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I met Vivek Vaid during an IAOP (US-based outsourcing association) meeting in San Francisco.
His comments and remarks to the speakers really impressed me, so I asked him to share his thoughts on how India can retain leadership on China in the IT outsourcing field.
On the future of outsourcing
Outsourcing is here to stay, and India is set to remain the leading outsourcing destination by far. According to Vivek, even if the price gap continues to narrow between India and the USA, the savings will remain substantial enough to justify the whole process of outsourcing.
In addition, the pool of developers available in the US / Europe on one side and China/ India on the other side, makes any short-term change quite unlikely.
On China vs. India
The real Indian boom happened in early to mid 90’s, when the historical leaders landed the first massive deals from companies the size of GE, Amex, etc.
In comparing China’s current situation to India’s in the 90s, Vivek notes that China benefits from an excellent image and recognition, something India lacked back then. That said, Chinese providers have yet to show their ability to sign large contracts and execute on them. In addition, China has to find an accelerated track to get there since it would take too long to climb the ladder’s steps one by one.
In Vivek’s opinion, Chinese suppliers are too far down the road to really challenge Indian leaders, at least for the next 3-5 years. Alternatively, we see Indian players setting up shops in China as part of their global resourcing & expansion strategy.
On the Indian outsourcing leaders (TCS, Infosys, Wipro and the likes)
The leaders have been focusing their efforts on IT development and maintenance, but little has been done in the fields of innovation and management, which has resulted in Indian companies having ties mostly to American CIO’s, but little to the other departments.
According to Vivek, the time has come for India to move up the value chain, and provide global corporations with more high-end services, a challenge that requires Indian leaders to become global suppliers, hence the many acquisitions performed in the USA.
The timing is perfect for them as they are cash-rich and benefit from excellent valuations. For instance, a company like Infosys generates over 1 billion in profit every year.
In addition to the increase in respectability and visibility, having a presence in the USA enables Indian leaders to better secure the flow of work sent back to India, where the high margins are and will remain.
American corporations are to benefit from this move, as a more global supplier can provide with a more global offer and a better reactivity, altogether a win-win scenario.
On the impact of the weak dollar
Indian companies have had the reputation of “throwing people at a problem”, since they could so easily tap into such a vast reservoir of talents.
Now that a weak dollar threatens their margins, industry leaders have been working hard to dramatically improve their internal efficiency, something that, according to Vivek, is also good for their US clients, since the overall quality of their deliverables is likely to improve.
By the same token, an increased efficiency can only make Indian suppliers more competitive on the International scene.
That said, new contracts include now provisions concerning parities between currencies, something that was missing until now since very few would have predicted such a strong depreciation of the dollar against the rupee.
On the role of NASSCOM
I commented that while top suppliers have impeccable reputation, it was not the case for the myriad of smaller size suppliers, and suggested that NASSCOM should take some actions. Vivek disagreed here since he believes that it is not the role of NASSCOM to legislate, nor does it have the breadth to enforce any decision. Vivek believes that the current phenomenon is more of a phase in the Indian outsourcing growth, en route toward maturity. However, it takes two to tango, and a simple sanity check would have enabled US clients to often stay away from unreliable providers.
His new venture
Vivek has a successful track record of serial entrepreneur in the IT outsourcing area to India, the Philippines and Latin America, primarily in the field of financial services. He started, grew and successfully sold several companies. A few weeks ago, Vivek launched his latest venture, a company called KnowledgeLease. The company’s charter does not include the outsourcing component itself, but rather consulting about how to best tackle outsourcing nowadays. Best of luck!
Conclusion
I found Vivek’s opinions very valid. I would just differ on one – minor (?) point, and that is that china is going to take overall leadership over India.
In fact, the major strength of China in this race to leadership is that its focus is not on becoming the world leader, but in creating the conditions that make the country the privileged destination for IT outsourcing.
By providing a premier infrastructure, enabling local providers to equip the government with the most advanced technologies, making Intel, Microsoft, Google, and the likes call China their home when its comes to engineering, China is becoming the excellence center of the world for IT outsourcing. Customers are flocking to China. Leadership will inevitably follow. In other words China has in fact created its own path to leadership.
In seven years from now, the individual leaders of IT outsourcing will still be Indian, but China will have become overall the world’s number one destination for IT outsourcing, as it has become today the undisputed center for goods manufacturing.
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I basically agree with this conclusion, but the problem is that India has made a strategic error in outsourcing by concentrating all its outsourcing eggs (including back office and professional operations) in the English-language basket, and not diversifying enough to other big languages important for offshoring, German in particular.
In terms of outsourcing opportunities, the Eurozone and the German-speaking countries are really at the cusp of the wave, while the USA declines as a market in this respect.
A lot of this has to do with the fall of the dollar and the gain of the rupee against the dollar– versus the further empowerment of the Euro. This among other factors makes it much less cost-effective for US companies to outsource to India, while the Euro-rupee gap, coupled with India’s professional class, makes India a wonderful solution for Europe. Germany is the bellwether here since it’s the EU’s leading economy and continuing to grow, with smart companies and clever policies, yet also having very expensive labor in country, and thus an incentive to outsource.
The main problem is just language– maybe a remaining vestige of confused post-imperial thinking, but it’s unbelievably foolish for a country of India’s size and resources, in choosing a Western language to learn, to raise its educated and professional classes almost exclusively in English. We can very easily diversify this and have more of us learn languages like French, Dutch or Spanish but *especially* German. In fact, German is really *the* language in which Indians should be gaining proficiency, as others have been talking about these days.
China has smartly caught onto this, and many of the China’s best and brightest students in fields such as engineering and the sciences, not to mention more basic back-office operations such as accounting and call centers, have gained a high level of proficiency in German. They write many of their scientific papers in German, give conference talks in German, and otherwise reach a professional level in it.
Eastern Europeans and Russians also have this edge. Even though they’re more expensive than India and don’t have anywhere near the talent pool that India does, nonetheless their high level of German proficiency means that they win out on the outsourcing contracts for Germany’s rapidly growing market for this. Even outsourcing companies in the Philippines are catching on and increasing German-language training.
India is perfectly poised to remedy this, but we have to take the need to improve our German seriously. Papers should be published in German and talks given in the language, as the Chinese are smartly doing, but more companies should also conduct operations and draft memos in German. Universities and schools should conduct some German-medium education– there are plenty of Indians with work experience in Germany who can help with this. These are the things that can assist in building up a German-proficient technical and professional class within India.
There is still an opportunity for India to capture the heart of the Eurozone outsourcing business, but we have to move immediately. Otherwise, we’ll lose out to our competitors.
Left by Amitabh on November 7th, 2007