring boom.

Space to watch!

Some Relevant Links:

http://msnbc.msn.com/id/13773309/site/newsweek/

http://www.forbes.com/home/feeds/afx/2006/07/11/afx2869655.html

http://www.ibef.org/economy/agriculture.aspx

1 comment July 11, 2006

Wimbeldon , WCF and weekend

Weekend…it was one word unheard of in my hometown, Latur (at least for me). All that we knew is ’study hard’ and crack the HSC [12th std] exams. Weekends worked well to revise week before and plan next week. Guess that worked. No complains, only a merit rank!

Life moved on from Latur to Mumbai to Ahmedabad to Delhi to Hyderabad and now London.

The jounrney of Latur to London in last 10 years has also changed the concept of weekend, very gradually though.

Wimbeldon is on the tele. Its Federer-Nadal final as you know. Wimbeldon is only 11.6 miles and 27 minutes away from my couch in the hall. I am certain Federer will win the game. I have fond memories of watching him play at center court last year. Oh Boy, its a super feast, I must say. Dont forget to add it on ‘N things to do before i die’

Then there is World Cup Final in the eve. France-Italy. It would have been great to have a south america—europe match but then its football. Lucky (3 time winners though) Italians shooting two goals in last 2/3 minutes against host germans were kinda not so obvious candidate for the final match. Anyways, i had a super treat with my laturite udctian co-alum in town and a couple of TCSers joining for the match at my place. Today is another such day. We are meeting at a TCSers place in hounslow. There would be more than 100 TCSers in town of hounslow. A few of them who work in london office are good family friends. We made one of the families volunteer to host us for this big match and we are all set to enjoy barbeque and world cup at the hosts Lawns.
So thats wimbeldon finals and Football world cup finals on the same sunday. I couldnt have asked for more…

…actually one can ask for the Ultimate. A box seat for Federer-Nadal match at Center Court, a limo taking me from SW to NW of london for terminal 1 to get in tele-checked in for business class BA flight going to tegel (Berlin) for the evening 2000 hrs France-Italy match at Olympiastadion. Is that asking for too mcuh…

Add comment July 9, 2006

When will UK Govt offshore their IT?

Today I attended a conference at Intellect- (Nasscomm/CII equivalent trade association of high tech industry in UK).

Almost every speaker (Business School prof, industry analyst, Government stats officer) talked about India and China. they all agreed that India is the top most destination of choice for offshoring and will remain so for foreseeable future. did you say, ‘Big Deal?’.

Here is what i heard for first time from UK stats officer, Biz school prof and analyst-

Between 02/03 about 10% firms offshored services. The no is more than 20% now is what i then heard from the industry analyst. That makes it obvious that ‘offshoring’ is no more a new thing.

Offshorers are also more likely (51%) to exporters of services. That keeps the trade balance positive.

Offshored services show higher marginal productivity than domestically (UK) outsourced services. Its not about just labour cost.
Both UK&US run trade surplus when it comes to services (IT+Business). Globalisation helps UK&US as much as it does India.

Coffee time talk is my favourite when you go to conferences. You exchange lot more customised content. I know and hear from the industry analyst that UK govt spends 30% of UK’s IT budget but offshores almost none of that. While rest of the UK (Pvt sector) offshores atleast 20 % (by volume) for now and could go up to 50% soon.

The word ‘almost’ is interesting beacuse one can find very weak signals on UK Public Sector considering and ‘doing’ rightshoring/offshoring. One of the UK companies with their office in India is talked about to have offshored part of work on NHS. There are also examples of some work from central govt and NDPBs (Non Departmental Public Bodies) being offshores. Though this is very very insgnificant part of 16 bn budget. With the abovementioned bullets in the backdrop, I wonder, what would be the shape of the pie, come 2010.

Any thoughts?

Add comment July 6, 2006

Negroponte and Pitroda…

http://timesofindia.indiatimes.com/articleshow/1698603.cms

I Read this news today. I am happy to hear the HRD decided not to go for this $100 mn experiment.

To put things in perspective, if one wanted to see these machines in each of 638K villages in India, not more than two students per village will get the computer. And if it is not every village, whats the rationing system of the Govt?
If you compare the cost of this initiative with the National eGovernanace Programme of $500 mn over next 4 years, one is talking about spending the equivalent of 20% of the much discussed, long pending initiatives on an ‘experiement’ that no has tried and tested yet.

And then, who wants to discuss the following in detail-

$100 mn is only cost of the machines, how about the overall, procurement, distribution and administration?
Who is going to train the trainers (teachers in villages) to teach them to students? whats the associated cost?
Are the teachers motivated and qualified enough to ‘learn and teach’ operations of the new machine?
Is there no variable cost involved? who will bear that? Who takes care of the upgrades and at what cost?

Would it not be better if you leave it to market forces and spend more of your energy as a Govt on ensuring that the e-infrastructure is in place. The best approach will be to first go for one laptop per panchayat and one laptop per school so that the ‘take-up’ is ensured. This itself could be done on the national scale so as to achieve the critical mass and hence the paradigm shift.

If one needs to argue the case further, i would belive more on the pitroda model of ‘intermediaries’/'pay as you go’ (like the std booths and now cybercafes) than the negroponte model of ‘onwership’.
I will for sure want to wait and watch this space.

Add comment July 5, 2006

Bhatkanti

Offshoring…for how long?

[7/11] Managing Disasters (Information)…

Farm to Retail

Wimbeldon , WCF and weekend

When will UK Govt offshore their IT?

Negroponte and Pitroda…

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