India in a class of its own(continued)
By
Aaron Tan, ZDNet Asia
Thursday, May 24 2007 04:00 PM
But as India's IT industry moves toward providing higher-end services, including consultancy and industry-specific applications, Nasscom's Karnik said, cost becomes a lesser concern.
"I would say that cost is always important, but it becomes far less important, for example, especially during R&D (research and development), where you're more worried about intellectual property (IP) protection," he explained.
Karnik added: "As you move to higher-value work, you want to make sure that you have the kind of quality and people who can provide high-end expertise."
Infosys has already moved from providing development and maintenance services, to higher-end work such as consulting services and implementing large IT transformation projects. And right from the start, the company believes it cannot sustain its business, if it were to hire only computer engineers.
"We've recruited English and science graduates, and converted them into software engineers by training them," Gopalakrishnan said. "We're also recruiting from outside India, including the U.S. and Europe."
He added: "For certain roles like infrastructure management and services like business process outsourcing, you don't require engineers. This gives us an additional pool to recruit from."
TBR's Guilbault noted that Infosys already shells out US$147 million to prepare fresh graduates to work in the business world.
"The situation gets worse going forward as the IT companies are forced to cast a wider net to locate trainable candidates," he added. "A major problem facing Infosys is the precipitous drop in the quality of education between the best and second-best schools in the country."
However, Guilbault noted that the Indian government has finally started responding to the IT lobby's complaints about the school system. "But it's unclear where the government will find the funds to make any material improvements in the situation."
Wages to level off
With over half the population of India aged below 25 years, Nasscom's Karnik said, India's young demographic profile has given the country an edge over competing outsourcing destinations.
He said: "As more young people graduate from college, there will be a big supply in the marketplace. While the supply-demand gap now is a cause for concern, in the medium term--within three to five years--you'll get a correction in the supply-demand equation.
"While wage rates are not expected to fall, you'll find them leveling off very rapidly," Karnik added.
Karnik said fewer people in China and Eastern Europe will enter the workforce due to their aging populations. "This is bound to create serious pressure on their demand-supply gaps," he said. "Their demand [for IT labor] will grow and supply will begin to decrease as the young people population drops off."
He added: "You can see this happening five to six years later even in a large country like China: their internal demand for growth is going to be such that there is no way their wage rates are going to be held down--their wage rates are going to escalate far more rapidly than Indian wages."
Still, Karnik acknowledged that India's shrinking IT talent pool has been putting upward pressure on wages. "Only 30 percent of engineering graduates have the skills that the IT industry needs," he said.
"For certain roles like infrastructure management and services like business process outsourcing, you don't require engineers."
-- Kris Gopalakrishnan
Infosys president, COO and joint managing director
Companies such as TCS and Infosys are tackling the issue by setting up training institutions on their own. "This enables them to take people, who would otherwise be rejected, on a six-month training program to expand their workforce," Karnik said.
In addition, Nasscom is also working with universities to ensure that skills required by the IT industry are imparted to graduates, he added.
While public-private partnerships are springing up to address the challenges facing the educational system, TBR's Guilbault said, the "private sector can't continue to keep footing the majority of the bill, while maintaining industry-leading margins".
Stacking up against rivals
As India strives to move up the value-chain, it is also facing competition from emerging outsourcing locations such as Russia, widely known for its superior engineering competency.
Karnik said: "I have great respect for Russian capability in engineering and innovation, and I do think they are as good as us.
"However, their problems in human resource scalability are tremendous. They have a population that's decreasing, and the number of engineers available in five to six years will deplete very rapidly, thanks to a combination of smaller population growth and the emigration of bright Russians to the U.S. and Israel.
"In India, we have the same situation of people moving out, but we have enough people staying behind. And in the last two to three years, there has been a reversal of that trend where those who've gone abroad are coming back to India," he added.
Karnik acknowledged that Russia will continue to be a good place for innovation, "but not for being able to provide any scale to that innovation".
"So, if you want a small thing done by a dozen of engineers, Russia is very, very good," he added. "But if you are looking at getting a few hundred people, then you'll have great difficulty getting that human resource in Russia, especially in five to 10 years' time."
To Infosys' Gopalakrishnan, the emerging outsourcing locations of China, Russia and Eastern Europe allow the company to target new geographies and niche markets. "I see Russia participating in high-end graphics and mathematical modeling; China is used to provide services to the Chinese market; Poland is used to support Europe and Mexico is used for support Spanish-speaking clients," he said.
On Indian innovation, Gopalakrishnan noted that Indian companies have mainly been engaged in short- and medium-term R&D activities such as process and service innovation. "And as you move up the value-chain, the amount of IP increases, but what is probably not happening in India is long-term R&D in basic research and completely new techniques and technologies."
Still, he added that global companies such as Microsoft, Intel and Motorola are already beginning to shift some core research activities to India. These include chip design, as well as product and software development. "If you include multinationals and Indian companies, you'll find the complete ecosystem being replicated in India," he said.
Maturing socio-political attitudes
At the height of the outsourcing wave around 2002, there was socio-political apprehension about IT jobs moving from Western countries to India. But since then, Karnik said, there is now widespread recognition in countries like the United States about the mutual benefits of outsourcing.
"There is definitely some pain and readjustment required in the case of individuals who lose jobs temporarily and have to be retrained and redeployed elsewhere," he said. "But, I think there is academic research which shows that the savings accrued from outsourcing are reinvested for further growth of the U.S economy."
"This makes sure that U.S. companies stay competitive," he said. "The reason why large companies cut off jobs is because they are not able to keep up with the competition," he added.
He noted that companies now realize that they can be competitive by moving some work offshore to lower costs, and in turn become more efficient, increase sales and retain more jobs.
However, Karnik said, the Indian IT industry continues to be concerned with tariff barriers such as visa restrictions and excessively tight controls on data movements.
Earlier in April, the United States stopped accepting H1B visa applications after it received more than double the quota set aside for such visas, affecting IT giants like Microsoft and Intel who hire many Indians. Microsoft Chairman Bill Gates and other tech leaders have for years have pressed the U.S. Congress to raise the H1B visa limit.
Karnik said: "We don't really see those problems inhibiting growth, but we'll continue to talk to U.S. policymakers to ensure problems are minimized and spread wider understanding of the true benefits of a global economy."
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