Transcript Corporate Governance in India – Challenges and Opportunities

Offshoring and Outsourcing in India:
The Global Business Debate
Poonam Barua
Director
PAMASIA
Global Corporate Advisory
New Delhi
email: [email protected]
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Economic Indicators
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Largest democracy: 1.1 billion population
1991: Wide-ranging reforms to open and deregulate the economy
GDP growth over 8% in 2005-6 – fastest growing economies in the
world, with compounded growth at 5.7%
Gross GDP - $3 trillion – fourth largest economy in the world –
after USA, Japan and China
Annual per capital income is $2,880 – one of the lowest in the world
Indian’s remit about $18.3 b. back to India annually – one of the
highest in the world
In 2003: total of 9, 500 listed companies on the BSE and NSE (23
registered stock exchanges)
Total market capitalization is 22 –25 % of GDP
Top 100 BSE companies represent almost 86% of market cap
State-owned enterprises account for nearly 32 % of BSE market
cap
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 India’s
Market
India’s economy is expected to grow over 6% - faster
than any other country in the world (Duetshe Bank Research)
• India is one of the fastest growing markets in the BPO
space
• India is the world’s fourth largest economy- adjusted
for purchasing power parity (PPP) – next only to U.S,
China, Japan
• There is a large potential in the SMB, and mid-market
space, and for solutions enabling the (offshore) services
industry
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Goldman Sachs Report of 1 October, 2003 –
"Dreaming with BRICs: The path to 2050“
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India’s GDP will reach $ 1 trillion by 2011,
$ 2 trillion by 2020, $ 3 trillion by 2025,
$ 6 trillion by 2032, $ 10 trillion by 2038, and
$ 27 trillion by 2050, becoming the 3rd largest
economy after USA and China.
In terms of GDP:
India will overtake Italy by the year 2016
France by 2019, UK by 2022, Germany by 2023,
and Japan by 2032.
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India Corporate Profile…
Market Cap
No. of Companies
(April 2006)
> $ 20 billion:
3
> $ 10 billion:
9
> $ 5 billion
18
> $ 1 billion
62
> $ 500 m
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** Growing over 100 Global Indian mnc’s that will be
above $1 billion –
** 50% of the over $1 billion companies are currently in
public sector
No. of listed companies on BSE
10,000
No. of companies on Nasdaq
No. of companies on NYSE
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Driving Global Leadership…
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IT –led sectors
McKinsey and Nasscom: India's revenues from IT industry
will reach $87 billion by 2008
Profile of IT-led Sector:
Tier 1 companies – ie. Top 5 firms
Account for 32 % of total software export
Tier 2 companies –ie. Revenues Rs. 1 billion - Rs. 10 million
Account for 24 % of the industry
MNC – back-ends
Account for about 26 % of the industry
Focused companies – domain/ service line/ products/
Account for about 3-4 % of revenues
Small companies – ie. less than Rs. 1 billion revenues,
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Account for 12-14 % of the market
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New emerging areas
bio-informatics, bio-technology, genomics, clinical research
and trials – Ranbaxy, Cipla, Piramal, Reliance Lifesciences,
Biocon
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Worldclass Manufacturing
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Bharat Forge has the world's largest single-location forging
facility, its clients include Honda, Toyota and Volvo amongst
others.
Hero Honda with 1.7m motorcycles a year is now the largest
motorcycle manufacturer in the world.
India is the 2nd largest tractor manufacturer in the world.
India is the 5th largest commercial vehicle manufacturer in
the world.
Ford has just presented its Gold World Excellence Award to
India's Cooper Tyres.
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Worldclass Manufacturing – ctd.
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Hyundai India will become global small car hub for Korean giant -supplying half a million cars to Hyundai Korea, HMI and Ford – by
2010
Aston Martin latest luxury sports car, AM V8 Vantage, is being
prototyped by an Indian-based designer.
80 of the World’s 117 SEI CMM Level-5 companies are based in
India.
5 Indian companies recently received the globally acclaimed Deming
(TQM) prize.
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Retail Sector: Late Riser
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Largest retail density worldwide: about 15 million retail outlets
Retail trade will be 10-11% of GDP
Growing at 158 % between 2003-5 – compared to 40 % in other
emerging markets
Valued at $19 billion currently compared to China’s $50 million
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Business Acquisitions: 2005-6
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Tata Tea: acquires Energy Brand USA- $677 m.
Wipro: cqired mpower, Cmangao, and Quantech USA- $58 m.
ONGC: takes over Ominex, Columbia -- $45 m.
Tata Steel: $8 billion bid for Corus Steel
Aban Llyod: buys Norwegian firm Sinvest for $425 m.
Dr. Reddys: acquires Betapharm Germany for 571 m.
Mahindra & Mahindra: takes over Jeco Holding in Germany
for Euro 140 m.
Sulzon Energy: Buys Hanson Transmission in Belgium for
$565 m.
Ranbaxy Labs: Takes over Terapia in Rumania for $324 m.
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Videocon India: takes over Daweoo Electronics in
South Korea for $648 m.; buys CPT Thomson, France,
for Euro 240 m.
What are they buying:
Oil and Gas
Pharma and Healthcare
IT & IT enabled services
Food and Beverage
Manufacturing
Others
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Global BPO and process-engineering
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Geneva-based STMicroelectronics is one of the largest
semiconductor companies to develop integrated circuits
and software in India.
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Texas Instruments was the first to open operations in
Bangalore, followed by Motorola, Intel, Cadence
Design Systems and others.
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Market Dynamics…
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Mobile phones are growing by about 1.5 Million a month.
Long distance rates are down by two-thirds in five years
and by 80% for data transmission.
 Wal-Mart sources $1 billion worth of goods from India half its apparel. Wal-Mart expects this to increase to $10
Billion in the next couple of years.
 GAP sources about $600 million and Hilfiger $100
million worth of apparel from India.
 There are about 200 call centres in India with a turnover
of $2 billion and a workforce of 150,000.
 100 of the Fortune 500 are now present in India
compared to 33 in China.
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Talent Dynamics…
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Top 5 American employers in India:
General Electric: : 17,800 employees
Hewlett-Packard : 11,000 employees
IBM
: 6,000 employees
American Express: 4,000 employees
Dell
: 3,800 employees
Top 5 Indian employers:
Infosys: 40,000
Wipro: 35,000
TCS: 100,000
Reliance: 120,000
Satyam: 35,000
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 India’s Talent Advantage
 India has the world’s largest pool of English-speaking software
engineers, permitting fast and large-scale project ramp-ups
 Flexibility, eagerness to learn, and technical proficiency are key
characteristics
 More than 700,000 software professionals
 250,000 of them in top-tier companies
 Access to talent from top universities available in the country
at low cost
 With more than 250 universities, 1,500 research institutions and
10,428 higher-education institutes, India produces 200,000
engineering graduates and another 300,000 technically trained
graduates every year. 2 million additional graduates qualify annually.
 The Indian Institute of Technology (IIT) is among the top three
universities from which McKinsey & Company, hires most.
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Global Outsourcing Trends:
IT-enabled Services – BPO’s & KPO’s
Advantage India..
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Key drivers for Global offshore/
outsourcing as a strategic alternative
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Increasing global competitiveness
Access to global talent
Economies of scale
Process engineering and enhancements
Wage arbitrage
Increased profit margins
Improvements in quality
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Advantage India..
India holds 55% of the global Offshore BPO Industry
More than ½ of Fortune 500 companies have outsourced to India
India BPO Services grew by about 49% in 2004
Indian BPO is growing at 7 times the domestic GDP
Indian outsourcing is moving up the value-chain
LOB’s developing: HR and Finance
Indian KPO (knowledge process outsourcing) to grow from $1.2
18
billion to $15.5 billion in 2010 (ie. 75% of the global KP market)
$1.00
The real economics of
offshoring
1.45-1.47
0.45-0.47
0.67
0.33
$1
previously
spent in
U.S.,
now
offshored
to India . . .
.
..
delivers
value to
India . . .
– Taxes ($0.04)
– Revenues
($0.20)
– Local
suppliers
($0.09)
* Estimate based on historical U.S. reemployment trends
Source: McKinsey Global Institute
.
. . brings . . .
savings and creates
returns
new value
to U.S. . . . from
– Cost savings reemployin
g U.S.
($0.58)
– Goods/ serviceslabor*
sold ($0.05) . . .
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. . and
makes the
global pie
that much
bigger
– Profits from
Indian ventures
($0.04)
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India’s Value Proposition for ITES-BPO Industry:
PQRS – Productivity, Quality, Rate, Scalability factor
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Abililty of Indian vendors to ramp-up operations rapidly
Widening breadth of services
Shift towards high-value services
Sustained cost advantage – nearly 40-50 % cost savings in
India offshore operations
Delivery process enhancement and improvement
Access to an abundant skill pool : India has the largest
english speaking IT talent pool in the world, over 120,000
trained IT professionals and about 3 million other
graduates added each year.
Global quality credentials –ISO,TQM, 6 SIGMA 23
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Key markets:
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U.S : 2/3rds of total market
Western Europe, mainly U.K. : 20 % approx.
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Market profiles:
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Customer Care: 35 % of the sectors employee base at 122,000
employees, and 1/3 of revenues
 Finance: 25% of revenues
 Administration: 16 % of revenue
 Content Development: 13 % of revenue
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 Ecosystem:
View from SAP Labs- Offshoring India Center
• Bangalore is one of the world’s top IT clusters
• System Integrators can be enabled to implement SAP
NetWeaver and the Business Process Platform for
customers
• Independent Software Vendors (ISV) can provide
platform-based composite solutions
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 Cost
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Factor
India is the one of the most cost-efficient locations
for many mnc’s from Europe and U.S.
Mckinsey Study:
and will be below 50% cost of Germany at least
for the next 5 years (--SAP Labs)
“Context” can be outsourced to a large spectrum
of service providers
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Offshoring Engagement Models
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Outsourcing: contracting a single supplier to perform full range of Application
Development and Maintenance
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Selective Sourcing: contracting a vendor to perform a portion of Application
Development and Maintenance
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Co-Sourcing: a partnership that is developed on a shared management
arrangement to cooperatively build applications or systems
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Out-Tasking: engaging suppliers to perform a specific task whilst the organization
maintains control of the strategy and integration
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Skills Infusion: integrating experts into the team of impart & build expertise
within
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Resource services: hiring of delivery staff to manage performance bottlenecks
 Advisory Services: ad-hoc services to fulfill gaps &/or specialist advice
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Phobias of Outsourcing :
… view from IBM
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The Seven Phobias of Offshoring
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People
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Geo-Political
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Service Provider
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Fear Of Unknown
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 What
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Executives are asking about India?
Will economic reforms continue…India’s noisy
democracy perplexes many MNC Executives
Are the multinationals really welcome?
Isn’t China the richer opportunity?
How do successful multinationals approach India?
Is offshoring in India worth the political risk?
Will infrastructure be a problem?
Will India protect intellectual property?
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China Vs India
Average Wage costs:
China > India
HR Managers: China $16,600; India $ 7,900
Financial Experts: China $ 6,900; India $ 4,400
Rate of Wage Increase: India 11.5%; China 7.5%
Employment Culture: China.. Driven by personal
accomplishment, fair pay and benefits; India.. Driven
by confidence in senior management and organizational
reputation
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Poonam Barua
Director
PAMASIA
Global Corporate Advisory
New Delhi
email: [email protected]
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