The road to offshoring nirvana

So the Infosys juggernaut thunders relentlessly on. Crossing the billion-dollar revenue milestone, exceeding market expectations by maintaining a 31 percent year-on-year growth, and aggressively projecting growth of 24 percent (31 percent if you go by US GAAP) for the current fiscal. Significantly, more than one-third of its 25,000-strong work force was added in the last year itself, and the company says that not only has its universe of Fortune 1000 clients expanded, but in addition, three of them are now each totting up revenues in the $50 million range. An Infosys senior management representative stated: “There is a strong desire among large corporations worldwide to leverage the offshore model.”

Strong confirmation, actually, of what I’ve been writing in this column in recent weeks. The offshore boom is upon us. But we need to keep our feet firmly on the ground. For beside that aforementioned ‘strong desire’ must also stand a solid realisation that not all offshore IT services and BPO outfits are created equal. Nor are all outsourced services projects equally successful. Offshore isn’t always the panacea that the hype would have you believe.

The fault lies not so much in the offshoring paradigm as in the overheated expectations surrounding it. Expectations stemming as much from over-promise from less-capable vendors, as from over-eager clients sending key processes offshore while in fact lacking the internal preparedness to do so. And, as we have all painfully witnessed on a couple of occasions recently, when an offshore project fails and is pulled back, no one bothers to delve into the real reasons why; the sensationalist press is quite content in front-paging the frenzied screams of the anti-offshoring activists—all gleefully flaunting their PhDs in ‘I told you so’.

That’s why it’s so important for the Indian software industry and Nasscom to ensure that the complex change management associated with sending projects offshore is handled well by client companies just beginning to dabble in the much-touted outsourcing paradigm. Speed of adoption of offshoring is critical to accelerating our software industry growth rate, and if we have to reach out and clasp the client’s hand and help him run without stumbling, so be it. Nasscom’s done a good job publicising the potential benefits of offshoring and the merits of the global delivery model for client companies worldwide; the next step is to aggressively make all possible best-practice studies, guidelines and reports freely and easily available, to ensure that the client base maximises those potential benefits and embraces offshore outsourcing wholeheartedly.

As we scale up, another important consideration is manpower. All indications are that volume of business will be bountiful. But will we have enough qualified personnel to execute it all? There have been conflicting projections by various bodies—ranging from the CII to Nasscom to the IT Ministry—some warning of huge shortfalls and others predicting a surplus. Anyway, most experts now more or less agree that a manpower crunch is unlikely. Goldman Sachs, for instance, provides logical arguments to substantiate this, in a recent study. Starting with a base strength of 650,000 software professionals at the end of fiscal 2003, the study calculates that there are over 300,000 fresh “tech-trainable” engineers entering the labour pool every year. Of these, over 100,000 are IT graduates and will directly enter the IT industry; from the balance, it is not unlikely that a percentage will be drawn towards IT-related jobs because of the attractive tech industry compensation levels and prospects. At this rate, the study concludes that the Indian IT workforce could grow in size to over 2 million by 2013, representing a comfortably conservative CAGR of 13 percent.

An important corollary to this steady manpower growth is the fact that wage inflation should as a result be kept well in check, thus ensuring that India remains cost-competitive. Even if the MNC service providers ramp up considerably and the Tier 1 players continue to hire at a breakneck pace (Infosys alone averaged over 225 new hires per week for the last fiscal), supply should still outstrip demand.

However I do feel that BPO will turn out to be the joker in the pack. Not enough attention is being paid to the gradual change in the ratio of BPO to pure IT services—as the balance tilts toward BPO, the nature of the overall manpower requirement too will undergo a corresponding change, in quantum as well as orientation, and we should start preparing right now to cope with it.

As we also should be doing on the infrastructure front. Almost all our major cities are already bursting at the seams and living in them is increasingly nightmarish. Meanwhile, the smaller towns just do not have the wherewithal in terms of power, connectivity, roads, water and other trappings of comfortable urban inhabitance. It would be tragic if the offshore bride has to be kept waiting at the altar for something as trivial as basic infrastructure.

The future of the Indian software industry rests heavily on the success of the offshore services paradigm and the sustenance of India’s premier status as the preferred offshore destination on the planet. But the road to offshoring nirvana still has jagged edges and precarious potholes that need to be quickly smoothed and levelled if we are to reach that higher plane. And it’s nirvana alright—not just for the software industry, but for all of India too.

Val Souza, Editor
valsouza@expresscomputeronline.com