IndiaThink

Gartner Says: US Firms Reporting Little Gloom in IT Outsourcing

Gartner issued a state of the union report on the outsourcing industry pitting each firm against the other from around the world.  Interestingly Indian firms did not appear on the list until Tata emerged as number 28.

"Across all IT services, IBM continued to be the global market leader, dominating 7.2 percent of the market. IBM and Accenture reported strong growth rates of respectively 12.2 percent and 19.7 percent."

So where is all of the gloom and doom?  Can US firms compete after all?  Gartner expects us to ride along with their consulsion which makes little sense:

"While cost remains a key consideration in the outsourcing services market in India, operational efficiency and business agility is driving most IT services engagements," said Arup Roy, senior research analyst at Gartner.

How is operational efficiency being measured by a US firm that needs an outsourcer?  Is Gartner implying firms initially choose an Indian firm, these markers are weak after and experience, and then the firm moves on to a US based firm?  This explanation does little in the way of explaining, showing trends, and defining the category as Gartner is paid to do by several companies.  We need more details and should be demanding to understand what these markers are and how companies are working to present and effect them.  

Made in India: Cars that are big/small/cheap/expensive

Tata Motors is building a 2,500 car.  As the New York Times puts it so elegantly "The upside is a car expected to retail for as little as the equivalent of $2,500 or about the price of the optional DVD player on the Lexus LX 470 sport utility vehicle". 

As we eagerly await for the launch of this car, Tata Motors has been shopping for a luxury brand vehicle and has found it: Jaguar and Land Rover.  "Ford Motor Co. has picked India's Tata Motors Ltd. as the top bidder to buy its Jaguar and Land Rover units, the Detroit automaker said Thursday, Jan. 3, 2008"

Things are happening in this world and I wonder if people are paying attention.  I laugh at the idea of people driving around a car branded with British ideas being subsidized in the land the Brits abandoned in 1947.  Who is having the last laugh?

What is striking is the unbelievable thinking that went into designing this cheap car that works for India.  It does not work for any country with strict emission standards (please don't write to me and tell me I should not support this innovation because it harms the environment) or maybe any standards at all.  This being said, it will provide transportation to Indians who currently cart their family around on a motorcycle.  For those of you who have traveled to India you know exactly what I am talking about.  Four people crammed on one motorcycle. 

The car is nicknamed the "people's car" and apparently some very large accommodations were made to crank out the cheapest car out there.  It is designed to go about 44 mph.  This should not be a problem as India roads roam very very slowly.  The trunk has room for a briefcase, and thats it.   No radio, power steering, and only one window wiper.  It has only a gas gauge, speedometer and odometer on its control panel.   The engine has 30-35 horsepower. 

So its small and its slow and no one in India is going to care.  This is the most amazing invention and one that shows the true spirit of innovation that is happening inside India.  They are developing things that work for them that their obvious competitors never thought up.  I have a personal feeling about this invention being from the land of cars that is Michigan.  I wonder how the car companies that used to rule the world feel about missing this boat as well as selling off one of the grandest luxury brands on the planet. 

Now all India has to worry about is learning how to drive...which in itself is a formidable challenge. One reporter said the typical test for obtaining a license in India "consisted of turning on the ignition and driving in a wide circle that took about a minute."  Having personally been struck by a motorcycle on the streets of Bangalore I am not the least bit surprised to hear this account.

Outsourcing: Coming to a city near you

A recent article in the New York Times , "Outsourcing Works so India is Outsourcing Jobs", made me wonder why us "ingenious" Americans are not taking advantage of the outsourcing trends that Wirpo, Infosys, and other heavy hitting Indian players.  I wonder if the US as a whole has written off the positibility of providing back-end services in-country or starting a US based firm to compete with the powerhouses in India.  Do we need to travel to India to learn "how its done"?

Yes apparently.  Indian companies see the global economy clearly.  Perhaps more clearly than we want to see it.  And why?  Is it the one stop shop that is most attractive?  Here is one example from the article:

Such is the new outsourcing: A company in the United States pays an Indian vendor 7,000 miles away to supply it with Mexican engineers working 150 miles south of the United States border.

I fear what the end of the article portrays through a cute story is actually what most Americans think is happening in India:

And yet, even as outsourcing takes on new directions, old perceptions linger.

For instance, when Jeff Rand, a 23-year-old American trainee, told his grandmother he was moving to India to work as a software engineer for six months, “she said, ‘Maybe I’ll get to talk to you when I have a problem with my credit card.’ ”

Said Mr. Rand with a rueful chuckle, “It took me about two or three weeks to explain to my grandma that I was not going to be working in a call center.”

Its time to think globally and act locally.  This means US companies should be concerned that companies like InfoSys are investing in Phoenix and Atlanta locations to increase the spread of their reach.  American companies should be called to jump into the outsource game with the same veracity that has caused the India explosion.

To be or not to be--in India that is

This is the question CIO magazine puts through the paces this month with two articles; one focusing on the upside of India and one focusing on the down side. 

I think before I write: glass half full or glass half empty?  I am not convinced by the arguments laid out in the half full article.  India is a great place to send your customer service and back office tasks.  Great.  Pretty sure most of the world already knows that.  The author offers little else for us to consume. The cons articles is much more interesting and I pulled the tidbits of interest here. You can read the feature yourself: Half Full / Half Empty

1.) The NEED for an in-country project manager that understands India's culture to help move the project along.  This is identified as a need for successful projects but is also identified as a big problem because these types of people are not available.  I have already talked about this in other posts.
 

2.) Infrastructure. I am really starting to wonder when India is going to wake up and do something about their infrastructure.  Its the pits.  Really.  I have profiled other groups here who are living with infrastructure issues that impact their delivery of goods to market.  This piece does not speak to that problem, rather they complain about how long it takes to traverse Bangalore or get to the airport. So, in essence the infrastructure is starting to hit executives where it really matters: the time column.  China is outspending India 7 to 1 in this area.  How long will it take India to make changes?

3.) The Raging Rupee.  This article claims the recent dollar to rupee exchange has "has eroded about 11 percent of the dollar's purchasing power in India"  Yikes.  11% is a big number.  Firms are currently absorbing this cost but its expected that times will change in the coming months.  Previous hours that were not billed out will be...and contract negotiations will not be pretty.

4.) Rising alternatives.  The author talks about India "Fatigue" and the availability of workers in other places such as Eastern Europe, Mexico, Latin America, Middle East etc... However, I believe they are missing the point of globalization, which is SPEED.  SPEED is gained by having multiple working on the same problem across multiple time zones.

 

India's Mind-bogglingly Large Middle Class

McKinsey issued a report recently titled "Tracking the Growth of India's Middle Class" with the headliner:

"Over the next two decades, the country's middle class will grow from about 5 percent of the population to more than 40 percent and create the world's fifth largest consumer market"

India's consumer market in 2025:

• will contain 583 million people categorized as middle class
• 62% of the country's spending power will live in cities. 75% of city dwellers will be part of the middle class as compared with 0.1% today. 
• India's wealthiest citizens will total 24 million

The question is how can you as a proprietor of services and merchandise capture this emerging group of buyers? 

Today most Indians participate in what McKinsey calls an "informal" economy and what most westerners would call a very large disorganized bazaar of sorts with locations stretching from backyards to streets to small shops.  To put this in perspective think about the last time you got a flat tire.  You have a spare tire which is now on the car and you are off to get a replacement...any option found on the side of the road, say under a tent?  That tent of course has an air compressor that is operated by some type of gas powered engine.  No Costco around these parts only the group of entrepreneurs stationed on the side of the road all over India ready to bargain away to get to a deal.

Because India has an informal economy its citizens seek value which is found through negotiation.  Negotiation is not to find the right or best price, rather it is poised to move to a mutual agreement between parties. As Paul Davis states in his book What's This India Business; "Indians are above all else traders".  Factor this in with their need to be polite and you have an interesting situation on your hands for any negotiation--its rare that you will hear an Indian say NO.  Consider this in the context of buying and selling to a group that wants to bargain but doesn't feel comfortable being aggressive.  How is this delimma resolved?

One interesting case study was written up on the WSJ a few months back where the owner of Big Bazzar was profiled regarding his attempt so sell to India out of a "box" store.  His answer was to "replace long wide aisles with narrow, crooked ones" to make it feel chaotic, and placing battered produce in the same box as good quality to make customers believe they are getting a good deal.  Indians are not accustomed to plastic containers so they are sold unpackaged razors from large bins.  He hires people to walk around and talk about specials through loudspeakers to add to the already noisy environment.

Or what he does is recreate the idea of buying from the man on the side of the road with the large trucks blaring by and music playing right next to your ear as you are trying to get something that fits your rim.

Beyond the grocery store example McKinsey predicts that people will spend dollars on education, health care (private health care that is), transport (cars), and communications.  They suggest that companies interested in tackling this market should get started NOW....