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January 5th, 2006 - Outsourcing to India [entries|archive|friends|userinfo]
Mark Kobayashi-Hillary

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January 5th, 2006

Wall St Journal - Salil Tripathi [Jan. 5th, 2006|09:15 am]
Mark Kobayashi-Hillary
India's Skill Shortage
January 5, 2006

Mention India in the context of outsourcing, and the common reaction is
that the country harbors an inexhaustible supply of cheap, scientific
talent. Lured by the prospect of an abundant supply of English-speaking
professionals and low salaries, multinationals have flocked to set up
shop in India.

Tens of thousands of jobs have moved from the U.S. and Europe to India
in recent years. Indeed the country now accounts for 65% of the global
offshore information-technology industry, while its booming call
centers and other similar operations now account for 46% of the global
business process outsourcing (BPO) sector.

But although engineers from elite schools like the Indian Institutes of
Technology (IITs) are widely acknowledged to possess world-class
skills, they make up only a small proportion of India's technical
graduates. Many more lack the skills needed to operate in an
international environment. Trained by rote learning in an often
inflexible higher education system, they are a far cry from the
confident self-starters that many multinationals require -- who can be
entrusted with taking decisions without requiring constant supervision.

Unless New Delhi aggressively deregulates higher education and boosts
the skills of prospective BPO workers, it risks facing looming
shortages that will shatter expectations of an inexhaustible pool of
Indian talent. There's no shortage of demand from multinationals.
According to a recent study from McKinsey & Co., the number of Indians
employed in the BPO sector could potentially swell from 700,000 today
to 2.1 million by 2010, with a further 6.9 million being indirectly

Already salaries are on the rise due to the lack of skilled technical
graduates fluent in English. In recent years, the average annual salary
for an entry-level software developer has risen by 13% a year to $6,628
in 2004, from $4,082 in 2000. A similar trend is evident in the
salaries of mid-level managers, which have risen by 23% annually over
the same period, to $31,131 from $13,585.

But even accurate data on how many skilled graduates India produces is
in short supply. Gary Gereffi and Vivek Wadhwa at Duke University were
intrigued by one oft-repeated factoid: that each year the U.S. produces
only 70,000 engineers, while China and India produce 600,000 and
350,000 engineers respectively.

So they dissected the numbers, and their new study, "Framing the
Engineering Outsourcing Debate: Placing the United States on a Level
Playing Field with China and India," found that the comparison was
false: Washington apples were being compared to alphonso mangoes and
Chinese lychees. When like was compared with like -- rigorous four year
engineering degree programs -- the U.S. figure rose to 137,000; the
Indian figure shrank to 112,000, and the Chinese, to 351,000. Further,
the undifferentiated Chinese figure included auto mechanics and the
like, and the value of degrees from some of China's provincial
universities was questionable.

Then again, who is an engineer? The Duke study differentiates between
"transactional" and "dynamic" engineers: the former are grounded in
fundamentals but may not be adept at applying their theoretical
knowledge laterally, or in solving bigger issues. The latter are
multiskilled and can think beyond the box, work with teams, and can
apply their knowledge creatively -- exactly the sort of skills most
multinationals require.

India produces engineers of both types. The engineers from the IITs,
whom multinationals encounter in Silicon Valley, are part of the cream.
Over the past 50 years, some 40,000 of them have left India, usually
for the U.S. Some remain in India and some return home, rising quickly
to senior positions in multinationals and leading local companies.

That elite is vastly overqualified for most of the outsourced jobs.
What the industry needs is a bigger pool of moderately-skilled
transactional engineers and workers. But of the 2.5 million Indians who
graduate each year, McKinsey estimates that only a quarter possess the
skills multinationals want. (The figure for China, at 10%, is even
lower). While many Indian graduates score over Chinese graduates as
they know English, they don't have similar fluency in other
international languages, reducing India's ability to easily penetrate
many European and East Asian markets.

Given the smaller pool of workers with the right skills, annual output
per employee has stagnated at approximately $15,000. To increase that,
smart Indian companies are moving out of the lower end of the market,
and offering value-added services (provided they have the right staff)
like high-end equities research and designing manufacturing processes,
so that even at higher wages, they can offer savings that make the
outsourcing decision worthwhile.

But not all companies can do that. What can help India make the quantum
leap is vastly improved college education. Ajay Shah, a New Delhi-based
economist who consults with India's finance ministry, says rigidity in
education has not only prevented Indian firms from pitching for
higher-end business, it has also made current employees vulnerable:
"India is likely to experience acute pain when the needs of the global
economy change, and a large mass of undereducated white collar
technicians will be unable to learn new skills."

Indian universities should have foreseen this, developed new courses,
built new departments, and recruited top academics. But regulations
have stifled initiatives: many universities lack the autonomy to
restructure programs, shut departments, redeploy staff, or introduce
new courses. They can't pay competitive salaries to recruit promising
academics, nor persuade them to stay by paying incentives.

The private sector (firms like NIIT and Aptech) has risen to the
challenge, setting up IT training centers that teach some of the
required skills. Other colleges provide what the Duke report calls
transactional engineers. At levels below, Mr. Shah says, India should
tap into 18-year-old school-leavers who know English and math and are
keen to learn basic computing tasks, so that they don't spend four
indifferent years pursuing nonmarketable college education. (Some BPO
companies have begun targeting school-leavers).

That still leaves higher education. The state needs to maintain the
excellence of the IITs while liberating other universities from
excessive control, and let the private sector provide the training the
market needs. Then India will remain attractive for multinationals for
many years to come.

Mr. Tripathi is a London-based writer.
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International Association of Outsourcing Professionals - Opinion for 2006 [Jan. 5th, 2006|09:47 am]
Mark Kobayashi-Hillary
Top Five Outsourcing Stories of 2005 That Will Affect the Year Ahead

1. Investment Bankers Rule

We entered 2005 with the spin-off of Genpact, GE’s back-office arm with operations in India and other locations around the globe, and ended with acquisition reports surrounding two of the industry’s longtime leaders - Computer Sciences Corporation (CSC) and Affiliated Computer Services (ACS).

With growing customer demand for global solutions matched by aggressive growth plans by many providers, continuing high-levels of available capital for investment, the attractiveness of outsourcing’s recurring revenue streams, and strong industry revenue growth that slowed just slightly this year (see Outsourcing Grows), mergers, acquisitions, spinouts, public listings, and management buyouts across the outsourcing industry can be expected throughout 2006.

This is an important and positive development - not just for the companies and individuals involved, but for outsourcing as a whole. Why? It will mean that the operational, organizational, and financial elements of the outsourcing industry will all come into true alignment. The result will be more consistent performance and more robust and innovative customer solutions.

2. Security, Data Protection to the Forefront

While for providers of outsourced food services delivering innovative programs, high quality services, and guaranteed low costs are at the front of management’s attention, food safety is inviolable. Management at these companies knows that a single food safety incident can undo decades of exceptional customer service and innovative program development.

Increasingly, this realization is working its way across the rest of the outsourcing industry - particularly when it comes to ensuring the absolute integrity, protection, and security of customer data and, of course, of the customer’s customer data. These concerns came to a head in 2005 and, whether spurred by new regulation, legislation, or simply common sense, they will be a big part of the outsourcing story in 2006.

As outsourcing seeks to improve its brand image with the general public and many in the business, making security and data protection paramount is key and 2006 is the year for it to happen. By the way, one of IAOP’ Chapters is devoted to this topic. (See Data Security Chapter.)

3. Legislation Begins to Shape the Industry

Although none of the calls for legislation to out-and-out ban offshoring or offshore outsourcing ever gained wide legislative support, it would be a mistake to think that legislators are ignoring the concerns of their constituents.

The National Foundation for American Policy is currently tracking more than 100 state bills that would limit, restrict, regulate, or place special requirements on work done offshore. Although very few have become law and those that have are limited in their impact and have often backfired by producing higher costs and reduced services for the citizens themselves, these efforts cannot be ignored. With 2006's off- year elections these efforts could easily gain grater prominence.

Similar efforts at the Federal level have been fairly limited in their impact. Still the 2006 budget bills already passed have placed additional restrictions on ‘competitive sourcing’ of government work and the spending bill for the Defense Department includes a section that would not permit contractors to gain an advantage in their bids based on health insurance benefits savings. (See Congress Clamps a Lid on Outsourcing of Government Work.)

Although no single piece of legislation is likely to reshape the practice of outsourcing, the collective effect of the growing list of legislation and regulation will become an important part of the outsourcing landscape in the coming year.

4. Looking Both In and Beyond India and China

The importance of India and China to offshoring and offshore outsourcing, if not already secure, was certainly confirmed in 2005. As evidence, we saw major corporations expand operations there, such as Micosoft’s announcement of a $1.7 billion investment in its research and development and retail presence in India. (See Microsoft to invest $1.7 bln in India). At the same time, the importance of these countries as markets for outsourcing services grew as well, as demonstrated by HP’s second major outsourcing deal with an Indian bank, Bank of Baroda, coming on the heels of last year’s contract with the Bank of India.

However, momentum built throughout 2005 and will certainly continue strongly into 2006 for locations beyond India and China, in particular, Central and Eastern Europe, Russia, Latin America, the Philippines, Singapore, and Dubai. In fact, one of the ten fastest growing outsourcing companies has its major operations in Russia. (See Outsourcing Grows.) And, Dubai has quickly positioned itself as a high-end, high-skill offshore location perfectly positioned between Europe and Asia.

As for Central and Easter Europe, Genpact already has 550 people in its center in Budapest. An IBM study found that Hungary, Poland, and the Czech Republic ranked among the top 10 destinations for research and development jobs in the first half of 2005. Some 67% of the Polish economy is already in services. Hewlett-Packard has 1,000 employees in Warsaw and is opening another center in Wroclaw. (See Rise Of A Powerhouse.) Similar investments are underway in Latin America, where, for example, Brazil, Costa Rica, Mexico, and other countries are becoming well positioned as offshore destinations with unique time zone, language, and cost advantages.

5. Outsourcing Professionals Take Center Stage

At the risk of self-promotion, 2006 is also shaping up to be the year of the Outsourcing Professional. The International Association of Outsourcing Professionals (IAOP), which was launched in early 2005, already has almost 40 Corporate Members and close to 300 Professional Members. More than 37,000 professionals from around the world subscribe to its online magazine, www.firmbuilder.com.

With the support of professionals from around the world, IAOP developed and released the field’s first Ethical and Business Practice Standards in September, and the more robust Outsourcing Professional Standards, detailing the expertise and knowledge required of a certified professional, were released in December.

Because of this, the stage is now set for industry designation of Certified Outsourcing Professionals (COP) in early 2006. This certification will recognize individuals who have demonstrated the capability to design, implement, and manage outsourcing contracts that have a high probability of achieving their intended results – addressing a real credibility gap the industry currently faces. This, combined with induction of the first individuals into the Outsourcing Hall of Fame, will go along way toward making 2006 the year of the Outsourcing Professional.

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IAOP Webinars [Jan. 5th, 2006|10:10 pm]
Mark Kobayashi-Hillary
website header
Chapter Webinars

  • Dispute Resolution
  • SME Global Sourcing
  • Data Security
  • Reserve Your Seat TODAY!

    IAOP members: REPLY to this email, CALL Member Services at 845.452.0600 ext. 110 or EMAIL memberservices@outsourcingprofessional.org.

    Not yet an IAOP member?
    Attend one meeting as our guest. Click here!

    Webinars can be participated in via PC from anywhere in the world at no cost. Additional meeting information is available at www.outsourcingprofessional.org and meeting details will be emailed with your confirmation.

  • Dispute Resolution
  • Date & Time

    January 17, 2006
    1:00pm - 2:00pm (EST)

    The Dispute Resolution Chapter is leading the effort to identify more effective ways to resolve disputes between customers and providers – thereby enhancing the value and sustainability of outsourcing contracts. Join David Barrett, IAOP Founding Member, Partner and Global Head of Simmons & Simmons outsourcing practice, to gain insights into the challenges, emerging approaches, and future direction of outsourcing dispute resolution.

    More Information...
  • SME Global Sourcing
  • Date & Time

    January 19, 2006
    1:00pm - 2:00pm (EST)

    The SME Global Sourcing Chapter increases the effectiveness of global sourcing for small- and medium-size enterprises. Chapter Chair and Chairman of OOPB.org, Eugene Goland, will be joined by IAOP Executive Director Mike Corbett to discuss: the differences between SME and large business offshoring; an emerging SME Outsourcing Methodology; and how organizations can get involved.

    More information...
  • Data Security
  • Date & Time

    January 23, 2006
    1:00pm - 2:00pm (EST)

    IAOP’s Data Security Chapter helps customers, providers, and advisors that use sensitive digital information stay on top of the legal, technical, organizational, and competitive issues related to data security and outsourcing. This meeting, chaired by Tom Grubb of Vormetric, Inc. will feature Dr. Larry Ponemon, Chief Privacy Officer of Procter & Gamble and founder of the Ponemon Institute, sharing current insights and future trends in the field.

    More Information...
    International Association of Outsourcing Professionals
    Lexington Park, North Building, Suite B
    1133 Route 55
    LaGrangeville, New York 12540

    The International Association of Outsourcing Professionals (IAOP) is the global, standard-setting organization and advocate for the outsourcing profession. Formed by a consortium of leading companies involved in outsourcing as customers, providers, and advisors, IAOP’s global membership encompasses almost 200 organizations from around the world representing almost every industry segment and functional activity. In total, more than 37,000 individuals working in the field of outsourcing are members or subscribers to its publications.

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    BBC News Online - Dec 2005 NASSCOM McKinsey Report [Jan. 5th, 2006|10:13 pm]
    Mark Kobayashi-Hillary
    Outsourcing 'to earn India $60bn'
    A call centre in India
    Outsourcing services could directly employ 2.3m by 2010
    India could earn $60bn a year by 2010 from information technology and outsourcing, an industry report says.

    The report was prepared by Nasscom, a lobby firm for Indian software and service companies, and international consulting firm McKinsey and Company.

    It said business worth $110bn would be outsourced worldwide by 2010 and India is set to capture more than half of it.

    But the report said more investment was needed in developing skills and infrastructure to achieve the goals.

    'Knowledge cities'

    Most of the new business is expected to be outsourced by insurance, retail, banking and travel companies, the report said.

    India's IT and outsourcing sector is currently worth about $22bn and expected to grow by 25% until the end of the decade, it said.

    The forecast also predicted the sector could directly employ about 2.3m workers by 2010, compared to 700,000 now, but projected a shortfall of 500,000 skilled workers.

    Indirect employment was also set to nearly treble to 6.5m in the next five years as software and customer services were outsourced to India, it said.

    The report urged the creation of at least 10 "knowledge cities" with their own airports, roads, office space and housing facilities to meet the needs of technology firms.

    The report predicted IT and outsourcing could more than double to 7% of India's GDP by 2010 and account for 44% of export growth.
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