GramIT - phenomenal !

At the turn of the millennium, I asked KB Chandrashekhar aka Chandra, about when does he think that IT will become a part of India's GDP contribution and help at the grass-root levels. His reply was that when the jobs from all this IT boom in India reach the country-side, it will mark the significant contribution.

Seven years later, I read this news piece on GramIT. If offshoring is to remain India's growth engine, this must happen. Wage inflation and attrition at major centers such as Hyderabad, Bangalore, and Mumbai are causing huge problems on the supply side for the companies who are setting up shops in India. For GramIT employees, lack of other paying jobs make sure that currently, these are not the issues. With Indian service providers moving up the value chain, the lower end work can go to places such as GramIT.

I feel that this cartoon of outsourced CEO is exaggerated. However, moving up the value chain is so evident - few years ago, we could not imagine an Infy employee doing Application Management and yet, I was both, a Project Manager and Application Manager at AT&T. These are functions traditionally offered to US-based consolidated labor suppliers such as IBM, EDS, Accenture, Deloitte, etc Traditional model put virtual team mgrs with other vendors such as IBM. However, cos like Infy are invading this chain from right to left - right uptil client coordinator :)

Will this journey stop?

India has a significant challenge in maintaining its supremacy in being the preferred offshore destination. The offshoring industry is going to be 1.45 to 1.55million in strength and will contribute to about 7% of GDP by 2008 end. Challenges arise from the fact that clustering has happened during evolving stages at locations such as Hyd, Blore, Bbay, etc pushing the prices higher. This has caused huge internal competition within clusters and coupled with lack of supply (talented pool) has accentuated the problem. Let us look at the real numbers.

There are about 14m young grads in India with about 2.5m new ones getting added each year. However, only 10% are suited for the MNCs setting up shops. English skills remain a major issue. Bigger problem lies in the fact that Indian univs have varying quality of education. IITs and IIMs are world-class. However, the quality steeply declines as one goes into the second and the third tier institutions. The higher suitability figures lie in the engineering crowds - roughly 25% are suitable for MNCs. However, given the supply side constraints of engineering schools and huge demand in no. of IT workers and middle managers required, the wages are being pushed northwards. This is similar to demand for a stock in absence of floating stock and institutions placing huge orders.

Some doomsdayers say that Indian wages will get equated to US wages. This belief is misplaced. When the threshold of 30% of US wages will be crossed, Indian IT labor suppliers ( Infosys, TCS, Satyam, etc) will start looking in other low-wage labor supplying countries such as China. Infosys Shanghai already has already been set up and TCS has made several acquisitions in China. PRC provides cheap programmers but costly managers (with dual language skills) and hence, cost of team is the same at both the places in India and PRC. Suppliers are looking at Philipines as another destination for call centers as they have lesser Indian accents and can understand US accent with relative ease.

So what must GoI do?
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Disperse the clustering

This is risk-diversification. GramIT is on right track - more such things must happen in India which will help both, Indian populace coupled with capitalists. More regions will get developed. Currently, due to origins of most of IT entrepreneurs being from Southern part of India, they are mostly concentrating in the South with Pune, Chennai, etc being the alternative destinations to avoid clustering issues. However, MNCs such as Accenture, IBM, et al have set up their shops there as well. So, cos such as Infy run to Kolkatta, Jaipur - nice solution :)

In order to enable this dispersion, government needs to focus on infrastructure such as airports, utilities, telecom network, etc. The effects of neglect by GoI in this matter have been benign so far but they will rapidly become a hindrance for the growth in next 3-5 years.

Airports
When interrogated about the bias for Chennai and other south Indian destinations, entrepreneurs mention that the infrastructure in other places is not as developed. For instance, Infy setup a shop at Chandigarh but there's no easy international airport access. Hence, government must focus on developing international airports fast. Jaipur is a good destination because of the international airport decision made in 2002 budget.

Telecom network
If telecom network is well developed then telecommuting can be started in India leading to easing pressures on wages. This will help dispersion of work in low-wage areas within the country. GramIT is the best example. Labor is available at $800 per head at less than 5% churnover rate- wow !

Utilities
Individual companies have been making sure that electric power, water, etc do not become an issue at their offshore development centers. For them, it makes business sense as economies of scale ensure lower marginal cost which they can pass on to the customer under component of reliability. However, GoI can provide this to the smaller startups who can compete far better. This takes us to the next aspect why should GoI support smaller ventures.

Showcase the depth and the breadth of Indian pool

India's talent pool can be showcased in other fields such as industrial R&D, Finance & Accounting (culture which invented zero man !), etc. Small ventures are starting in these arena and must be helped by GoI in various forms and they will reap the benefits of the same in next 5-10 years in form of higher $ revenues, money sent back by expats, etc. In order to scale up on manufacturing supply, we need roads, roads, and roads ! Bharat Forge is an innovative auto-component solutions provider helping companies from the developed nations become more competitive. I agree beating PRC is very difficult given the lead they have over India...however, its not impossible. PRC supplier rates are going up. India can become an alternate supplier location for competitive supply chains.

Brand India as a destination for alternative services. This includes wide range from medical tourism in Hinduja hospital in Mumbai to exotic Himalayas in the north and the healing Ayurveda destinations in Kerala. Our slogan must become:

What can Mr. Bharat do for you?

Besides, investment in educational infrastructure is required.

Private sector
Companies such as Infy, Wipro, TCS, etc must invest in educational centers. Profits seen today on a quarter to quarter basis will vanish soon if they remain myopic and do not address this 3-5 years pending issue. Their margins will be squeezed out if they dont invest in educational institutions which ensure a steady stream of good quality graduates. For this, both Indian as well as MNCs will have to form a consortium of sorts in order to invest together.

GoI
It can help setup an IIT in every state. Even if quality of existing grads is improved then the existing numbers will yield huge supply metrics which will satisfy demand of foreseeable future. India still remains a low-cost labor supply nation with cost of a grad being 12% of that of US grad and working hours being atleast 5% higher (2058 hours p.a. vis-a-vis 1900 p.a in US).

Bottomline: Collaborative execution committee between corporate world and govt is required which will yield results that can help country reach the BRICs dream drafted out by Goldman Sachs in y2k.