Tag: outsourcing

Indian IT Firms Are Looking to Create Jobs Overseas

Posted on September 22, 2011

For some time now, popular perception in the United States has been that IT firms from India are taking away jobs from Americans because of the cost advantage that Indians are able to offer. But with unemployment pressure mounting in the U.S., these firms have had to contend with a series of obstacles: Some states have banned the outsourcing of government projects outside of the country; tax incentives for U.S. firms that offshore work have been curtailed; application fees for the H1B visa (temporary work visa) have been hiked, and so on.

There have been other issues, too. For instance, Infosys Technologies, which is known widely for its high ethical standards and transparency, is facing allegations of misusing business visas to send employees from India for long-term work. The case is currently under investigation in the U.S.

Infosys’s senior vice president and group head of human resources, Nandita Gurjar, has recently relocated to the U.S. The move is believed have been prompted by the company’s visa controversy. Gurjar herself, though, has called her transfer “strategic.” Talking recently to business daily Hindu Business Line, she said: “I believe HR has to be external focused and globalized; so being based away from our headquarters and on the ground where 60% of our business comes from will bring in greater strategic focus.” Gurjar added that being closer to the market will give her a “ground level understanding of what areas we need to address as a global corporation.”

One area that Gurjar will be focusing strongly on during her stint in the U.S. will be local recruitment. At its recent analyst meeting, Infosys revealed that by next year, it plans to increase the number of local employees at onsite client locations to 50%. Infosys, which has a total employee base of over 130,000, currently has around 27,000 employees at client locations. Of these, around one-third are local hires. With the U.S. accounting for the biggest chunk of Infosys’s revenues, the maximum local hiring will happen there.

Other Indian IT firms have similar plans. In its annual report for 2010-2011, Tata Consultancy Services, the leading Indian IT firm, notes that protectionism in major markets is one of the key risks that the company faces. “Restrictive legislations that impede the free flow of talent in key markets could disrupt operations and hamper growth in those markets,” the report says. One of the solutions to mitigate this risk: “more local recruitment.”

At Wipro Technologies, plans are also in the works to increase local hires at onsite locations — from around 35% currently to more than 50% over the next couple of years. According to Saurabh Govil, senior vice-president, human resources, while the initial impetus for Wipro to create local employment came from protectionist measures, two other key drivers are also at play. “One, it is about creating local leadership. Becoming a truly global organization is not about planting flags in different countries but building local leadership. And, two, having a local interface in customer-facing roles helps in understanding the cultural nuances and in giving greater comfort and value to the customers.”

K. Raman, practice head, infocomm, media and education at the Tata Strategic Management Group, considers this a move in the right direction. “Hiring locals in different markets helps Indian companies to work out the various issues around the visas. Also, given the situation in those markets in terms of employment outlook, people are available at more competitive salaries than was the case earlier, so it could be a commercially prudent decision,” he says.

Raman points out that Indian IT firms are not only hiring more non-Indians; they are also more vocal about their onsite hiring because of the backlash they have had to face. “They want to sound politically correct,” says Raman. He adds a note of caution: “Offshore work offers healthier margins than onsite work. Indian IT companies need to keep the mix of onsite and offshore employees at an optimal level so that the margins are not impacted adversely.”

Can the compulsion to hire more expensive resources outside of India have a positive result? Can it spur Indian IT firms who have been talking of non-linear growth for some time now to make a stronger push towards it and look at newer business models and newer growth strategies? “Yes,” says Raman, “This can be an added reason for Indian IT companies to accelerate the delinking of revenue from headcount.”

Meanwhile, there is some cheer for Indian IT firms. According to the latest data released by the U.S. Bureau of Labor Statistics, the IT industry has the lowest unemployment rate in the country. Between March and May this year, the unemployment rate in the U.S. IT sector dropped from 4.7% to 3.8%. During the same period however total unemployment rose from 8.9% to 9.1%. Som Mittal, president of the Indian lobby group the National Association of Software and Services Companies (Nasscom), told The Economic Times: “Around 3%-4% unemployment in a sector actually means that there is a shortage of the right people to hire and not a shortage of jobs…. The issue about outsourcing and visas is misplaced.”

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Can Rural BPOs Solve India’s Supply Constraint?

Posted on September 6, 2011

One of the pillars of the Indian BPO industry has been the country’s large, educated, and English-speaking population. But it is an advantage that has been steadily eroding in recent years. One of the biggest challenges that industry players now face is supply constraint. Lack of trained manpower has led to wage escalation and high attrition. That, in turn, now threatens India’s dominant position as an outsourcing destination.

To counter this trend, Indian BPO firms have been adopting various measures. One of them has been to cast their net wider into tier 2 and tier 3 cities (defined as cities with a population of 5 million or less) to tap the talent pool available there. Now, they are going deeper into the hinterland to the rural locales.

First among the large IT & BPO players to set up a company-owned rural BPO center is Wipro Technologies, a Bangalore-based IT services firm. The company recently opened its first rural BPO center at Manjakuddi village in the southern state of Tamil Nadu. This center, which is working for an international client, has an employee pool of 60 people. Wipro plans to increase this to 120 by March next year and to around 300-500 over the next two to three years.

Pointing out that within a 40 km radius from the Manjakuddi center there is an annual pool of 14,000 graduates and that typically only 25% of the graduates from villages migrate to the cities, Manish Dugar, senior vice-president and global head, Wipro BPO, says: “This [the rural BPO center] is not a cost play for us. This is an innovation in our delivery model. If we can successfully create a model that allows us to tap into the talent pool in the rural areas, we would have created a sustainable labor supply going forward. We expect a fair share of our future growth to come from the rural centers.”

Rural BPOs have in fact been gaining momentum in recent years. But typically these have been captive back-office centers of large organizations such as the Tata Group or the HDFC Bank. Others have been small centers (employing between 20 and 100 people), set up by small third party players and NGOs. The larger IT and BPO players, while they have been exploring the options, have yet to make a significant mark in this space. Some, like Infosys BPO, have made a tentative beginning by partnering with others.

The critical issue is the business model. The big players typically operate a few large centers. To run a large number of small centers across the country would need a shift in mindset and policies. It would also require huge management bandwidth. Take Wipro BPO. It currently has a total of 30 centers; nine in India and 21 outside. In each of its India centers it has an employee pool of around 2,500 people. In its rural centers it is looking at a maximum of 300-500 people per location.

Kumar R. Parakala, partner and head of IT Advisory at KPMG in Europe, Middle East and Africa, believes that “as long as players are not considering a large-scale operation, the rural BPO is a viable option for organizations seeking to cut costs and attrition rates and gain access to untapped talent.” Scalability, he says, will depend upon a number of factors including socio-cultural constraints, sales and marketing effectiveness, infrastructure availability and quality. “In the rural context, each of these has its limitations,” he notes.

According to Parakala, the hub-and-spoke model could be an optimal format to deliver international non-voice processes out of rural centers. “The critical success criteria of this model running seamlessly are smart break-up of process, clarity on what can effectively be done out of the rural BPO center and stringent quality control measures,” he notes.

Sridhar Mitta, a former Wipro veteran and founder of NextWealth Entrepreneurs, an IT services company with a distributed delivery model, offers another view. He believes that large IT and BPO organizations will find it tough to run their own operations in rural locations because of inherent internal conflicts around compensation, career trajectory, management bandwidth and so on. NextWealth follows an entrepreneur-led model and Mitta believes that having a local front end is imperative to deal with the challenges of rural India. “The large players will be more effective in the rural space if they adopt the entrepreneur-led, franchisee-based, distributed network model or partner with others who have adopted this model,” he says.

Wipro’s Dugar, meanwhile, is open to all possibilities. He notes that the Manjakuddi center is a pilot project, and Wipro’s future strategy around rural BPOs will depend on its success. “But we are already evaluating other possible locations where we can set up our own centers. We are also talking to other players,” he says. “Anyone who wants to be relevant and survive in the BPO industry has to innovate in the talent supply chain. That is what we are working towards.”

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Outsourcing Units Equal Access for Multinationals in India

Posted on August 18, 2011

A few years ago, analysts had sounded the death knell for information technology and business process outsourcing (BPO) captive units set up by multinationals in India. Their logic was simple: The cost equation of outsourcing was more in favor of third party players, and captives, with their small team sizes, could not be competitive. In 2007, a research report titled, “Shattering the Offshore Captive Center Myth,” noted that more than 60% of captive centers were struggling due to “lack of management support, spiraling costs, attrition and integration issues.”

But captives are now proving the naysayers wrong. According to a recent study done by the Everest Group, 37 new captives were set up in India by multinationals between January 2008 and December 2010. Of these, 23 were established last year alone. Twenty-one captives have also announced significant expansion. Meanwhile, only 13 were divested during that two-year period, more for internal reasons of the parent company — for instance, Lehman Brothers, which went bankrupt and closed operations — than for specifically India-related causes.

“Earlier, the conversation [in a multinational] used to be around either having a captive unit or a third party vendor. Now it’s no longer an ‘either–or’ conversation,” says Gaurav Gupta, managing partner (India) for global services advisory firm Everest Group. “The model that is clearly emerging is a hybrid one. Companies have realized that in order to get the best value, they need to leverage the multi-sourcing model.”

Karthik Ananth, director at Zinnov Management Consulting, points to the fundamental shift in the drivers for captives. “In the initial years, it was all about cost and talent. But over the years, this has fundamentally shifted to also add innovation and access to emerging markets. Companies are looking at India as a hub for driving innovation for not only the domestic market, but also for other emerging markets like West Asia [and] Africa. So captives now are no longer about a tactical play, but a strategic pillar for multinationals.”

Talking recently to Indian economic daily Business Standard, Sandeep Dhar, CEO of Tesco Hindustan Service Center, the Bangalore-based captive unit of the U.K. retailer Tesco, noted: “For Tesco, the India center is 75% of its IT capabilities and talent base. Besides, the cost it incurs would be a fraction of what the company earns. [Moreover], a third-party vendor would treat the CIO of Tesco as his customer, but for us the person walking into the store is the customer.” Dhar added: “The Bangalore team is making a serious … contribution for Tesco’s business to grow. At present, we are largely working for the U.K. business. But our mandate is to work for all the centers of Tesco stores across the globe, to provide standardized operations for all the Tesco units and also run innovation initiatives for the group.”

Zinnov’s Ananth suggests that going forward, multinational captives in India will not only take on more high value and critical work for their parent organizations, they will also start owning a lot more of their companies’ relationships with the third party vendors in India. “Being based locally, they understand the local realities better and can have better conversations with the vendors,” he says. “And vendors, in turn, will augment the capabilities of the captives by providing them with access to the ecosystem.” Gupta of Everest adds: “The onus … is on the captives to remain ahead of the curve.”

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Can India Make a Global Impact with Its Innovations in Services?

Posted on July 29, 2011

For the past 10 years, Indian cardiac surgeon Devi Shetty has been working relentlessly to drive down the cost of quality cardiac care in India and to make it accessible to the masses. At his Narayana Hrudayalaya chain of cardiac care hospitals, Shetty offers heart surgeries at a fraction of what it costs across the world. The cost savings have been achieved through what he terms “process innovation.”

Shetty is now looking to take this service model outside India with a 300-bed hospital in the Cayman Islands. Over time, the facility is expected to expand to a 2,000-bed multi-specialty hospital. Talking recently to economic daily, Business Standard, Shetty said: “The Cayman Islands is an hour’s flight from the U.S. We intend to offer cost-effective treatment for the citizens of the U.S. and also for those who are under-insured. We will also cater to the local population.” Shetty is now looking at creating a presence in Malaysia.

With spiraling health care costs a matter of serious concern across the world, Shetty’s model could be a game changer for the global health care industry. Rana Mehta, executive director PricewaterhouseCoopers, notes: “The Indian model of health care is a very cost-effective one and is attractive to both developed and developing countries.” Rana says that, within the health care sector, services like diagnostics could also be an area where Indian companies can make a significant mark worldwide.

K. Raman, practice head (infocomm, media & education) at the Tata Strategic Management Group, an independent management consulting firm, points out that health care spending is high all over the world both at the individual and government level. “Any solution that brings down the cost of health care delivery can have a large scale impact,” he adds.

But this is not about health care alone. Shetty’s move needs to be seen in the larger perspective of services from India having the potential to be game changers and redefining various sectors across the globe. It has already happened in the information technology and business process outsourcing (BPO) industry. Not only are Indian IT and BPO companies servicing their global clients from India, they are increasingly taking their model outside the country and setting up centers in different parts of the world. Other global players have had to follow suit.

In the telecom industry, Bharti Airtel, India’s largest telecom player, is seen as a pioneer in introducing a new, low-cost business model. Last year, the company took its learning from the Indian market to tap African consumers through its acquisition of Zain Africa. Bharti plans to look at other markets, too.

According to Raman, services from India that are built around innovations to cater to the unique needs of the Indian market have global potential. Education, he says, could be another sector where India could make a mark. He points out that education, like health care, involves significant spending at the government and individual levels. The sector has a large nation-level impact; needs to be delivered over a wide area and can leverage technology in a big way. “If India is able to address its own internal challenges in this sector, particularly in terms of quality and reach, it could be replicated across many countries,” Raman notes.

He goes on to add: “As a concept, frugal innovation has been there for some time. The whole idea is around innovating for developing countries and then taking the same innovations to developed countries. Until now, this has primarily been on the product side. Taking low-cost service methodology to other countries is a logical extension.”

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