How Can We Help?

The realization that the world has sunk into an unprecedented economic
recession did not just come about yesterday. For the last few quarters, ever
since it began as what was then called the sub-prime crisis, before becoming
credit crunch to finally become a full-fledged recession, we have known that
this slowdown is different from all that we have seen. Initially, with every
passing month, the speculated time of recovery was pushed forward by the
analysts, meaning they believed the worst was yet to come. In the last few
months, even that has stopped. The economists, businessmen, analysts and even
the policy makers globally now largely agree that it is difficult to predict
when the situation wll reverse.

With that consensus, the questions have changed. The most important question
is no more: When is the recovery? It is: How to live with the recession?

With the realization that the recession is here to stay, businesses in most
developed markets have shifted gear. They are now looking for a plan B. That is
different from what they were trying to do a couple of months back: working
simultaneously on two plans: a tactical plan for the time being and a
post-recovery strategy for the long-term. Now, there is one plan.

And that is good newsin the context of the present economic conditions, of
course for the IT services providers, especially those in India. In a way this
realization that the recession will be there for some time and the look for a
fairly sustainable plan B has somehow made their business less uncertain, as
compared to, say, what it was a few months back.

After Lehman, the situation was really bleak. We did not know where we were
going. But today, the clients are realizing that they need to run their business
after all. And they are coming to us for helping them out, says Neeraj Bhargava,
CEO, WNS Global Services, one of Indias top pure play BPO firm.

When is the Recovery? The businesses may have decided to live with the recession for the time being. Finding an answer to the question of when the recovery is may not be the most important business question. But it still remains the most interesting question that everyone wants to speculate on. We asked the question to twenty-seven heads of IT businesses in India. Here is what they say:

Agrees Pramod Bhasin, CEO, Genpact, Indias top BPO company, It is difficult
to say when the economic recovery will actually happen, but our markets will
revive toward Q4 (Oct-Dec 2009). That is because this industry is part of the
solution to the present crisis, as companies need to be more efficient and
cost-effective.

Bhasin is just articulating what is today emerging as a general consensus.
That the way out of the crisis is to aggressively drive efficiency. That will
lead to more solace being sought in both technology and outsourcing.

It is important to note one point here: a major difference with the last
slowdown of 2000, when technology took quite some time to come back. That is
because that time around, the IT sector itself was held responsible for the bust
and hence was looked with a lot of suspicion, even after recovery. This time,
the crisis was caused by the misadventure by the financial services industry, so
IT really stands for what it is: something that drives efficiency and
productivity.

But all that is still on the supply side. It is difficult to believe a
recovery will happen without demands picking up.

Interestingly, there too, a consensus is emerging that the two markets, India
and China, hold the key to that elusive recovery of demand. It is not misplaced.
In January 2009, India added 15.26 mn mobile subscribers in a single month. That
is a world record in terms of monthly addition; at the time of the worlds
biggest recession! That is because in many areas, the basic need is driving
demand in India (and China). Like telecom, there is still a boom period in many
consumer sectors such as education, healthcare, insurance, and utilities. In
infrastructure too, the government spend ensures that the sector is seeing a lot
of investment. It is only in areas which require discretionary spending by the
consumerssuch as apparels, white goods, etcthat have seen some sort of a
slowdown. It is not surprising that the global businesses see these markets as
something of a savior.

India plays another important role for many businesses. India is far more
diverse and open than China. Indias diversity makes it a microcosm of the
emerging markets. It has one of the highest number of billionaires; yet it has
one of the largest number of people below the poverty line. It has more multiple
languages and dialects. All this has made India a testbed for new technologies
and applications. Companies like Google and Cisco are already using India for
this purpose. While its diversity makes for a great testbed for creating robust
and resilient solutions, its better integration with the world economy (as
compared to say China) ensures than they are smoothly portable and can be
expected to work in other areas of the world.

So, all the threethe offshoring prowess (call it the talent base, if you
like), its own huge market potential, and its unique characteristic of being a
microcosm for the emerging worldmake India part of a solution.

Now the challenge is to devise the solution where the whole is larger than
the sum of the parts. To be fair, this is something which is not new as an idea.
Most of the technology companiesincluding big names like IBM, Microsoft,
Yahoo!, Cisco, Oracle, and Googlehave, to some extent, been trying this out.
Many other industries can also benefit from this useful combination but may not
be in a state to do that by themselves.

The challenge, nay, the opportunity, before the Indian IT services industry
is to help them in that. For that, it has to rediscover itself first.

Understanding Changing Needs

This sounds clich. But guess how many service providers do it well! In a
panel discussion organized jointly by Nasscom and Dataquest, in the sidelines of
the Nasscom Leadership Summit 2009 (a detailed report is in page .), panelists
from BT, Standard Chartered, Credit Suisse and Southern Watersall prolific
users of India outsourcingcomplained that Indian service providers are not
flexible enough. Most of them agreed that Indian service providers are not
flexible in terms of pricing. But, more importantly, a few said that Indian
firms do not show interest in taking up new, untested areas, unless they get an
outright assurance that it would be scaled up significantly in a definite time
period.

At the time of a slowdown, many said they would like to speed up outsourcing
to India, if the service providers realize that the times are different and the
contract conditions cannot be the same as they were a year back.

All this requires a definite change of attitude, but some change in strategy
too.

For example, two years back, most BPO companies got into new high value
areas such as analytics and research, as knowledge process outsourcing or KPO
became a buzzword. While most KPO firms were small start-ups, many established
BPO firms also expanded aggressively into this. One such company was WNS Global
Services. Today, its CEO, Neeraj Bhargava admits that traditional BPO such as
transaction processing is back. We are back in 2001-2002 levels; people want us
to do more of traditional BPO and do it better. KPO, that requires more
discretionary spending, has suffered, while demand for BPO is very high, he
says.

Genpact, the BPO company, that had started expanding in the IT services area,
too sees a similar issue. While IT demand has slowed down, the demand for
traditional transaction processing has gone up. The company is adjusting its
plans accordingly.

In IT services too, the traditional strength of Indian service providers have
typically been application development and maintenance (ADM) and to some extent
package implementation. Both these are areas that require discretionary
spending. While ongoing projects many continue in these, most new contracts can
come from areas like BPO and managed services.

The slowdown also presents an opportunity to acquire talent in the target
markets, especially in the verticals that the firms sell to.

Confrontation Doesnt Help

When president Barack Obama of the US said in his budget speech that he
plans to stop giving tax breaks to companies that ship jobs overseas, he was
definitely appealing to the sentiment of his countrymen, where loss of jobs is
the top-of-the-mind worry for an average American. This was evident from the
fact that in the beginning of the speech he identified jobs being his prime
attention area. The next day, Indian media was full with reactions from the
Indian industry, some of which came as a mild warningthat without outsourcing,
the American companies would lose their competitive edge! US, they said, was
slipping toward protectionism.

I do not think there is any serious protectionism tendencies, says Dr
Nirvikar Singh, professor of Economics at University of California, Santa Cruz.

And if you are really afraid of it, you must find a way out, he says. What
stops Indian companies from buying US firms and saving/creating jobs in the US?
he asks.

One of the things that Indian firms must do is to get into the stimulus
plans announced by various governments around the world, including the US, says
Ganesh Natarajan, CEO of Zensar and Chairman, Nasscom. We must build the apps
for the infrastructure that is being built, he says.

Dr Singh of UCSC agrees. What better way to achieve that than by acquiring
American companies? he asks. The agenda of the government is not protectionism.
Protectionism is all about saving the interest of the local firms. Saving jobs
is a national concern. If it is Indian companies which create those jobs, they
will be welcome, he explains.

While Indian companies may well do those acquisitions today out of necessity,
post-recovery that will make them truly global companies.

Helping Clients in their India Strategy

This is something that does not come logically to an outsourcing vendor. But
it is surprising how many companies referred to this aspectof partnering with
Indian IT firms to tap Indias domestic opportunityduring the recently
concluded Nasscom leadership summit. It is an unconventional expectation, but an
opportunity nevertheless.

While for most of those companies in the financial services, infrastructure
and security it was more of consortium-based go-to-market kind of plans, a few
others had innovative ideas about using India for innovation. One of the
European retail companies, which has a skeleton presence in the Indian market is
exploring the possibility of solutions that can work in Indian and other
emerging markets. It already works with a few IT and BPO firms, and is trying to
create solutions that may help it in creating more efficient supply chains in
emerging markets.

In areas that have high potential but are largely services-based, the
possibility of these kind of alliances working successfully is higher. That
includes education, financial services, retail, telecom, and select areas in
infrastructure services. But, above all, where it has the maximum potential is
in the public services area. So much so that one of the biggest companies in
this area in the world, UK-based Serco, actually acquired an Indian BPO service
provider.

This, in turn, will help the Indian IT firms in tapping the domestic
opportunity in all these areas. A big partnership with a large company will give
them some headway to try experimenting with ideas, which could ultimately help
them realize their elusive domestic dreams.

That, however, is another story, for another day. An equally big, if not
bigger, opportunity.

Shyamanuja Das

shyamanujad@cybermedia.co.in