|
 Shukla
in E-Commerce Times
May 2, 2005
Larta Institute CEO Rohit Shukla was extensively quoted in Indian
Outsourcing Boom Just Starting, an article that appeared April
26, 2005 in E-Commerce Times.
Indian Outsourcing
Boom Just Starting
By Anthony Mitchell
E-Commerce Times
04/26/05 5:00 AM PT
"India
has the scale to afford to fail," Rohit Shukla, founder of
the Larta Institute in Los Angeles, said, "Pakistan and other
countries competing with India do not." If too many firms from
a country such as Pakistan rush into the international IT market
and fail to deliver properly, then it will give that entire country's
IT industry a bad name.
Has India's
information technology (IT) outsourcing boom peaked? There have
been predictions that India will lose most of its outsourcing firms
in the next two years. IT industry wages in India reportedly rose
an average of 12 percent in 2004 and are projected to increase by
another 15 percent in 2005.
New outsourcing
destinations have been receiving attention recently, with South
Africa, Pakistan, Sri Lanka, Mauritius, Kenya and Ghana entering
international markets alongside established destinations such as
Canada, Ireland, Romania, Mexico and the Philippines.
Negative
Coverage
Problems at outsourcing facilities in India have been the subject
of negative press coverage, such as Conseco insurance company's
decision to sell off its Bangalore facility at a loss and the recent
arrest of three former call center agents at the MphasiS call center
in Pune who are accused of stealing money from Citibank customers'
bank accounts.
Failures at
individual facilities in India, particularly call centers, have
prompted some Western clients to look for alternatives. However,
larger trends indicate that India is set to continue to grow in
volume and scope. Here we explore the reasons behind the Indian
IT outsourcing industry's continued growth.
Unfair Comparisons
Some of the poor press coverage that the Indian IT outsourcing industry
has received has been generated by comparisons between the best
IT facilities elsewhere with the worst facilities available in India.
I have been guilty of contributing to this coverage, based on experiences
placing some low-end call center outsourcing programs into low-end
Indian centers. However, from the perspective of a client and a
broker, Indian outsourcing centers will continue to receive the
bulk of my high quality IT outsourcing business going offshore.
In Karachi,
Pakistan, I recently met Rohit Shukla, founder of the Larta Institute
in Los Angeles, which from 1993 to 2004 served as the official commercialization
agent for the State of California and now provides outsourced go-to-market
services for clients worldwide, including the U.S. National Institutes
of Health.
Originally from
India, Shukla helped launch and continues to manage the Southern
California Venture Forum, which this year is being held on May 25-26
at the Wilshire Grand Hotel in Los Angeles.
Different
Path
Shukla and I have been in discussions with the government of Pakistan
on strategies for expanding its IT industry and on what can be learned
from India's success. We met with facility managers, such as Anwar
Kazi, the U.S.-educated CEO of ALT Source Communications in Karachi.
Kazi said that other developing countries are now looking to imitate
India in the IT field, rather than follow the path of the U.S.
In contrast,
Shukla said that Pakistan and other countries in the region cannot
exactly follow India's path. To understand Shukla's perspective
calls for an understanding of what India's international IT outsourcing
path has been.
Between 2001
and 2003 there were widespread call center outsourcing failures
from the U.S. to India. Indian facilities at that time were often
hard to work with, requiring more management attention, especially
the newer ones. As a result, some American clients were paying 15
to 20 percent less for work to be done from India compared to anywhere
else in the world.
Scale To
Fail
"India can afford to fail 15 million times," Shukla said.
He compares Indian industry to the Chinese Army, which is so big
that it can afford to waste tremendous resources in order to gain
ground.
"India
has the scale to afford to fail," Shukla said, "Pakistan
and other countries competing with India do not." If too many
firms from a country such as Pakistan or Sri Lanka rush into the
international IT market and fail to deliver properly, then it will
give that entire country's IT industry a bad name and make it harder
for everyone from that location to receive a fair hearing in the
global marketplace. This phenomenon is being played out now in Mauritius.
India no longer
faces such a risk, Shukla believes. "India has not only become
a superpower, it has integrated itself into the firmament of the
world economy, of the world mindset," Shukla said. Pakistan
and other new entrants to international IT markets have not.
In the language
of Silicon Valley venture capitalists, India has achieved critical
momentum, escape velocity. In U.S. boardrooms, a common question
asked by directors to corporate managers is: "What is our Bangalore
strategy?"
Diversification
Helps India
Software and call center services are not the only high-tech industries
booming in India. India's economy is growing in a host of high-tech
fields, including the life sciences, automation controls, aviation
and satellites, robotic vision, computer hardware, and automotive
components.
Software and
IT services account for more than 18 percent of India's exports,
and according to Shukla are expected to reach 30 percent or more
in the next couple of years. Bangalore alone employs more high-tech
workers than Silicon Valley, Shukla said.
The country
is bolstered by high amounts of tax receipts, a high investment
rate, a surplus in international balance of payments, and more than
$130 billion in foreign exchange reserves (excluding gold). India's
exports of manufactured goods surged by 24 percent in the last half
of 2004. Three new special economic zones (one in Kolkata for IT
and two in the former French colony of Pondicherry for automobile
manufacturing and automotive parts) and simplifications in export
licensing requirements are expected to accelerate these trends.
Other countries
in the region lack the diversification and global economic connections
that India has established. Textiles and finished garments form
the bulk of exports and foreign exchange earnings for Pakistan,
Sri Lanka and Mauritius for example. With the elimination of tariffs
and China's competitive position in those industries, there is a
risk that South Asian countries will suffer reductions in foreign
exchange earnings, hampering their ability both to diversify and
modernize their economies.
Domestic
Indian Market
India's diversity gives its labor markets the elasticity to rapidly
fill demand for new IT workers. Having four of the top 10 biggest
universities in the world gives it the infrastructure to rapidly
expand the number of computer science and knowledge workers, as
it is now doing with an investment fund of $1 billion.
India's diversity
makes it an attractive destination for Western firms that might
start with outsourcing but then expand into the domestic market,
as IBM (NYSE: IBM) has done by picking up domestic Indian IT outsourcing
contracts reportedly awarded under U.S. labor rates.
U.S. firms are
not just going to India to be able to produce for the U.S. market.
In many cases they are going there to profit from the domestic Indian
market.
Future columns
will detail India's competitive advantages in cost, quality and
marketing.
--------------------------------------------------------------------------------
Anthony Mitchell , an E-Commerce Times columnist, has been involved
with the Indian IT industry since 1987, specializing through InternationalStaff.net
in offshore process migration, call center program management, turnkey
software development and help desk management.
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