by Lucky Balaraman,  CEO, TMG

It is common knowledge that the Chinese are outstandingly successful in anything they set their minds to. Indian IT firms take note: the Chinese have now decided to become leaders in providing IT services.

An informative report in PCWorld makes one realize that Chinese IT firms are perfectly mimicking Indian IT powerhouses today in order to decimate those powerhouses tomorrow.

• The Chinese are shoring up revenues from domestic customers (to the level of 45% of total revenue)
• They are taking the best practices learned from international customers (like GE) and using them for other customers
• They have decided to move towards developing enterprise product solutions
• They are expanding their nearshore offices in Europe and the US

The buzz in India is that the Chinese will overrun India’s software export business in around five years. Hopefully by that time Indian IT firms would have moved further up the value chain to a place of temporary safety.

by Lucky Balaraman, Executive Director, TMG

I just read an excellent article on CIO.com listing 11 New Year’s resolutions every outsourcer should make. They are:

Resolution #1: I will be realistic.

Resolution #2: I will follow the Golden Rule.

Resolution #3: I will dream big.

Resolution #4: I will keep it simple.

Resolution #5: I will say what I mean.

Resolution #6: I won’t believe the hype.

Resolution #7: I will create rules and live by them.

Resolution #8: I will pay attention to my bills.

Resolution #9: I will measure what matters.

Resolution #10: I will seek out the best partner for me.
Simply going with a three-letter brand name outsourcer or advisor isn’t always the best move. In fact, it can be a costly mistake. "There is lots of competition in the outsourcing market today," says EquaTerra’s Ayling. "You will always find a supplier who has the right capabilities for you, and, where what you spend with them will make you important to them." Take an unsparing look at your vendors and advisors, says Baker & McKenzie’s Hansen. If they don’t share your core values, show them the door.

Resolution #11: I will have fun.

I have reproduced the detail of #10 because I have, in the following video, expanded on it by describing what you need to do to find that best partner. It’s only 2:20 minutes long… play it now.

Go to the original article at CIO.com

Happy Outsourcing in 2011!

Immelt was in Mumbai recently, during which visit he addressed the US-India Business and Entrepreneurship Summit.

“You guys are not living up to your side of the bargain,” Immelt told the room full of India’s top executives. “There is a trillion dollars of infrastructure investment in India and it’s not happening.”

Very easy for him to say!

Apart from that, “You guys are not living up to your side of the bargain,” is a very crude way to talk to India’s top industrialists, many of whom are probably more experienced and more educated than he is.

Another quote: “There is no reason that our [US companies] infrastructure revenues should not be the same as in China…Let’s make the infrastructure happen.”

If Immelt wants to pull in GE revenues for say, power plants, can he compete on value for money with the Chinese? Not likely. That being the case, is India supposed to buy billion of dollars of equipment from the US just so that the H1-B visa fee can be brought from around  $4,000 back to around $2,000, which will save India a piffling $200 million a year? Or so that the Democrats can stop howling about outsourcing because research found that it would get them votes?

Come on, Mr. Immelt, India wasn’t born yesterday.

President Obama landed in Mumbai a few hours ago. His visit here will be the longest he has ever made to another country, and he is being treated as an honored guest in the true Indian tradition.

I expected all interactions between him and his Indian counterparts to consist of the exchange of pleasantries and platitudes, including mild references to outsourcing. But there have been a few exceptions:

1. There was mention of how all Indian companies will be removed from the restricted list regarding US nuclear technology exports;
2. President Obama announced that India has ordered $10 billion of equipment from the US and in the process created 50,000 US jobs (would he dare say that in the US?… )

Again, since President Obama is a guest, it is unlikely that anyone will jab him with questions about the visa fee hike and Governor Strickland’s outsourcing ban. The emphasis will be on ensuring he has a pleasant, memorable stay. The outcome will be the warm, fuzzy feeling two friends have when they meet after a long time.

Indian technology outsourcing companies are no longer content to remain in the background but want to be in the lead.

Top Indian tech companies were long satisfied with doing software maintenance and database upgrading work for US and European firms like Citigroup Inc. and BT Group PLC (who were looking for cost effective solutions). But the Indian firms now want a larger share of the pie: they are broadening their services and want to compete for more advanced work which is usually outsourced to bigger, rival companies like International Business Machines Corp., Hewlett-Packard Co, or Accenture Ltd.

They are looking for a chance to run external data centers for customers which will help them expand into increasingly popular areas of “cloud computing”, a style of computing in which dynamically scalable resources are provided as a service over the Internet. They are attempting to combine these services into “end-to-end outsourcing packages” for clients as well.

Though Indian firms have tried for years to advance to the next level with their offshoring model, they are now under pressure to change their business format. The recession and increasing competition worldwide in the tech services industry has knocked down the annual 30% revenue growth they have been accustomed to. Annual export revenue growth in the outsourcing industry came down to 16% in the current financial year which ended in March. Industry experts, NASSCOM (The National Association of Software and Services Companies), predict a growth of only 4% to 7% this financial year. A company spokesperson from a Houston-based outsourcing advisory firm, TPI, says that India needs to really convert their businesses totally to continue to see the old growth range again.   

If Indian firms are able to progress to the next level, it could well be the deciding factor in determining if its outsourcing industry, which is currently at $58.8 billion, will remain just a back-office service provider to the technologically advanced Western firms or will see new areas of growth as well as be the rising star that it has been in the past decade.

India is under pressure because of many factors. Firstly, service providers who are based in the US have expanded their presences in India. Secondly, worldwide customers are scaling down their IT expansion plans and consolidating outsourcing vendors to decrease spending. Thirdly, competition in the form of cheaper offshoring alternatives is available from places like Philippines and Vietnam.

Industry experts say that India needs to be able to strike big deals like IBM did. IBM snagged deals in which companies like Australia’s Qantas Airways and J.P. Morgan Chase & Co. became part of their client list. For India to qualify for deals like these, she must hire more highly qualified experts in core fields like telecom, pharmaceuticals and credit derivatives, and must be open to changing the current business format.

Taking risks have never been India’s forte, but for big infrastructure outsourcing deals, there will be high costs and risks. Service providers must be ready to buy equipment for clients, take over their IT staff and take on the onus for reliability of remote data centers 24/7.

Such deals don’t work strictly on billing for the number of hours worked but rather, should be worked out in such a way that the service provider makes money only if the client sees profits. The profit margins can be lower, in the 15% to 20% range rather than on the 20% to 30% which has been the norm in the Indian software business.

A company official from top tech Indian company Infosys said that it’s not an easy job to take over the entire operations of a company’s IT related work. He says that the mindset required for running it and pricing it is very different and that the Company is still in the process of learning along the way. But things are changing for the better.

Among the largest Indian outsourcing firms, Wipro, the third biggest  in terms of sales after top dog Tata Consultancy Services and  Infosys recently clinched a deal with the Australian based Origin Energy to set in motion the overhauling of the company’s retail business operations. In 2007, Wipro bought Infocrossing Inc., a U.S. data-center management firm with expertise in health care.

With IBM striking an innovative deal with India’s largest telecom company to outsource everything from billing to network management to delivery of cellphone content like ringtones, a trend has been set for other companies to handle similar work. Tata Consultancy Services has won a contract to handle all IT infrastructure for Indian wireless startup Unitech Wireless, a joint venture of Unitech Ltd., a large Indian property developer and Norway’s Telenor ASA. The deal, worth almost $500 million, binds the Indian company’s revenue with the success of Unitech’s cellular network rollout.

Indian Company HCL won a major $350 million, seven-year contract with Reader’s Digest Association Inc. to manage the company’s network infrastructure and advise it on how to expand into digital media. The Company added that Reader’s Digest’s bankruptcy proceedings will not affect the contract. HCL also bought outsourcing specialist Control Point Solutions Inc. in 2008.

But India’s finding it hard to sustain her image as a low-cost service provider and has not been able to beat rivals on cheaper pricing when it comes to bigger, infrastructure heavy deals. A consultant with an India-based outsourcing advisory firm sums it all up to say that landmark deals like these will prepare the ground for Indian firms to test their ability globally to take on larger contracts in the future.

FYI…

Source: Wall Street Journal, October 5^th, 2009

A recent study by Gartner, an IT research and advisory firm predicts that more and more business process outsourcing (BPO) service providers in India will cease their operations because of the economic meltdown. At least 25% of the top service providers will find it difficult to sustain themselves and will not be an independent business by 2012.

The financial services sector, like those with substantial amounts of revenue from banking sectors, is first to be hit by the meltdown as this sector makes up almost one-third of the total BPO market, worldwide.

Gartner believes that buyers should be prepared. They should build exit strategies into contracts and have backup plans in the event of contracts; this has been the rising trend since 2007.

The entire scenario of business process outsourcing will change with market exits, acquisitions and the arrival of new vendors in the coming years. The economic crisis, unprofitable contracts and the inability to adapt to standardized delivery models will make it very difficult for most service providers to continue in their existing avatar. Where some outsourcing firms will be acquired, others will exit the market completely. Firms with new business models who will deliver business processing services as automated, utility services will take over.

Gartner is of the view that buyers’ vendor selection teams should study the prospective providers’ business deals or models to fully understand how they make their profits. It would be in their interests to become familiar with the vendor’s winning model of acquiring new businesses.

Source: The Economic Times, 30th September, 2009

FYI…

The Hindu, dated September 4^th, 2009 published an article on NASSCOM (National Association of Software and Service Companies, India) expecting double-digit growth in IT exports.

Bigwigs in the business world met up at the e-Revolution-09 conclave in Chandigarh, where the theme was “Transforming Region: Harnessing Technology through Inclusive Growth”. Pramod Bhasin, Chairman of NASSCOM delivered the keynote address, where he laid emphasis on industrial growth along with increased employment and wealth creation.

NASSCOM foresees a growth of $225-300 billion in IT exports from India while employment is expected to grow from the current 4 million to a staggering 14 million in the next five years. But a stumbling block to the growth of the industry, he felt, was the lack of qualified manpower. Experts feel that currently only about 8-10 percent of qualified graduates are employable. An updated curriculum coupled with proper industrial training to hone their entrepreneurial skills and talent, they felt, would correct this situation.

The Governor of Punjab lauded the efforts by the Chandigarh administration in setting up the Entrepreneur Development Center to encourage and develop young talent and the setting up of an IT park to increase employment. About 30,000 new jobs are said to be in the offing by 2010. He appreciated the fact that the existing educational curriculum had also been modified to help train students become better entrepreneurs. He hoped these efforts would in turn help the development of the masses.

Mr. Bhasin said that Chandigarh, a tier-1 city, with its infrastructure and a safe environment, had the potential to become another Singapore and could beat Pune and Bangalore hollow in becoming the most sought after IT hub.

My take: India can be a frontrunner if it puts in a few obviously-needed improvements.

To growth in your business,

Silicon.com has published an article on August 25^th, 2009 on how Indian outsourcing workers are being stressed to their limits.

Though it has been hailed as the key to India’s economic growth, the inside story of its the outsourcing industry is one of sheer drudgery, with punishing deadlines, long night shifts, irate customers a thousand miles away a the sheer, mind-numbing tedium of writing code.

With young employees in the outsourcing industry already suffering from acute physical stress due to over-work and lack of adequate sleep, matters are being compounded because of the recession and anxieties about losing ones job. This is on top of occupational illnesses like obesity, migraines and depression which fracture relationships and significantly increasing the risk of diabetes and heart disease.

Young, enthusiastic, just-out-of-college students struggle to keep apace with the frenetic work culture. Initial job euphoria is high, with non-stop partying and reckless spending during weekends. Bingeing on junk food and alcohol is the norm of the day. Peer pressure adds to the situation until youngsters end up totally stressed and unable to work.

Industry sources say that they end up losing a large portion of their employees solely due to stress. People on night shifts are the main casualties.

With healthcare being not being given due importance, the industry could be facing a severe crisis. Counseling centers say that they are seeing a lot more youngsters in the age group of 19-30 years who are unable to take the stress. The centers tell them to ease up and start managing job stress easily so they are able to take care of their relationships better.

Though some of the bigger companies are trying their best to provide facilities like an in-house gym, medical insurance, better work options, doctors, nutritionists and healthy food, their efforts are ignored by many of the younger employees. They are unable to get out of the groove.

Only time will tell whether there is a solution to this  perplexing sociological problem.

A recent article in the Wall Street Journal described how there has been a significant increase in Japan’s hitherto minimal outsourcing to India.

This increase is in part due to enhanced efforts on the part of Indian service providers to penetrate the Japanese outsourcing market, a consequence of the Indian companies’ falling fortunes from the recession-plagued US market. On the other hand, it is also due to the Japanese noticing that many of their competitors are gaining cost advantages by outsourcing tasks to India, causing them to follow suit to maintain market share.

Examples of projects being outsourced are car navigation systems, automated securities trading systems and medical scanners.

The article mentioned how, in two very well-known Indian software companies, the very small teams dedicated to Japanese projects of a few years ago now teams with thousands of people. And these companies are predicting steady growth in the future due to the fact that very few new engineers are being produced in Japan.

Traditionally, cultural barriers, such as language and business conventions, have not permitted India’s outsourcing business with Japan to grow rapidly. So Indian companies are teaching their engineers the Japanese language and Japanese business customs.

An issue which has to be addressed is the difference in the Indian and Japanese product development strategies. The Indians believe in building , testing and delivering a product quickly then fixing any late-emerging bugs in the field as and when they occur. The Japanese, on the other hand, expect flawless performance from the moment of delivery, even if it takes longer to deliver the product. The article does not comment on whether the Indians have a solution to this, but judging how things have evolved in the past, it won’t be long before such a solution emerges.

Thanks for reading —