The Truth of the Matter

The Nasscom-McKinsey Report 2005, titled Extending Indias Leadership of the
Global IT and BPO Industries, contains a statement that has caught and captured
the attention of several IT VIPs in the country, and has been employed out of
context several times: According to the McKinsey Global Institute , only 25% of
engineering graduates in India have the skills to be employed in IT jobs without
prior training. All IT jobs? Including the burgeoning domestic sector or just
offshore jobs in the services sector?

When making strong value judgements, the IT VIPs have been referring to the
overall IT job sector. Indeed the very sentence preceding the above statement in
the report reads: Not all the talent available in India is suited for jobs in
the offshore IT and BPO industries. The Executive Summary also refers to the
offshore job sector: Currently, only about 25% of technical graduates and
10-15% of general college graduates are suitable for employment in the offshore
IT and BPO industries, respectively.

In the section entitled Talent development is critical for the growth of the
BPO industry, it is stated: Current accessibility to talent is very high (at
around 80-90% of total graduates) but only 10-15% of these graduates have the
skills for direct employment in the industry without prior training. Again, no
qualifier that the MGI study has examined only the MNC requirements.

In the next section again it is stated: This assumes that the suitability of
engineers for IT jobs and graduates for BPO jobs remain at 25% and 10-15%,
respectively.., not MNC jobs, as assessed by the MGI study.

Since the current Nasscom-McKinsey Report relies exclusively on the McKinsey
Global Institute study, it is necessary to turn our attention to this study.

The Emerging Global Labor Market is the final report of a year- long
project of the McKinsey Global Institute (MGI), and is based on extensive work
on off-shoring, global industry restructuring, and the impact of MNC investment
in developing countries. The study focuses on eight industry sectors:
automotive, healthcare, insurance, IT services, packaged software, pharmacy,
retail and retail banking; and provides an analysis of the availability of
talent pool in twenty-eight low-wage countries and eight mid to high-wage ones.
It also assessed the Location Cost Index, a tool for companies to evaluate
location attractiveness, based on six groups of criteria: labor cost, vendor
landscape, market potential, risk profile, business environment and quality of
infrastructure.

The report is based on perspectives that are a product of intensive client
work and extensive interviews and dialogs with executives, government officials
and other leading thinkers. It is emphasized that as with all MGI projects,
the work is independent and has not been commissioned or sponsored in any way by
any business, government or other institution.

The main purpose of the study is to provide a fact base to the public debate
on off-shoring and the emerging global labor market to enable policy makers and
business leaders to make more informed and better decisions.

It is explained that any location-insensitive job such as any task that does
not require any physical or complex interaction between an employee and
customers or colleagues, and any local knowledge, has the potential to be
globally resourced. This study focuses only on service sector jobs, and on the
demand for low-wage employment from the high-wage countries.

It is postulated: If you can describe a job precisely, or write rules for
doing it, its unlikely to survive. Either well program a computer to do it, or
well teach a foreigner to do it. Not all service jobs can be off-shored,
however, some are much less location-insensitive than others, such as computer
programming, engineering, and finance and accounts occupations. At the other end
of the spectrum, it is pointed out, are services like haircuts, which have to be
done close to the customer, and generalist and support staff occupations.

The study looked at both the demand and supply aspects of the global
offshoring trends: the potential number of jobs that theoretically could be
relocated offshore and the actual demand to date and its probable growth over
the next five years; as well as the potential supply of labor in each country
and the realistic level of supply that is sufficiently skilled to provide
services to overseas companies.

It is highlighted that the debate about off-shoring has been largely fuelled
by anecdote rather than fact, and the plural of anecdote is not data!

One of their important findings is that offshore talent potential exceeds
high-wage country potential by a factor of two: It is estimated that there are
approximately 33 mn young professionals (university graduates with up to seven
years of experience) in their sample of twenty-eight low-wage countries,
compared to about 15 mn in their sample of eight higher-wage nations (US, UK,
Germany, Japan, Australia, Canada, Ireland and South Korea), including 7.7 mn in
the US alone.

Although the potential supply of talent in low-wage countries is large and
growing rapidly, the report identifies three factors that set a limit to the
proportion of potential job candidates who could successfully work at a foreign
company: limited suitability, dispersion of the labor force and domestic
competition for talent.

On the basis of interviews with 83 HR managers in MNCs, it is found that 13%
of potential job candidates (in 28 low-wage countries) in degree-specific
occupations could successfully work in an MNC. This proportion rises to 19%
when taking into account the possibilities that many graduates who are
unsuitable for their own profession may be found suitable for a generalist
position (eg an engineer could work as a call center agent or an analystwhat
we characterize as internal brain drain).

The three reasons for the low levels of suitability are: lack of necessary
language skills; the low quality of significant portions of the educational
system, and its limited ability to impart practical skills; and lack of cultural
fit, which can be seen in interpersonal skills and attitudes toward teamwork and
flexible working hours. The MGI Study Notes list a different set of five
categories of deficiencies: language issues; lack of logical skills/limited
overall quality of education system; lack of practical skills/theoretical style
of education system; limited communication skills/confidence; lack of other soft
skills (teamwork, energy level, cultural clash).

It is found that the suitability of job candidates varies by occupation and
by country. On an average, 15-20% of the engineers, finance and accounting
majors, life science researchers and analysts could be hired by foreign
companies, while only 10% of generalists could, due to stricter language
requirements. The country-wide variation is considerable: While 50% of
engineers in Poland or Hungary are suitable to work for MNCs only 10% of Chinese
ones, and 25% of Indian ones would be suitable.

For each occupational group quantitative as well as qualitative questions
were asked:

• Of one hundred random candidates with the correct degree, how many could
  you employ if you had sufficient demand for all one hundred?
• What are the main deficiencies of the candidates you turned away?

It was found that answers to both questions were surprisingly homogeneous
across interviewers in most countries.

The report goes on to elaborate on the eight-three interviews with HR
managers at MNCs, HR agencies primarily supplying MNCs, as well as heads of
remote centers in each country. The empirical suitability of young
professionals in ten low-wage countries was determined through interviews. Each
interview lasted for two hours. The percent figure indicates what share of a
countrys young professional talent of a fixed educational background would be
suitable to work in an MNC, based on their language or analytical deficiencies
and their cultural proximity. It is also assumed that the share of young
professionals suitable to work in an MNC is assumed to remain constant from 1996
to 2008; thus the study does not account for changes in the average country
suitability rates.

For India, a total of ten HR managers were interviewed, including only two
dedicated interviews on candidate deficits.

It is interesting that no suitability interviews were conducted in mid- to
high-wage countries, for which constant suitability rates across countries were
assumed; although not stated explicitly, for generalist master graduates and
all other college graduates as well as doctors and nurses, a suitability rate
of 80% was assumed.

Prof R Natarajan

The author is the former chairman, AICTE, and former director, IIT-Madras