India's IT economy facing testing time

The Birmingham Post Via Thomson Dialog NewsEdge
January 3rd, 2006

India's business services and information technology exports are expected to surge more than 25 per cent a year to $60 billion by 2010, but the industry faces tough hurdles.

The projection, in a study released by consultancy McK-insey and India's IT association, Nasscom, is roughly in line with the 30 per cent annual rise in the past three years and earlier forecasts of $50 billion in exports by end-2008.

At $60 billion, India would have almost half the world's IT and business process outsourcing (BPO) exports by 2010 and could add an extra $15 billion to $20 billion over five to ten years from 2005 through innovation and technological advances, the report said.

While India will remain the biggest pool of low-cost global knowledge workers for the foreseeable future, with more than double the combined total in its nearest rivals, China and Russia, it faces a shortfall of 500,000 people by 2010 unless it steps up training.

"The reality is that this shortfall can be fairly easily met by industry," McKinsey's Noshir Kaka said in New Delhi, citing India's 2.5 million graduates a year.

IT/BPO sector jobs will grow from 700,000 to 2.3 million and indirect employment from 2.5 million to 6.5 million - adding more work than the communist-backed Congress government's four biggest labour creation programmes, the report said.

A bigger hurdle is India's creaking infrastructure, where even leading cities such as Bangalore, Mumbai and New Delhi have massive problems with power, transport and other basic services.

McKinsey's Jayant Sinha said the government and business must go on "a war-footing" to solve the infrastructure crisis, which economists say is also a major brake on broader economic growth.

To get around this, the report urges the creation of ten to 12 new townships or satellite cities across the country, with their own airports, roads, real estate development and other services. It also proposes special education zones and school reforms.

McKinsey and Nasscom estimate barely ten per cent of the potential $300-billion-a-year world market for global offshoring is being tapped, but they expect radical changes.

"We have no doubt that this industry will become the largest export-led industry in the world, rivalling oil from Saudi Arabia or automobiles from Japan," Kaka said.

McKinsey and Nasscom publish their outlook for India's fastest growing industry every three years. This is their third.

They see the sector's export share of gross domestic product - itself growing about eight per cent year - more than doubling from three per cent to seven per cent by 2010.

The report said the face of the IT/BPO sector will change as its traditional engines of growth, such as application and software development and research and development, slow and customers expect more innovation and value-added services.

"Looking forward, the more traditional IT outsourcing lines such as hardware and software maintenance, network administration and help desk services will account for 45 per cent of the total addressable market for off-shoring and are likely to drive the next wave of growth," it said.

This will be focused in areas such as banking, human resources and finance.

Meanwhile, China surpassed the United States as the world's top exporter of laptop computers, mobile phones and other information and communications technology devices in 2004, the Organisation for Economic Co-operation and Development said.

China exported $180 billion worth of so-called ICT goods in 2004, compared with US exports of $149 billion, the OECD said.

OECD officials said that China was likely to take top spot in 2005 too, but hard proof would take many months to collect.

The United States was world leader in 2003 with $137 billion worth of exports of ICT goods, followed by China with $123 billion, the OECD said in a statement.

"The data show a shift towards more trade between China and other Asian countries, with a corresponding decline in ICT imports to this region from the European Union and the US," it said.

How to hire a firm for outsourcing

January 03, 2006

The author has been working in the IT industry in various capacities and is currently working for a Houston, Texas-based company.

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The biggest challenge for any organisation's management team while deciding on outsourcing -- or offshoring or consulting key functions -- is how to hire a company for the initiative. There are many companies who are certified in SEI/CMM levels. SEI/CMM level is a good metric to judge the value add services offered to its clients by a company.

Many Indian companies are certified in various levels of SEI/CMM; at the same time there are lots of small players in the field too, which are willing to travel that extra mile to deliver more than what customers ask for.

Organisations looking to outsource/offshore key functions as part of their macro-management strategy should also look at small- and medium-sized companies. Of course, one of the key quality differentiators here is that with smaller companies, an SEI/CMM level certification might not be available to select from.

With smaller companies, it is a huge investment, effort and requires experience to build upon over the years to get SEI/CMM certification. The purpose of this article is to provide an insight on thekey parameters to evaluate a S-M sized company and still realise high ROI and optimum benefits. At the end of the day, it is all about 'Level Playing Field.'

Key evaluation parameters

In evaluating small and medium companies offering outsourcing/offshore/consulting capabilities, organisations need to ask a few fundamental questions before hiring. Finding an S-M company is not difficult today. However, finding the right one is often challenging and difficult.

Due to a boom for the IT-enabled service sector and for IT workers alike, there are many S-M companies in the United States and in India offering staffing services. Some companies, as they grow along with the economy, would like to transition to a more stable solution-based model or consulting model from a pure play so-called body shoppers.

Better still they would like to participate in the buzzing activity of outsourcing of IT-enabled services. I would consider them as the S-M companies because they have the experience, zeal, knowledge and the business acumen to deliver more than what customer expects.

It is the inherent capability of these company's staff to consistently deliver the highest value service, and this is what differentiates them from the others in this cutthroat business.

The companies are smaller and hence the company as a whole needs to be evaluated. The areas which need to be evaluated, are listed below:

• The management's credibility and accomplishments.
• Collective experience of the employees working for the company.
• Top 5-10 customers who are served, and feedback from key customers.
• Supervision process and organisational structure for escalations after awarding the project.
• Service-level agreement.
• Costs incurred in evaluation and ongoing fee for the project.
• Company culture, work ethics, and personality.

Advice to organisations interested in hiring S-M company

Although all the above are important, special emphasis should be made on 'Company culture, work ethics and personality.' No matter how qualified a company is or how glorious the company brochure, the sales presentation, the Web site, etc. appear, if you cannot work closely with them and feel comfortable relying upon their judgment and services, you will not receive the maximum benefits for you're the money you spend.

Key to finding the right firm

The Web site is a good place to start. Often times the Web site's appearance is a direct reflection of the firm's personality, professionalism and approach to a client's needs. If it is easy to use, simple to follow, and 'feels' good, you may want to pursue that company.

If the site seems too flashy or too difficult to follow, then you may want to concentrate on other firms who make you feel more comfortable.

Setting the expectations

Call the company for a sales presentation, brochures and solution offerings: the goal is to get the right message across. Before you decide to hire the company, prepare a list of questions (Request for Proposal or RFP in big organisations). The approach is to ask the company to respond to the preset list of questions, in writing or verbally. This allows you to compare potential firms on a more objective basis. Your list of questions will vary depending upon your needs and your industry.

If questions are framed in the following areas, you can construct an RFP of your own. Your questions should be direct, but not offending. Again, the following are only a guide, but can be used until you have time to frame your own questions.

• Remember you are the client and the one who needs to feel comfortable.
• Skim, read and understand the background information and methods of the company.
• Why should an organisation go with a firm?
• Key differentiators, process model, project development, management and delivery methodologies and SLAs. Note: S-M companies are not SEI/CMM certified with no project management office, hence no structured process or project management methodologies exist. But with collective experience, do well than most companies. This is my personal opinion, based on experience over the years.
• How does the approach differ from the competition?
• Escalation levels, organisational structure, and ownership for key deliverables.
• Maintaining timelines, cost and budget.
• Kind of support services and duration of the service provided aftermath and during the execution of the project.
• Does the company offer a guarantee or warranty of the services?
• Key resource personnel involved in the project, profiles of key resources, supervisor credentials, background and experience.
• Evaluate the company's domain and technical expertise in its entirety.
• In addition, there are questions you should be asking yourself. Does this organisation's value match up those of an S-M company?
• Do you feel comfortable accepting advice from the company?
• Is there a collaboration, coordination and communication protocol set up and are you comfortable with that?
• How will my staff react to the initiative from the management
• Were the verbal answers�in line with their brochures, sales presentations, Web site, etc.

Conclusion

In essence, to encourage healthy competition and level playing field, organisations can evaluate small and medium companies adopting some of the question areas listed in the article above

It is my personal opinion that the question areas listed above could be adopted to evaluate any company for outsource, offshore/near shore abilities or even to hire individual contractors, consultants or staffing services.