Nasscom Roundtable : Is India the solution to the global crisis?

Nasscom India Leadership Forum 2009 was one of the most eagerly anticipated
events of the year, with the industry waiting for answers and insights from
global leaders on how to survive the ongoing wrath of the downturn. As expected,
the event and its participants displayed the much expected sombreness that the
world economy is going through at the moment. But a streak of hope came through
the willingness and positivism that the IT industry displayed in being a part of
the solution to the crisis rather than the problem itself.

While global leaders such as Narayana Murthy, CK Prahlad, and Shashi Tharoor
spoke words of encouragement and helped chart out a vision for India post the
slowdown, the sessions spanning across three days focused on new business models
and new geographies that could probably serve as an alternative to combat the
recession. In one such session jointly organized by Dataquest and Nasscom,
global CIOs and heads of IT companies went onto discuss whether India can serve
as a solution to the global economic crisis.

The panel comprised reputed CIOs and heads of companies namely David Awcock,
group head technology, Standard Chartered; Les Dawson, CEO, Southern Waters;
Divyesh Vithlani, MD and CTO, APAC, Credit Suisse; Samantha Cowell, BT; Arun
Gupta, CTO, Shoppers Stop; and Ganesh Natarajan, chairman, Nasscom and CEO,
Zensar Technologies. The session was chaired by Prasanto Kumar Roy, chief editor
and president, ICT publications, Cybermedia.

All the global companies represented on the panel had operational hubs and a
large workforce in India and have been actively outsourcing to a number of
reputed Indian service providers.

Low Hanging Fruits

Roy kick-started the discussion by inviting comments on whether outsourcing
itself was a part of the solution to the economic crisis and whether Indias
reputation as an outsourcing hub gave it an edge. It is conventional wisdom that
during a slowdown companies become cost competitive and therefore will need to
outsource. On the other hand, outsourcing has not increased or witnessed sudden
spurt of growth despite the present scenario. Companies are instead focusing
more on the low hanging fruits and curbing internal costs. Organizations that
have not been outsourcing will be forced to work out a lot of modalities such as
people and processes, if they have plans to start outsourcing in this milieu. So
the big question is whether companies will increase outsourcing going forward.

The customers of Indian IT service providers emphasized the need for more flexibility on operating models and pricing mechanism. L-R: Arun Gupta, CTO, Shoppers Stop; Prasanto Kumar Roy, chief editor and president, ICT publications, Cybermedia; Ganesh Natarajan, chairman, Nasscom and CEO, Zensar Technologies; and Samantha Cowell, BT

To this, Ganesh Natarajan of Zensar presented some quick statistics that gave
a picture of the potential size of the global outsourcing industry and Indias
share in it. According to him, out of the global outsourcing market of $500 bn,
Indias share would be about $47 bn this year. As per the projections for 2020,
the market itself is expected to grow to $1.7 tn and India has a good chance to
grab about $250-400 bn of that market. Natarajan emphasised on the need for
innovation, new services and business models, and robust processes for India to
significantly increase its market share and actually be a part of the solution
to the global crisis. He also highlighted an interesting point on how India can
try and fit into all the economic stimulus plans across the world by developing
world class technology solutions in India and implementing it in countries such
as the US, UK and Japan, and help create jobs.

Flexibility is Key

Samantha Cowell of BT said that about six months ago, customers were very
positive about long term outsourcing deals. Now, however, it is a real challenge
because of the high level of uncertainty which in turn is demanding a greater
level of flexibility. This essentially means that companies dont want long
terms contracts but want the benefits of outsourcing and transformation. This
demands that customers and vendors work together to come up with flexible
commercial models. The true challenge was in matching the needs and expectations
of global players with that of the different expectations of the Indian
outsourcing market. BT is amidst discussions with its R&D teams and certain
partners capable of absorbing the business risks while continuing to expand BTs
offerings and support its business imperatives.

L-R: Les Dawson, CEO, Southern Waters and Divyesh Vithlani, MD & CTO, APAC, Credit Suisse at the roundtable

Divyesh Vithlani of Credit Suisse said that flexibility is going to be the
key watchword for India to continue to be a viable provider of outsourced
services, talent services or products. There is no single operating model or a
single provider or city that can service all our needs. So flexibility is the
key and I believe Indian service providers are willing to offer flexible
business models to customers, he said. Credit Suisse partnered with Wipro for
setting up its India operations as the vendor provided the flexibility of
operating out of their campus and offered to work on a wide variety of models
such as captive, co-managed and outsourced.

In addition, Wipro allowed Credit Suisse the use of third party resources on
its site which was a first for any large vendor in the country. Vithlani also
pointed out strongly that multi-year contracts would not exist going forward.
Therefore, flexibility which allows organizations to act quickly and numbly to
market pressures is going to be in demand, he added.

Cost Competitiveness

While the need to relook at business models, renegotiate with providers and
bring in flexibility into the business came out as a strong point in the
discussion, there was a lot of debate on whether companies would scale up
outsourcing in areas where they are not cost competitive. Les Dawson, CEO,
Southern Waters strongly negated the theory that companies would seriously
explore outsourcing due to the current economic scenario. They would not want
to take more risks in their business especially during such times, he said. He
said that the present economic scenario will not serve as a special stimulus for
companies to outsource. He also added that India will no longer be able to work
on a cost arbitrage model as a lot of new geographies are able to compete and
match the cost competitiveness. The only way to attract more work to India is
to achieve the flexibility in price and volumes, he added.

Elaborating more on the failure of the cost arbitrage system, David Awcock,
group head technology, Standard Chartered pointed out that too many companies
are still wedded to the model of cost arbitrage and need to innovate and deliver
around services, products, and domain skills. He also pointed out the challenges
due to the widening gap between the technology solutions provided by vendors and
the value generated from them.

Talent Trouble

Delving deeper into the challenges to scaling up outsourcing in India, he
said that there is a serious talent problem in the country. Though talent has
attracted all global companies, what we find today is a problem with the quality
of talent. The employee churns does not allow us to develop employee centric
models and makes it a challenge to build IP within our workforce. The key to
Indias success is creating this intellectual property and leveraging it in the
right manner, explained David.

Arun Gupta of Shoppers Stop shared his positive experiences and stated that
suppliers are flexible and willing to go that extra mile in exploring innovative
business models to absorb business risks. And this flexibility among service
providers is visible not just in the discounting but also the business models.
Service providers are now willing to build pricing models that are directly
related to the business outcomes. He also said that companies similar to
Shoppers Stop are categorizing their sourcing needs according to tactical and
strategic functions and are willing to experiment with new solution providers
for non-critical business needs.

Natarajan pointed out that service providers will be forced to become
flexible and innovative if they are not already, so that they are not left
behind. Stating Zensars example, he said that almost 40% of Zensars success
story was due to innovation. We recently launched a concept called Impact
Sourcing which emerged from conversations with customers. Under this model we
have asked customers to outsource processes to us and we guarantee a value
improvement within ten months, said Natarajan. He also highlighted that Nasscom
has been mentoring 800 smaller companies to make the industry more innovative.
We have found in innovation forums that all large and small companies are
competing to demonstrate innovation. We will see over the next few years small
companies as well as large companies becoming increasingly flexible and
adaptive, he added.

L-R: Samantha Cowell of BT and David Awcock, group head, technology, Standard Chartered bank deliberate on the impact of recession

Innovation to Lead

While Vithlani did not share Ganeshs optimism as far as the flexibility of
service providers was concerned he said that there was a need to look out for
the new generation of entrepreneurs who will force innovation to take place. I
have seen a lot of flexibility in paper commitments but am waiting for them to
be realized in a practical delivery manner. The larger companies have not
succeeded in building the domain expertise and moving up the value chain with
us, he adds.

Cowell made an interesting point on the structural barrier that prohibits
Indian companies from being truly innovative. There is no true innovation. The
reason is they dont operate as single companies. They have a BPO and an IT
services arm and much more. In order to get true innovation, they need to work
together to develop breakthrough solutions. It is almost impossible to get that
in India, she explained. She too agreed that the small companies who do not
have structural barriers would drive innovation.

Roy asked the panel a final question on the role India will play in solving
the global crisis. All panel members where they agreed that India serves as the
perfect testbed for new services and products before rolling them out into other
developing markets such as Africa. As cost of operations is very low in India,
the products that we develop here are tested locally before rolling them out in
higher cost locations or developed markets. The challenges are strictly in the
financial markets space as this industry is not very well developed here. So we
have limited opportunity to do that, said Awcock.

The discussion concluded with the focus on domestic growth and opportunities
within the country. There is a huge scope for inclusive innovation in areas
such as telemedicine, education, etc and scaling it by taking it to other
markets such as China, Egypt and Africa, Natarajan concluded.

The need for flexibility in business models and pricing models came out as
the strongest requirement of CIOs. While global CIOs were keen to continue
outsourcing to India, they expressed the challenges around innovation, domain
knowledge and human resources as the key areas demanding major improvements.

Priya Kekre

priyak@cybermedia.co.in