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.  

India's Infrastructure or India's Global Reach?

Week of Nov 5th’s Fortune Magazine has a feature on India focusing on the changes in its dynamics, clout, innovation, and business world over the past ~15 years. Highly recommend you read this article and enjoy some of the pictures that precede it. India is in the middle of a marketing blitz around its 60th anniversary of independence.  These efforts have been subdued in the press as most of India’s coverage this week surrounds their inability to pass nuclear accords with the US and details the Prime Ministers extensive efforts to convince the world that India continues to be "open for business" regardless of its political choices.

The author has a few messages sprinkled through out the piece but one that I believe must be brought to the surface is the economic and political structures in India and how they have done little to encourage growth inside the continent.  One feature inside the piece details a Hyundai venture located in Chennai.  The plant is highly successful but not without challenges--all of which surround infrastructure.  Or rather the lack of it.  Problems like difficulty in delivering products to nearby ports and no government support in its efforts to get water, electricity and other energy sources required to support its operations.

These are very important considerations that companies must understand as they enter the India market place.  The complexities abound around getting the right infrastructure to make your strategy work.  As the author states “China outspends India on infrastructure by a ratio of 7 to 1. The result: India’s manufactures pay twice as much for electric power as do their Chinese counterparts and three times as much for railway transport.”  These numbers are staggering for groups interested in moving into India for manufacturing.  Hyundai took on an Indian location based on a rejected application to China; their first choice.  How will India solve these problems with a government that has a ‘dysfunctional political system---driven by caste, religion, party and faction?”  As competiton heats between these two asian giants India must face its infrastructure woes and solve them.  Its unclear how long it will take the government to wake up to this harsh reality--my prediction is that its going to take a while.  India has grown too accustom to daily power outages and other infrastructure failures.  And the way India has grown has not been like China, through its government.  Rather it has been in spite of it. 

How Will You Reward for Performance?

Tanuja Badimala writing for the India Times relays the in-country fiscal exhaustion of repeatedly increasing salaries year over year by an average of 12%.  These increases can be blamed squarely on supply and demand as we have discussed in the past.  There is not enough talent in India to fill the roles the world would like to employ them for.  This combined with the rupee rocketing up against the ever falling value of the US dollar, by 9% in the past four months alone, makes handing out these lucrative packages all the more expensive. 

One of the people interviewed for the article states: "If you perform, you get rewarded’’ leaving the author to comment "So IT folks, it could be time for you to get more aggressive in job performance."

How can companies encourage aggressive job performance matched with a compensation plan inside India?  One of the reasons India is such a great place to send work is the cultural systems existing inside businesses that encourages hierarchy and power distance.  Employees listen to their management and follow orders accordingly.  There is limited questioning on how things are done, how they can be done better, and how an individual can move ahead of their manager.  Time served is the greatest value in the equation for getting a promotion.  The result is individuals who stay in their positions for years without demanding promotions.  Yes, these individuals may appear to be very aggressive salary hunters, but its important to keep in mind that many employees, especially those with call center duties, skip from one company to another without promotion desires to gain salary increases inside the same role. 

Employers need to devise schemes that work with this type of population.  India employees are incentivized by money like all other employees in the world.  Creating schemes where performance is not matched against a promotional ladder but instead clearly laid out as a way to increase existing salaries is the best way to proceed. These plans should not be laid out as competing against peers (although they will be) to gain the biggest piece of the pie.  In some situations, building incentives inside teams will be the best way to gain productivity increases.  India avoids individualism and prefers group based objectives.  Devising schemes around these preferences will create competition across bands of teams but will not result in uncomfortable feelings around beating out peers and being selected as the "best."

This coming change should not be underestimated.  US based companies typically provide at most a 5% increase on average to their employees in the IT industry with more accurate numbers coming in around 2%.  Imagine how you would deal with a staff that was used to receiving very large raises each year...and suddenly wasn't.  This storm is going to be knocking on your door soon.   

Future CEOs of Indian Corporations: Lets CHAT

I love stumbling upon articles like this one in the Economic Times.  It digs in and asks some interesting questions about transitions Indian companies will face when non-Indians begin running the show.  The texture of the Indian press is a cross between the New York Times and The Enquirer, liberal, ready to gossip and get into the psyche that exists across the continent.  Where else would an author be able to write a piece about how its nation will "feel" about having a band of foreign leaders running its multi-national corporations?

I will be tracking these transitions...I expect if Western leaders are seated at the helm of Indian companies they will find themselves a bit surprised by the power distance, hierarchy, straight line thinking, and the way the troops see their leader.  Most CEO's will enjoy this ego boost, a major difference between an American seat.  But how will they manage the transition?  Will they push Indian companies to use well known western business models?  Use global management techniques asking everyone to act the same way or will they look to the local processes and see what works?  How will India adjust to these new changes--seeing someone other than an Indian in the paper talking about their most impressive corporations? 

Its an exciting time....

Is India "Overheating?"

Economist mag featured a briefing on India recently discussing its growth rate with a full speech on how it cannot continue without reform.  Notes to be mindful of:

*India's GDP grew by 9.2 last year
*Most Indian economists expect at least 8% growth over the next five years, some predict 10%.

Everyone loves this story...but is worried about shortages, talent shortages, power shortages, water problems, and general infrastructure meltdowns.

*All analysts agree that India's biggest obstacle to growth is its infrastructure.   The author cites a World Bank Study that indicates manufacturing companies in India on average loose 8% of their sales because of power losses. 

Anyone who has traveled to India has experienced a power outage.  And, more specifically, the complexity of the mash-up between the commonplace of their occurrence intertwined with the sophistication of efforts to warn and develop workarounds magnified by India's increasing need for power.  This article addresses these issues from an economic perspective, indicating that all the investment and hope in India relies on India continuing to dump resources back into its infrastructure. "The real problems is that India's weak fiscal position constrains its future growth by leaving no room for more public spending on infrastructure, education and health."