For some years now, the annual Nasscom event has been an expression of hope
and a show of power for the Indian IT services industry and, in that sense,
Nasscom 2003 continued the tradition. Amidst the global economic slowdown and
cuts in technology spending, Nasscom and McKinsey revised the 2008 target figure
from $87 billion to $77 billion.
What emerged out of the insightful sessions drives homes an interesting
point. If it all started with Nasscom 2000–the first annual conference, post
the release of the original Nasscom-McKinsey report–it is in Nasscom 2003 that
it has finally come out of the overbearing shadows of IT.
Of
course, it is business process outsourcing (BPO) that we are talking about. As
the flavor of Nasscom 2003 in Mumbai very clearly turned out to be BPO, for the
first time, participant after participant–including John Barnsley of Inaltus
and Phaneesh Murthy of Primentor–openly stated what many had been murmuring of
late. This set the stage for the dominant theme of Nasscom 2003–ITeS-BPO.
Almost all the sessions in this track were well attended, clearly signifying the
interest level in BPO activity. The line-up of speakers for this track was
particularly good.
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According to John Barnsley, the chairman of specialized financial and
accounting BPO company Inaltus, "Enterprises need to understand that though
IT plays a major role in BPO, the business has to be led by process experts, not
by technology. What you need is strong operational capability and deep market
knowledge. Process expertise and domain expertise, in other words."
"I see Indian BPO companies attaining greater global heights than even
the IT companies," he observed. "In fact, one reason why BPO has
become so popular today is that the IT-centric ERP implementations have failed
to significantly reduce process costs," he said.
While the views of Barnsley–a legal/tax expert–are understandable, what
was even more noteworthy was that his views were echoed, in even stronger terms,
by someone who was, till a few months back, one of the most important
personalities in the Indian IT industry–Phaneesh Murthy. Phaneesh, who was
probably speaking for the first time in a platform in India after founding the
BPO consulting company Primentor, was harsh on his former industry.
"IT
companies have become so used to the revenue model of labor arbitrage that they
have not invested enough to keep improving their processes. That is not going to
work in BPO," he observed. Social cost to the client after getting jobs
removed from the US would be significant. The decision to outsource offshore is
going to be tougher in the future. That is something the Indian companies’
should keep in mind.
While he outlined several positives of India like time zone difference, free
market entrepreneurial spirit etc, he was categorical that the model of simple
manpower replacement from US would not work. The companies need to focus on
process improvement and even drastically different business models. "None
of the Indian BPO companies that I know of is ready to do something about
addressing this highly significant social cost to the client," he said
replying to a question.
The only positive view for the IT companies came from Sid Khanna of Accenture,
who observed IT will play a significant role in BPO and will drive it to a great
extent. Equally thought provoking was McKinsey’s research on the shape and
size the ITeS-BPO industry would take over the coming years. The research
pointed out that while the total software and services exports generated Rs
34,000 crore in the April to December 2002 period, the ITeS-BPO component
accounted for Rs 8,200 crore with an encouraging growth of 61% over last year.
“A significant opportunity exists for Indian ITeS vendors in new areas such as sales, legal, engineering, R&D and logistics” |
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Kiran Karnik |
Says Arun Kumar, chairman, Nasscom, " A growth of 20 % in IT services
and 61 % in the ITeS-BPO segment in the April—Dec 2002 period reflects the
continued growth that the sector is able to maintain despite a much larger
base". He added, " Software exports which accounted for 4.9% of
country’s overall exports in 1997 is expected to increase to 20.4% in
2003-03".
The Nasscom survey reveals that the markets that the Indian IT Services and
ITeS-BPO segment are targeting is expanding. In the IT services arena, Indian
vendors are getting into new service lines such as IT and network consulting,
packaged software installation and support and systems integration. In the
ITeS-BPO segment, apart from consolidating their presence in traditional areas
such as customer care, finance and HR, Indian vendors are moving up the value
chain by addressing segments such as engineering design, animation, and R&D
services.
Nasscom’s survey also indicates that BFSI vertical continues to be the
biggest vertical with a share of 36% during April-December, 2002 of software and
service exports. The manufacturing vertical is expected to increase its share to
14% in 2002-03. Apart from growth in traditional services, new verticals such as
healthcare, retail, and utilities in the IT services sectors, will lead future
growth in exports. The retail sector currently has a share of 4% in 2001-02, is
expected to increase to 5% in 2002-03 and healthcare, which has a share of 3% in
2001-02, is estimated to grow to 5% in 2002-03.
According to the Nasscom survey, in order to counter the impact of the global
economic slowdown, Indian IT software and services companies have worked towards
beefing up their capabilities both externally and internally. In the area of
marketing, Indian companies have looked towards building expertise through
thought leadership, gaining better customer access and key account management
skills. Indian companies have also invested in building global delivery models
to overcome geo-political risks. Companies have also tried to contain costs by
recruiting in line with utilization rates, hiking the proportion of variable
pay, and better management of fixed price contracts. The industry is also
expected to witness a rise in M&A activity as players try to broaden product
offerings and build scale.
Indian vendors have been able to tap a market share of 2% of the global IT
Services market currently and need to tap new service lines in order to capture
a market share of 4.6% of the worldwide IT Services market by 2008. In the
ITeS-BPO segment too, India has a market share of 2% currently and will need to
target new service lines such as Engineering/R&D, logistics and sales to
capture a share of 4.8% by 2008.
Arun Kumar, Chairman, Nasscom said, " India’s presence in the global
IT Services market is today more focused to custom application development and
application outsourcing, which forms only 10 % of the global IT services market.
Significant potential exists in service lines such as network infrastructure
management; IS outsourcing; IT training and education; hardware support and
installation; and network consulting and integration where Indian vendors have
negligible presence currently."
"With off-shoring becoming more mainstream, Indian IT companies are
expected to penetrate new service lines such as Systems Integration (accounting
for 22% of Global IT services market); Packaged Software Support and
Installation (13%) and IT Outsourcing (18% )" , he further added as per the
recent Nasscom research on the IT services scenario, Indian vendors can tap the
systems integration market, which is expected to reach $142 billion in 2005.
India currently has a market share of 0.5% in the global market, which can reach
2-3% by 2008. To successfully capitalize on this opportunity, Indian companies
will need a build a network of best-of—breed partnerships, attract world-class
talent and develop best-in-class project management skills.
Kiran Karnik said, "Significant opportunity exists for Indian ITeS
vendors in new areas in the ITeS-BPO segment such of Sales, Legal,
Engineering/R&D and Logistics. Worldwide ITeS-BPO spending for 2006 is
projected to be $165 billion for Sales, $163 billion for Legal, $123 billion for
Engineering / R&D and $308 billion for Logistics."
The strategy gurus–Don Tapscott and Paul Saffo provided insightful
strategies on changing business models. Not to be missed was a short session by
Jnan Dash, database guru and industry veteran, who explained the phenomenon of
web services and its implications for India.
This year saw the participation of many an international CIO from JP Morgan,
The World Bank, Citigroup, Qwest and the like; and not surprisingly they were
the most sought after for press interviews. Despite these, what didn’t come
out clearly was Nasscom’s agenda for the domestic-focused IT services
industry, though as a departure from earlier years there were roundtable
discussions involving CIOs. However, there was more to the sessions than the
statistics. As we spoke to participants on the sidelines–both speakers and the
delegates (who agreed with the above observation of many speakers)–were all
praise for Nasscom. "In fact, it is not for the Indian IT industry that I
am here. It is the Nasscom branding, that has brought me here," said a
delegate from UK whose interest area was process outsourcing. "These guys
are doing a great job. What they need to do is to consciously transform
themselves to a platform of Indian services companies, and not just the IT
industry," observed a speaker.
Well, three and a half-hectic days of conference sessions with
entertainment-packed evenings left the delegates fatigued. While the CEO Fashion
Bytes was good, the entertainment bit for the Gala Dinner night was found
wanting.
Team DQ/CIOL with inputs from the
Nasscom report
Those Interesting Numbers
n $1
billion: The sum western MNCs could end up
saving in five years by IT outsourcing to India, according to Nasscom.
n $1.2
billion: The estimated loss that the SQL
Slammer worm caused worldwide in the first five days.
n $11
billion: The opportunity for the Indian
software industry, even if they manage to grab 40 % of the Chinese software
development market by 2006, according to Gartner.
n 12%:
The growth of PC shipments in India during the
year 2002, according to Gartner Dataquest Asia-Pacific survey.
n $44.9
billion: The loss posted by AOL for its fourth
quarter.
n $200
million: The endowment fund that IIT Kharagpur
plans to raise by the year 2020 by roping in some of its alumni who are doing
well for themselves.
n $250
million: The sum World Bank will lend to India
for a project to improve the quality of technical engineering education.
n 1,500:
The number of people Consulting giant Accenture proposes to hire in India over
the next two years at its Indian centers.
n 2,500:
The number of people who will be employed in Wipro’s software development
center at Kolkata to be operational from June 2004.
Future of Embedded Technologies
The panel discussion on the future of semiconductor design and embedded
software in India, threw light on the prospects that embedded technology and
semiconductor design present for the nation.
The session chaired by Rajiv Mody of Sasken, began with the initial round of
introductions and was kick started by Paul Saffo who highlighted the three
trends in embedded technology–ubiquity, diversity and technology being
comparable to fashion, which depends on changing trends. Sathya Prasad from
Intel opined that with its knowledge base, India would be the ideal place to
impart necessary growth in the field of semiconductor design.
Sasken’s Venkatesh felt that India, in order to achieve the desired
leadership in embedded technologies, would need to first develop technologies,
which would be fundamentally complimentary. According to him, the country would
have to have functional expertise in certain areas and project them as its USP.
Scalability in terms of increasing volumes as well as transferability of skills
is a key factor, he said. However, on a slightly different note, Motorola’s
Soumitra Sana put forward the challenges that embedded technology development
would have to face. These include lack of efficient development tools, lack of
adequate technical support, parallel development of hardware and software across
geographic locations, thus cumulatively resulting in confusion. According to
him, the industry in order to thrive would need to develop simulators. He also
felt that the Government would need to create a conducive environment by giving
shipping and custom clearances.
Manufacturing, Retail & Automation
Signaling a move toward Gen II of automation, the global manufacturing and
retail space is now looking to "make technology a part of its
culture". Speaking at Nasscom 2003, Johnson Controls V-P and chief
information officer Subhash S Valanju said with this new drive, technology would
emerge as the differentiator that would make or break businesses.
"Be it any vertical in the manufacturing and retail space, technology
will be the accelerator that will be a common thread. The strategy is to have
the ability and flexibility to move and collaborate people, processes and
products internally, while participating seamlessly in the overall supply and
services business chain on a global basis," Valanju said.
Stressing that only 20% of the available data in any given enterprise was
structured, with as much as 80% lying dead and unused, Valanju said it would be
‘unstructured data management engines’ that would be in vogue.
"Technologies like grid computing, addressable film, Belt and Tablet PCs,
wireless data centers, RFID TAGS and telematics would be the hot movers of
tomorrow," he added.
The technology of the future would work in layers, Valanju stressed.
"Core technology has to become invisible and be supplemented by many small
technologies for it to generate substantial payoffs," he said. "In
tomorrow’s world, data and its optimal usage will rule–having information
about your customers and suppliers, and analyzing it sensibly, coupled with the
ability to store it well and retrieve it on call–will determine corporate
success."
The Future is ‘Biology’
The Indian IT industry is so used to the talk about the huge potential in the
IT/outsourcing business than we have become smug and refuse to look beyond and
explore other multi-billion opportunities. Indian IT CEOs’ for one have an
inherent advantage given that software is already dominating every aspect of our
lives and they have a very good feel of the same. And then finders are keepers.
And the keeps–a multi-billion dollar opportunity.
So where is the world headed and where’s the much talked about opportunity?
Biology…According to Paul Saffo, "The next big mountain is Biology and
Indian software companies are standing at the foothill of the same and should go
and think of scaling the same." According to Saffo and his research, there
is a change every 30 years with a particular discipline taking dominance
globally. Each wave lays the foundation for the next one and strengthens its own
foundations. According to Saffo, the next wave, which has already started, is
Biology. A quick example is the genome project, which IT helped to complete the
task much ahead of schedule. And this is where Indian CEOs’ need to focus
their attention on. Other interesting area to look into is materials and energy
and their inflection with IT and Biology. And not to forget the service economy.
IT here and real. The next big thing in the service economy would be the
automobile industry, which is going gung ho over IT. And If Indian CEO do not
focus on such trends, it would be another case of ‘India missed the train’.