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Knowledge Industry: Enablers of growth Bharat Bhasker Porfessor, Information Technology & Systems Indian Institute of Management Lucknow 1 “Sorry, the Board is Outsourcing Your job to guy in India who’II be CEO for 10th of your salary.” 2 What is Outsourcing? “The commissioning of a third party to manage an organisation’s assets, activities, services, and/or people, to defined result” 3 Why Outsource? • Reduce risk by eliminating vertical integration • Get optimal talent • Obtain new technology quickly • Minimise overheads during slack times • Less bureaucratic 4 The real objectives Make IT/IS projects and services – – – – More efficient, More timely, Higher quality,or Lower cost Unlock the potential! 5 What to Outsource? – Traditional View Anything that does not underpin company’s Core Competencies 6 7 What is being outsourced? • Less skilled jobs that are people intense • Not part of mission • Specialty, e.g. – Call center – PC Help Desk – One Time Routine jobs (Y2K) • Keeps focus on mission • Saves cost • Higher-skill, higher-salary jobs, e.g. – – – – – – – Mathematician Programmer Tester Tutoring Services Systems Administrator Legal analysts and Human resources • Grain specialist skill • Save time 8 Motivators: Cutter IT Journal 9 Major Offshore Sourcing Models 10 Size of Different Sourcing Markets Comprised by averaging various reports from Gartner, Yankee, and IDC 11 Offshoring: Crossing Boundaries? Internal to the Firm Within National Boundaries Insourcing Global Traversing National Insourcing Boundaries External to the Firm Outsourcing Offshoring / Global Outsourcing 12 Adapted from Apte & Mason 1995 The entire spectrum of sourcing • Outsourcing, – To obtain components for products or services from sources outside the organization • In-sourcing, – Transfer tasks that were performed outside the organization into the organization • Offshoring, – Outsourcing overseas or in a separate country • Near-shoring – Outsourcing to cheaper overseas, still geographically closer locations, e.g. Canada and Mexico • Rural-sourcing and – Outsourcing to cheaper rural areas in the United States • Volunteers – Least expensive but sometimes most difficult to manage 13 Outsourcing to India ITES : Information Technology Enabled Services Software development, Data entry, programming, Web development Services BPO : Business Process Outsourcing CRM, Medical Transcription, Call Centers KPO : Knowledge Process Outsourcing Financial Analysis, Legal Services 14 Current Top 10 Indian players • • • • • • • • • • Genpact WNS Wipro BOP HCL Technologies BPO Services ICICI One Source IBM Daksh Progeon (Infosys) Aegis BPO Services EXL Service Holdings 24/7 Customer • NASSCOM report – Value of total BPO market estimated at $ 10 bn – Top 5 IT vendors have only 6.5% of the market • 1/3 of the market to big BPO companies • 1/3 to captives • 1/3 to smaller set ups 15 Factors impacting competitiveness of industry Market Overview Infrastructure Elements • • • • Manpower Telecom Infrastructure Regulatory Environment Information Security policy • Investment incentives • Costs Qualitative Factors • ‘Trainability’ of manpower • Service Delivery Quality • Information Security Practices • Marketing ability • Entrepreneur pool • Language skills 16 Regulatory Scenario Central (Federal) Government Qualitative Factors • • • • • • • Concessions have been provided on remittances, on software imports, enhanced limit for External Commercial Borrowings Filing and clearances have been made easier FTP Incentives : Eg. Import of computers allowed without license. Customs duty exemption on import of Capital Goods 100% Foreign Direct Investment ITES are exempt from Service tax Income tax exemption on exports • Policy • Advantage • • • • Assignment of priority sector status Cheap power and real estate Concessions in taxes and various fees Favourable legislation Labour Laws are relaxed for the IT Sector Special Information Technology parks 17 Huge market potential globally In bn USD, 2005 USD 120-150 bn • With only 10% of the market being currently addressed India has the potential to grow further • Domestic demand has picked up rapidly (75% growth in last 3 years) • The Bharti-IBM deal worth in the domestic market Only BPO (Excludes Engineering services etc) 18 Source: NASSCOM estimates Advantage India and business opportunities Large pool of talent available Talent Pool in India, 2006 • Of global supply talent pool available India is the largest, with 28% of the total; The next is China, with around 11% • English is the standard language of Business 2006 Estimate – 3 million graduates & post-graduates 19 Source: NASSCOM BOPindia.org Attractive cost savings India continues to lead in cost competitiveness Typical Cost saving for illustrative processes Transaction Processing 25-40% Accounting 30-40% ERP / Analytics 40-60% 20 Source: NASSCOM strategic review 2006 Infrastructure being beefed up SEZ, IT Parks Expansion of Road Networks Lower land costs Broadband, Fixed and Wireless users on the increase Internet and IPLC connectivity on same LAN Bandwidth sharing among multiple entities 21 Source: state government policies, Media Reports Proactive Regulatory Bodies • Presence of a fair and well-established judiciary system. • Legislative measures have been instituted to protect Intellectual property Rights – It Act 2000, Intellectual Property Rights Law, India Copyright Act. • Initiative Activities undertaken in since then, • Review of the IT Act 2000 • Launch of the National Skill Registry to improve the recruitment practices in the country • Expansion of the Cyber Lab to multiple locations to assist the police force with relevant IT training • Preparation of a guidebook on information security 22 NASSCOM – The National Association of Software and Services company The Drivers : Inferred • • • • • Technology and Technical Manpower Local Business Opportunity Infrastructure Business Incentive Policy Quality of Life (Whose Perspective ?) 23 Where Do We Stand? • Technology and Technical Manpower – IIT, IIM, IIIT, MNR, HBTI, IET and UPTU • Local Business Opportunity – UP State Government plans 2% of budget on IT (Guess? 200 Cr) – E-Governance Initiatives (300 Cr?) • Infrastructure (b/w, Electricity, Road, Rail & Airport) • Business Incentive Policy – Single Window – Tax Holiday – Preferably – Move and plug or Semi move and plug ready premise • Quality of Life (Whose Perspective?) – High Flyer, Cash Rich Short on Time – Law and Order Perception – Happening City Perception – Services and hassle free delivery 24 Business Opportunities abound Several new areas are emerging… • • • • Legal IT Audit Patient Diagnosis Remote Networking Support • Animation & Gaming • Worldwide spending on legal services amounts to about $250 billion a year, some two-thirds of it in America. As yet, only a tiny proportion goes offshore. • The Indian market (from a developer’s perspective) is expected to be about $ 1b for animation & $ 300m for gaming in 2009 25 Source: NASSCOM Economist