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By Shyamanuja Das, September 8, 2008 2:48 AM

Once a year, in July-August every year, we at Dataquest, analyze the performance of Indian IT industry. I thought of sharing the major findings of the research, especially the export of IT services from India.

On the face of it, it is a fairly simple thing to do — get all the numbers and analyses straight from the research my colleagues have painstakingly conducted and presented in Dataquest, and summarize them for you.

I just had to do a little arithmetic — convert all the figures from Indian Rupees (INR), the currency that we use to present all our data, to U.S. Dollars (USD). That is when I realized that the seemingly simple exercise was anything but simple. Let me explain.

Take Indian IT-services exports. Between Apr. ’07 to Mar. ’08, the Indian FY08, in rupee terms, IT-services exports from India was Rs. 1,884,480 million, up from Rs. 1,478,810 million the previous year — that is a growth of 28 percent, compared to the growth in FY07, which was 35 percent. Now, convert that to USD in the prevailing average exchange rates of corresponding periods. In FY08, Indian IT-services exports stood at $46.6 billion, as compared to $33.6 billion in the same period the previous year. Now, that is a growth of 40 percent, as compared to 33.5 percent in FY07.

You do not have to be a great mathematician or an economist to figure out that INR appreciated significantly against USD between Apr. ’07 to Mar. ’08, whereas it depreciated a bit between the corresponding period a year back.

My dilemma: I have told all my readers of Dataquest that the growth slowed down from 35 percent in the previous year to 28 percent last year, with all the explanations of why it happened. So, how do I explain you why the growth accelerated from 33.5 percent to 40 percent? Did Indian IT-services exports actually slow down or accelerate? Did Infosys had a better growth this year or last year? Did IBM’s India revenue grow better this year or last year?
I do not know the answers, despite having all the numbers and stories behind them.

With increasing globalization but multiple currencies, this is an issue we will increasingly face. If we do not have a solution, all these number crunching will have little meaning. Companies listed in both U.S. and India will have to tell their investors completely different stories. American companies having more and more business in emerging markets will have to explain to their investors, for example, why despite having a better outlook for Mexico, the Russian business grew far faster — thanks to the currency-adjusted growth playing the mischief.
Does anyone have a reasonably simple answer?

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By Shyamanuja Das, April 28, 2008 3:16 AM

What is the impact of the U.S. slowdown on global outsourcing? This probably is the most-discussed topic in the outsourcing fraternity. Not surprisingly, it is more so in India, where hundreds of companies and millions of employees are directly affected by it.   

Just a few months back, when the U.S. analysts were discussing the possibility of a slowdown, the opinion in India about its impact was divided. While many argued that a slowdown means increasing pressure on customers’ margins — the raison d’être of offshoring initiatives — pushing more work to India. There were many others who believed that a slowdown actually slows down every business activity, and hence most new activities would be shelved. A few were not too sure. 

But even as the slowdown has become a reality, paradoxically those debates have almost ceased. And, the number of people in the third category (the not-so-sure types) has actually gone up.     

Yes, on the face of it, it is paradoxical. Here is an attempt to explain.  

Most of these discussions are fuelled by comments from the executives of global outsourcing firms, especially the offshore-centric service providers. When it is a distant possibility, it is taken as yet another topic to get media coverage. But with slowdown becoming reality, the investors are getting concerned. The fact that most such service providers — right from the top three to the tier 3 — are listed and contribute significantly to India’s principal stock index, means this debate spills over to the investor and the analyst communities in general. As no company wants to take the risk of making public statements about slowdown’s effect on their businesses.  

Interestingly, the couple of results that have been announced, have actually pleased the market. Infosys, which was the first to declare (as it does in almost every quarter), took up the market sentiments so much that since then the Indian markets have gone up, led by Infosys and peers such as Wipro. Considering the fact that in most of the financial year 2007 to 2008, when the Indian stock markets were registering the biggest gains among all markets, the IT-services exports firms were actually lagging behind.  

It is a fact that barring IT or business process outsourcing services exports Indian economy is one of the least internationally integrated economies in the world. And, if the one that is most integrated with the global, and more specifically U.S., economy is showing positive results, then the logical conclusion is that it has a positive effect. And, in the last few days, a few Indian equity analysts are kind of suggesting that. 

However, that could be too simplistic a conclusion. Infosys has given a cautious, though not alarming, guidance. But based on the company’s track record of issuing conservative guidance, market players are not too worried. While a few more results, especially of TCS and Wipro, will certainly make the picture far clearer, that may still not answer the question unequivocally.   

Interestingly, IMF’s World Economic Outlook 2008 — giving more emphasis on the possibile inflation in both China and India than recession — reminds me of my previous article, which talked about the future of globalization lying in integrated global strategies for regions, not in slicing it up into pieces like offshoring, emerging market strategy, and so on. So the old-fashioned China strategy or India strategy — how to leverage the potential of the regions be it as markets or labor markets — makes better sense than an offshoring strategy, especially in an uncertain world.     

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By Shyamanuja Das, April 22, 2008 9:19 PM

It is official now. We are in the midst of a slowdown. So what happens to your entire outsourcing plan? Your offshoring plan? Elementary — you are told by your sourcing consultant — a slowdown means more pressure on bottom line, so more the reason to do offshoring. And if you have a mature offshoring activity — with stable operations — that makes a lot of sense.

But if you are just beginning the journey; or if your offshoring has been that of a single, isolated function, does that over-simplistic formula works for you? Probably not, no matter how much we — that includes me — agree with the fundamental logic of that proposition.

Your top bosses now have different priorities, even if they still agree with you. They have to fight the recession. Depending on the business you are in and the size of your firm — offshoring may not be the top three/four things that will immediately provide an answer to their worries.

But here is something that will. And it is for real.

I assume that if you have an offshoring strategy — as opposed to isolated, tactical offshoring — India is part of that. Now, can you turn that around and come with a completely new proposition? Instead of India as part of a bigger outsourcing strategy, can you have offshoring as part of a bigger India strategy?
Here is what I mean. India’s domestic consumption growth is on a historical high. White goods, fast moving consumer goods, retail, telecom, travel, automobiles, personal finance — almost all consumer sectors are witnessing growths of anywhere between 10  to 100 percent. Those of you who have had not yet captured a share of that growth, even while leveraging India’s professional, low-cost knowledge workforce by offshoring IT/BPO, here is a chance to look at combining both and have an integrated India strategy in which offshoring is a part.

Of course, my observation does not mean anything for Citigroup or IBM; Procter & Gamble or Coca Cola — the companies, which have a booming business in India already. But I am sure many of you are not out there yet.

Can you turn the challenges thrown by slowdown to an opportunity by stepping up the India activity? Absolutely. So far, India has contributed to your bottom line by bringing down your cost. Now, it can do the same by contributing to your top line.

And that is true for both the users of offshoring and service providers. India’s domestic IT services market is beginning to grow as well, though nowhere near the growth witnessed by the consumer markets.
Am I beginning to sound like those gurus of outsourcing? Where you do agree with my fundamental logic but are beginning to doubt how practical it is to look at a new expansion plan in the face of a slowdown? That is a very, very sincere question.

And here are my answers: At two levels.

First, at the more fundamental level, there is little choice before you. A slowdown is probably the best time to try this out because the reward to risk ratio will look more attractive during such a time.
But at a more tactical level, I assume you have done some groundwork for India offshoring. You already have or are planning to have a dedicated team working on that plan, visiting India, and talking to people there. My only point is: Why not broaden the scope of its brief? In a very narrow way, it is leveraging the resources better. So you have little to lose. In just a small incremental cost, the same team can work on an integrated India plan that will give you both growth and profit. ‘Profitable business,’ as management writer Ram Charan tells us, is “everyone’s business.”    

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By Shyamanuja Das, March 4, 2008 10:51 PM

If you are a fairly regular reader of Global Services, it is safe to assume that you are associated with global outsourcing in one way or the other. There is also a high probability that you are fairly familiar with India as a global service delivery location. Your advisors have probably told you that with plenty of jobs around, Indian IT employees keep changing jobs, if you do not keep hiking their pay packets in every few months — a little exaggerated, but by and large true. You have probably also been told that apart from wage hikes, it is the possibility of working on new technologies that draws them to an employer. Absolutely. But have your advisors told you about any expectation of job security? Most probably they have not. Reason: Many of them do not even know.

India, as you may have read in many travelogues, is a land of contradiction. This is just one of them.

Let me explain. India, as you know, is a vast country. All the insights that you have about India as an offshore location are true about Bangalore or other such large Indian cities. But a lot has changed in India since Tom Friedman told you in your bedside must-read that Bangalore is the center of the flat world.
Indian offshoring today is not just about Bangalore, Delhi and Mumbai. Or for that matter, even about Chennai, Hyderabad, and Pune. It is about places like Indore, Nasik, Kochi, Bhubaneswar and Jaipur. These are locations, which, put together, employ close to 40,000 people delivering services for global customers.

Yes, that is Indian offshoring, circa 2008. Tom Friedman’s World … is so 2005.
Now, what has that to do with job security? A lot. A predominant majority of IT employees in the tier-1 Indian cities are migrants from other parts of India. In contrast, majority of IT employees in the new locations are locals. The social pressure to stick to one job (unless there is some real issue) is very high in such locations. Called job stability, many parents of young IT employees very actively encourage that.
That is one big reason for expectation of job security. But there is an equally strong reason, which at least in the short run, has forced IT employees to attach importance to job security, across all locations. That is: Fear of an imminent slowdown in the U.S. affecting offshoring to India. The Indian IT-services firms, which are listed in India, are already being given thumbs down by stock market analysts, adding to the fear. That means, at least for the time being, the employees are far more concerned about keeping the job than they were, say, a year back.

That was reflected in an employee satisfaction survey which Dataquest — the magazine that I work for — had done a few months back, with help of market research firm IDC. In the annual survey, while the employees seemed to be more satisfied than the previous year on most parameters, job security was one parameter where employee satisfaction came down drastically, as compared to the previous year. With Indian media reporting layoff by IBM of 700 engineer trainees, the fear has only gone up.

What should concern the non-Indian IT-services firms as well as their customers whose work they do out of India, is the fact that in the same survey, the employees of Indian IT companies have ranked their employers far better in job security as compared to what the employees of non-Indian IT companies have ranked their employers.

The last thing that you should know about your employees in India, which your advisors have not told you: Listen to them closely. They understand the game far better than their developed world counterparts.

So, if your India HR plan did not have job security as an agenda item, think again.

Shyamanuja Das is Editor, Dataquest, CyberMedia.    

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By Shyamanuja Das, January 28, 2008 9:42 PM

Less than a year ago, I was working for Global Services, talking largely to the buyers (users) of IT and Business Process Outsourcing (BPO) services in developed markets such as the U.S.A., the U.K. and continental Europe, for my story inputs. There was one common expectation from IT in general and outsourcing in particular that they shared with each other: The ability of the solution to drive efficiency, irrespective of which geography and which industry these customers came from. Not surprising, considering the growth in these markets is stagnant. And the cost saving is the only way to add to the bottom line. It is but natural that outsourcing has come to be known as a method of driving efficiency; for better organizations it means more than immediate, one time cost saving; but nevertheless, it is a means to drive down cost — one time or sustainable.

When I took my present role in Dataquest, a CyberMedia publication, and started talking to the Indian customers, I carried that legacy and initially tried to steer my conversations toward how they were using IT to drive efficiency. But soon I realized that efficiency is not the top of mind issue for Indian users. The simple explanation is that in a high-growth market such as India, present growth, scalability as well as market share build much better shareholder value than efficiency. Like it or not, it is sort of party time. Growth of the market is assured; the question is whether, you capture that growth better or your competitor does. Not surprisingly then, IT’s role that CIOs see in their organization is that of a driver for this growth; not so much as a driver of efficiency, leaving aside a few areas in certain sectors (such as operations in the aviation industry). 

I guess this is true for other emerging markets such as Brazil, Russia, China, and new markets in Asia as well.
What follows logically is that the IT offerings — products or services; hardware or software; systems or applications — will have to be designed keeping this in mind, at least for these markets. The reality is far from that, though. Most product providers try to sell the same type of ideas in India that they try to sell in France or the U.S.A.

Thus, in terms of business, while the growth will come from emerging markets, it is not assured. The stakeholders have to work to achieve it. The consumer markets in most of these countries are extremely sensitive to the affordability factor. In India, we have seen that in almost all the consumer businesses — telecom, retail, aviation, consumer electronics … all these businesses have taken off once the services/products have become affordable. It is a no-brainer that even the B2B industries serving these consumer industries have to play by those rules.
So, here is the paradox. While cost cutting may not be such a concern for Indian businesses, making the end product/service affordable is the topmost priority. Take Nano, the people’s car, from Tata Motors.  It is not a great technological marvel. But it is innovation at its best. A car for half of the price of the cheapest one, presently available anywhere on the earth! And as one Indian newspaper said, it is not an apology. It is trendy looking, it does not compromise in space, and it meets all environmental norms!

The Difference
The fact that the expectation from IT in emerging markets is that it will drive growth means a very, very important difference in how it is deployed. Growth means revenue growth. So, the application of IT will be in areas where it will make a difference to revenue; i.e. in core business.

Cost will be important too, but it will be far more important in areas where it could make a direct, major difference to the cost of end product/service, not in an indirect manner. When it comes to technology and ideas, the CIOs will have to match that kind of business risk. One will not be surprised, if the ideas like on-demand, BPO, and open source get a whole new meaning and value in the emerging markets.

And who knows, some of the successful experimentations could well be exported back to developed markets to create disruptive shifts!    

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By Shyamanuja Das, January 2, 2008 11:16 PM

After Jack Welch’s now famous 70-70-70 formula of the mid ’90s, which he successfully demonstrated by moving business processes to India, it took almost no time for corporate America to be convinced about the effectiveness of “offshoring.” After all, business value then (and to a great extent, even today) was driven almost entirely by efficiency — again something that Welch preached vociferously. Because of the reasons that we have discussed in the Global Services pages umpteen number of times, India emerged as the hot favorite. As the world by and large got convinced about the economic value of the movement of jobs, many more locations were looked at as possible locations, giving rise to many lists of top offshoring destinations that research firms, consulting firms and publications started putting together. They still do, even though all such lists acknowledge that there is no real alternative to India. My point is not to start another debate on locations, but to sensitize that a possibility of some challenges in offshoring to India means, for all practical purpose, challenges for offshoring itself. And, I think, there are two strong reasons to believe that the whole dynamics of offshoring to India may change dramatically. And sooner than we think.

No, it is not the usual government policies or attrition and wage hikes. They are deeper than that, are to do with fundamental economic changes, and to some extent are inter-related.

First, of course, is the change in global currency exchange rates. While the dollar has been weakening against most currencies for quite some time now, the Indian rupee is strengthening. That means offshoring to India is becoming costlier for American companies. So many of the calculations based on earlier exchange rates need to be drastically revised. This is something many in the user and the service provider communities have realized.

What many are still not sensitized to is the impact that India’s domestic growth could have on the Indian offshoring industry. India’s domestic markets in almost all sectors such as consumer goods and manufacturing are seeing a boom time, attracting newer players and resulting in massive build-ups. Look at India’s retail sector. Five years ago, there was hardly any organized retail in India. Today, you can see retail chains all around. It is a matter of time this consumer boom will create new opportunities in even B2B areas.

But how does that affect offshoring to India?

First and foremost, the competition for labor just got a little tougher. While a pure wage comparison may still favor export services firms, many of today’s youth want more than that — they want growth, job challenge and, more than anything else, ownership. Arguably, the domestic industries provide better growth opportunity as well as ownership, at the same time “a sense of satisfaction of contributing to India’s growth directly,” says a 26-year old who left a good position in a BPO firm to join an insurance firm in India. Metrics-driven outsourcing allows very little scope for demonstrating individual capability, despite all claims by the services firms. Some areas considered to be low value and repetitive, such as call centers, are already seeing shrinking of the labor pool. The fact that many of them — in call centers and other BPO jobs — work in the evening/night time also do not help the cause of these employers.

Second, it is believed, and rightly so, that today you can create value quicker by doing business in India. Most new entrepreneurs are now focusing on the Indian market. Many of them, and their top managers who are often shareholders, have come from the offshoring industry. Exodus of good managers is also not great news for the industry.  

In short, India’s growth in the domestic market will directly compete with the export market for all inputs — HR, infrastructure, favorable government policies — that too aided by a rising currency. To think that it will not make an impact will be too short sighted.

While no one is sure what will ultimately happen, it would be foolish to assume a smooth road for the offshoring industry in India going ahead. That should be considered by one and all betting on offshoring! 

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By Shyamanuja Das, October 23, 2007 3:01 AM

As you probably would have read enough in the last few days, IBM, the largest IT-services firm in the world applied to the  U.S. Patent and Trademark Office (USPTO) for patenting “a method for identifying HR work content to outsource offshore of an organization” to “countries where cheaper labor prices and/or cheaper materials are available.” You also probably know that after the blogosphere was abuzz with this, it did retract. It even acknowledged that it was glad that “the community pointed this application out so IBM could take swift action.” It also gave its reason. It said the company had finalized the filing before it revised its patent-filing process that is more stringent.

Many analysts and bloggers did rightly, and rightfully, pointed out that this shows how the whole U.S. patent regime works. And not the least because IBM itself has been the leading recipient of patents for close to one and half decades, well ahead of the rank 2, which keeps changing from year-to-year.

It is not just the quality of patents that is the target of criticism from  patent watchers. Many question the widely held notion that patents are synonymous with innovation. For example, none of the apparently “innovative” companies are there at the top. Microsoft stood 12th in the list of top patent recipients in 2006 whereas Google was not there in the top 35 firms, in a list dominated by Asian consumer electronics giants such as Samsung (2), Canon (3), Matsushita/Panasonic (4), Sony (7), Hitachi (8) and Toshiba (9).
What gave a little more credence to this line of criticism is that an economist who has argued against and pointed out the futility of software patents was given the Nobel Prize for Economics this year. Eric Maskin, the winner of 2007 Economics Nobel argued in 2000 in a co-authored paper that patents for software could adversely affect innovation.
In response to all these, USPTO is changing some rules of the patent-application process. The new rules will be effective from Nov. 1, 2007.

Yet, one of the basic challenges facing U.S. patenting is still not attracting enough attention. In a recent report, the Government Accountability Office said that the USPTO needs a plan for hiring more patent examiners to handle the increase in volume and complexity of patent applications. It found that attrition is outpacing the hiring. In a survey of 1,420 patent examiners, 67 percent of them said the targeted number of patent applications that they must complete is unrealistic. Many of them complained that they work during vacation and need extra time to complete the job. The report said this has happened because USPTO has not taken into account the rising level of complexity in patent applications while hiring since 1976. USPTO does recognize this problem to some extent, and is appealing to the applicants to give better quality information. Some of the new rules are created with that in mind. But that is too little, too late. The immediate problem is huge. There are more than 760,000 pending applications. The applicants will not change overnight, if they do at all.

Here is an almost no-brainer solution. Since many patent examiners are science and technical professionals, why not carry out the examination in a place that has plenty of such professionals; i.e. India and Eastern Europe?
However radical it may sound, the logic is the same as that in any global reorganization of workforce. You have to go to the place where maximum number of such people is available. What is more, in this, you don’t need to retrench people, as the natural attrition is very high. Also, getting people for this is only going to get increasingly more difficult.
So, for a change, can we look at outsourcing patents rather than patenting outsourcing?

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By Shyamanuja Das, September 27, 2007 12:04 AM

 Whether Lenovo lead-in will herald a new era in an emerging economy at the private enterprise level or will remain an isolated example remains to be seen. But whether that happens or not, Lenovo’s marketing hub in India, if successful, will surely help in creating one new business function for global firms to try out of India. More importantly, it could bust a few myths about what can or cannot be offshored, err worldsourced!      

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By Shyamanuja Das, August 27, 2007 3:31 AM

At CyberMedia Dataquest, we are just through with our annual research on India’s best IT employers. The Best Employer Survey does not just rank the best IT employers in India, but also finds out what Indian IT employees want; what they are satisfied about and what they are not; what they value about their companies and what they do not; and so on. Though it ranks both the global services firms delivering out of India and the local IT players, most of the participants — and hence the toppers — belong to the first category. Since it is being recognized that the success in the global services market significantly depends on how successfully companies compete in the Indian labor market, excitement about the ranking is enormous. But beyond the rankings lie a few findings that could change the rules of how this war for talent is fought and won.

For long, the Western media and analysts have written with awe the way some of the Indian services firms take care of their employees. With standards being set, even the non-Indian services firms who have come to tap the Indian labor pool, have played by those rules to attract and retain people in a highly competitive labor market. Fun activities, de-stressing facilities, allowing flexibility to balance work and social life, counseling on personal and professional problems, innovative benefits, CSR initiatives targeted at impressing the employees — the large employers have tried out every innovative way to “keep employees happy” and “attract the best people possible.” So much so that the companies’ HR departments now look more like social welfare organizations.

Add to all this the wage hike that you often hear about. India’s annual wage hike in the IT and BPO services industry is probably the highest in the world.

All this has so far worked well. While wage hike is a never-ending game, employees are by and large satisfied by all the other goodies that their employers have showered on them. Our survey finds that apart from the growth opportunity, employees are most satisfied about the flexibility of work hours, organizational culture, job security, technologies they are working on and company image. Even the satisfaction about salary and compensation is not so low as one would have expected.

But what should ring an alarm bell is that the area where the satisfaction level is minimum is the employee evaluation system. While most of the employees do recognize the fact that their employers care for them and are socially responsible, and even the fact that they are paid reasonably well, when it comes to the evaluation of their performance, their satisfaction level is low.

That is anything but surprising. In the game of one upmanship, the more visible an HR initiative is, the more priority it gets. Investments in good performance management (and not just measurement) systems do not pay back as fast as investing in, say, a branded reference recruitment program. But as the results show, employees now demand better efforts by the employers when it comes to core performance-related areas. This expectation is only likely to grow as they are exposed to more global best practices. Does this mean that the era of feel good HR is over? I don’t think so. Without a social-security system, job security is still one of the most sought-after parameters by employees when they decide to join a company. The India outside the tech-firm campuses is still very much a third-world country, and employees do value a lot of the facilities they get. Increasingly this will become just one — though important — parameter for employee loyalty, however, not the only one that the employers will have to bet all their money on.

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By Shyamanuja Das, July 30, 2007 9:33 PM

Enterprise IT services have traditionally been classified by companies and analysts into a few by-now well-accepted segments, slightly different nomenclature sometimes notwithstanding. They are: Application development and maintenance; infrastructure services/managed services; package implementation and systems integration; and IT consulting. While, in practice, there are quite a few people involved in taking decisions on outsourcing in each of these areas, they are a part of what is called the enterprise IT function, with the CIO being the final decision maker.

Now, we have a problem here. As we dissect the revenues of big offshore IT service providers, and classify their revenues under the above-mentioned categories, a significant chunk of their revenue — anywhere between 8 percent to  20 percent — is left uncovered. Very often, we leave them under “others.”

But what are these others?

For many such providers, they include things such as engineering services (the design work that they do for an aerospace firm or an automobile firm); product engineering (the creation and development of modules or full suites of software products for ISVs — Independent Software Vendors); a large chunk of embedded software (the software that they write for makers of semiconductors and electronic devices); BPO (any kind of back-end work that they do for any kind of companies, be it processing of insurance claims or collecting receivables); and consulting (advising companies on how to more efficiently run their business, assuming that it is only process consulting and not strategy consulting).  

Now, these have nothing in common. Developing a piece of software for an ISV that will combine it with a telecom billing solution has no commonality whatsoever with creating a building design for a construction company. But companies like India’s TCS or Satyam effectively do both; their customers are satisfied as denoted by their growing revenue in these areas.

While the way they have managed to build these skills in such diverse areas as construction and aerospace is definitely commendable. But what is absolutely surprising is the way they have managed to sell the idea that they can actually do these things, to a set of global execs who are business managers, responsible for their companies’ core functions. Unlike the CIO, many of them are profit-center heads. Take the VP Engineering of a product company. For him to outsource part of his work, to a company whose salesman may not know a thing about his business during their first meeting, is a very daring thing to do. The fact that many of them have done that means there is something that they have seen.

This is an Indian phenomenon. Nowhere do IT companies compete for these kinds of work. Many of the SBU heads in Indian IT firms who are responsible for these service lines, when asked about their competitors in these areas, often take names of companies that are completely unfamiliar to those of us who follow the IT industry. Many of these firms are even buying out such specialized-services companies to build expertise in those areas.

It is not a small phenomenon. Ask the CEOs in any of these IT companies about their future high growth areas. Most of them would name multiple areas that will fall under that mysterious “others” category if we go by traditional categorization. 

Will there be a day when these “others” revenue will be more than those from traditional areas? It does not seem too unrealistic, looking at the growth. Can we, then, still call this

IT services?