India's tech sector and US recession...

India’s tech stocks have lost their sex appeal there days. Stock prices are in the doldrums, the industry has been off the headlines for months. There’s a reason why. For one, India has other, more exciting growth industries like retail, auto, real estate, infrastructure as also the evergreen and growing financial services sector. But also, the outsourcers are likely to take a hit with the onset of the recession in the United States, their main market.

Infosys Technologies is coming out with their quarterly results by the end of the week. Guaranteed the management will say they won’t be hurt, that in times of recession, companies outsource more, not less, to save costs.

But many tech executives in India are skeptical about projecting such a cheerful outlook. The more cautious ones say that sure, in the medium term, India will do okay. But in the short term, it will be hit. In the first year of a recession, US companies typically freeze IT and other budgets, and spend money on severance packages and incentives to let people go. After that, they’ll think about how to cut costs further.

So the short term picture won't be that great. The recession is coming on top of a strengthening rupee which is already hurting the outsourcers - not many are sophisticated hedgers. The gloom will not be so visible in the industry - thanks to high attrition rates, Indian employees won't have to be laid off as fewer new contracts come through.

It may not be such a bad thing. With lower attrition levels and fewer new hires, the industry will get a much-needed breather from its break neck speed growth.

Source: BusinessWeek

Outsouring, Offshoring-- Success & Issues

The concept of saving money by sending Operational & IT jobs overseas has taken strong hold in corporate world today. To some extent, offshore outsourcing is a logical extension of the idea of the global marketplace, which technology like the Internet has helped create.

That being the case, it's not surprising to hear that the jobs aren't coming back. According to a Gartner report titled "U.S. Offshore Outsourcing: Structural Changes, Big Impact": "The movement of IT-related work from the United States and other developed countries to vendors and offshore sites in emerging markets is an irreversible megatrend."

Success will come if you know what you are getting into-- some tips:

• Do your homework-- Companies that haven't yet moved into offshore outsourcing can expect a steep learning curve. Top 3reasons to choose offshore outsourcing are "cost, cost and cost," but companies will not reap a rich fiscal harvest if they aren't careful during the evaluation portion of their decision-making process.
• Consultants might be worth the investment
• Be specific about deliverables-- Know exactly what you're getting. To start with, the terms of engagement must be very clearly specified
• Factor in the hidden costs-- moving the work overseas involves significant time and travel expenses, Companies will also need to hire onshore liaisons, and they'll need to beef up network and security measures to support the offshore project. Travel costs will go up. And finally, there's the cost of laying off staff -- and the costs are both fiscal and psychic. Severance packages don't come cheap, and the CIO will have to deal with a morale problem as the staff survivors come to terms with the new reality.
• Actively manage the project-- Vendors would like Managers to believe that they can toss project specs over the wall and then forget about things until the finished project appears magically at the door but it doesn't work that way.

Clearly, with the traction that offshore outsourcing already has in the corporate world, Managers can only expect to see more of it. While nobody likes to be the person cutting jobs, the reality is that this trend is here to stay. Smart Managers will learn how to make the best use of it.

Both from my experience and historical study/data-- Culture & Operational Issues standard out the most.

Assuming your strategy is to grow the offshore center by hundred employees over the next years-- you increase your hiring, you no longer have access to as many employees who have prior experience with American or multinational companies. the virtual global teamwork pattern affects ever-larger numbers of onshore employees. The growth of your center puts in place a whole offshore management structure that may or may not mesh well with your domestic management structure. Employees at both ends exhibit symptoms of stress. Frictions and mutual irritations don't disappear with time. You hear complaints about communication failures, commitments not met and tensions around matrix reporting relationships. If you ignore this state of affairs long enough, you get to the point where initial good will and positive expectations between the onshore and offshore teams give way to finger-pointing and mutual blame. there has usually been a history of cultural mismatches in work styles that has left significant tracks in people's consciousness. This impacts retention and results -- at both ends.

Often struck by a certain confusion between hope for a cultural awareness Quick-fix and realization that there are probably some operational root causes that need to be identified and addressed. This results in a jumbled analysis that lumps together issues such as the different meanings of "yes, no and maybe" in American and Indian culture with issues such as time zone differences, HR policies, decision-making structures and hand-off protocols. The expectation is either that cross-cultural awareness will solve the operational issues or that the cross-cultural issues can be addressed adequately though operational improvements.

Expertise will help to manage issues proactively by implementing organizational processes for:

• Systematic assessment (at both ends) of cultural work style differences impeding the effectiveness of your teams.
• Facilitated strategic analysis of the strengths, weaknesses, threats and opportunities present in the operational model of your onshore-offshore operations, involving key stakeholders on both sides.
• Region-specific cross-cultural awareness training customized to your company and delivered to all levels of your management and workforce (both offshore and onshore), starting at the top.
• Facilitated strategic development process involving these key stakeholders in strategic planning, organizational execution (including structures, processes and skills development) and results tracking over time

Click here for more on Outsourcing

H-1B Visas is Trade Issue not Immigration Issue..

Immigration will become key topic in 2008 US Presidential election. Many in US are against the idea of increase H-1B visa cap. and Ofcourse, Both Indian & US companies are lobbing to increase to current quota of 65000 (same was 195000 couple of years back).

Some US Senator had written letter asking for explanation for increases H1-B visa application. Now, NASSCOM had replied stating H-1B visa is trade issues not immigration issue, since IT skilled workers are reducing in US.

PCWorld Reported:

Work permits and intra-company transfers from India to the U.S. are trade issues and should not be confused with immigration issues, says an Indian agency.
John Ribeiro, IDG News Service

Work permits and intra-company transfers from India to the U.S. are trade issues and should not be confused with immigration issues, India's National Association of Software and Service Companies (NASSCOM) in Delhi said late Tuesday.

NASSCOM was reacting to letters written by U.S. Senators Chuck Grassley, an Iowa Republican, and Richard Durbin, an Illinois Democrat, to nine Indian companies asking for details on their use of the H-1B visas. The nine companies account for close to 20,000 visas, the senators said on their Web sites. The companies include India's top outsourcers Tata Consultancy Services Ltd., Infosys Technologies Ltd. and Wipro Ltd.

More and more it appears that companies are using H-1B visas to displace qualified, U.S. workers, Grassley said in a statement Monday. "Now, as we move closer to debate on an immigration bill, I continue to hear how people want to increase the number of H-1B visas that are available to companies," he said.

Work permits are primarily a tool to facilitate trade and allow global companies to bring key staff to the U.S. on temporary assignments, just as U.S. staff often travel across the world for temporary assignments, and this is clearly different from immigration, NASSCOM said.

Grassley and Durbin introduced legislation in April that they said aims to give priority to U.S. workers and crack down on unscrupulous employers who deprive qualified U.S. citizens of high-skill jobs.

The H-1B visa is an employer-sponsored, nonimmigrant work visa for a foreign worker coming temporarily to the U.S. in a specialty occupation. The issue of H-1B and L-1 visas is important to India's outsourcing industry, as it has a large proportion of staff working on-site on client's projects in the U.S. Indian outsourcing companies, as well as U.S. technology companies, have been demanding an increase in the number of H-1B visas allowed in a year, which are currently capped at 65,000.

The Indian outsourcers Grassley and Durbin wrote to were not willing to comment on the letters.

NASSCOM on Tuesday repeated its demand for an increase in H-1B visas. Both U.S. and Indian companies have repeatedly stressed the need to raise the H-1B visa cap, which was reduced from 195,000 to 65,000 two years ago, it said. Constraining the supply when demand is high gives rise to problems for U.S. companies and Indian IT companies, the association added.

Wage Inflation...not to Worry

Widely acknowledged by the outsourcers themselves and until now kept at bay by strong growth, the continual increase in salaries at top Indian companies (tech specially) is changing from annoyance to a present danger. Indian companies are no longer merely competing with one another for the best and the brightest, they must also compete with other MNC opened shops in india.

Why its not to worry? because:

• The rising costs will turn away the benefits of India. Even if the wage inflation rate continues to grow at the present rate, then only in 2032 will there be an overlap with the rates of U.S.
• wages paid to workers in India represent such a small percentage of total costs for companies that operate there, a 15% increase in salaries results in no more than a 2% rise in prices charged for IT services, says Narayanan. That's well below the current U.S. inflation rate.
• IT suppliers in India, for example, are lowering their costs by moving to 'tier two' cities--away from traditional high-tech centres- and opening delivery centres in other countries.

RBI is keeping eye on it - the wage disparity between the U.S. and India remains vast, and it's going to take many years of double-digit inflation in India for that to change. till then relax.

but our worries are : Remaining in position of low-cost workfoce is NOT something great and to be proud of. heap low-cost IT work which only means the nation will remain a poor developing country for another decade or so.

• The cost of outsourcing to India is the cost of maintaining a sufficient stable quality of product from India.
• Wage inflation isn't the issue here - staff stability is. As wages go up, and the supply of qualified labor goes down in India, the job hopping that will occur will be as bad there as it was here in the early 90's. This will have a further deleterious effect on product quality and quantity out of India.
• This will put almost instant pressure on margins for companies. They will have to work incentives and bonuses just to get key staff that are trained and up to speed on key client projects to stay on board.
  

The timeframe will be compressed. It's not going to take India as much time. Witness the evolution of the middle classes in the Asian Tigers in the 90's. It didn't take long for China to start robbing Malaysia, Taiwan, and Thailand of manufacturing business that made its way originally from Mexico.

In other words, India's future as the tech industry's top outsourcing hub rests not so much on whether it can continue to offer the lowest costs--that seems probable--but whether it will produce enough skilled graduates to ensure that the work is done at acceptable quality levels.

Outsourcing debate - Don't get sore, get smart...

THE political heat around outsourcing has cooled as the threat it once seemed to pose to western service jobs has diminished. The emphasis now is on improving the process of outsourcing, both at home and offshore. In other words, if you have to do it, try and do it better. This book is a good place to start learning how—especially the penultimate chapter. Called “Five Key Areas to Focus On”, it looks at financial engineering, legal issues, communications, human resources and tax.

If these sound like the sort of areas you would focus on in mergers and acquisitions, don't be surprised. For Jean-Louis Bravard is a former investment banker who now works for EDS, a leading outsourcing firm, and he brings his banking experience to bear on the subject, arguing that outsourcing should be treated much like M&A, for which it is in many cases a substitute. That means fully involving the company's top executives in outsourcing decisions, and expecting outsourcing to be subject to the same “degree of public and shareholder scrutiny” as M&A. It also means looking at many of the same things when judging whether a deal will work or not.

By and large, the authors shy away from the political hot potato of offshoring. When they do touch on it, it is to do little more than make the case for using third parties, such as EDS, IBM or Accenture, for all an organisation's outsourcing requirements. Why tussle with the onshore/offshore decision, they ask, when it can be passed over to experts (such as EDS) to decide for you where to locate your operations?

The authors make an important distinction between offshoring and outsourcing—“most of the processing industry in India still consists of in-house captive operations owned by the businesses that use them”, they say. In other words, they are operations that have been sent offshore, but have not been outsourced to a third party. The authors then leave any further debate about offshoring for elsewhere.

Diana Farrell, director of the McKinsey Global Institute, the consulting firm's in-house think-tank, was one of the first to take the heat out of the issue. Initially, she pointed out how limited is the data on the phenomenon. In a report last year, the institute said that “the debate about offshoring has been fuelled by anecdote rather than fact.” It then set about gathering data which, in turn, suggested some limits to offshoring.

It estimated, for instance, that only “13% of the potential talent supply in low-wage nations is suitable to work for multinational companies”, and it cited three main reasons for this: the lack of language skills; the limited capacity of the educational systems of the offshoring hosts to impart practical skills; and the lack of cultural fit. Other evidence of limits—this time to the demand for offshoring rather than the supply—comes from a recent survey by Proudfoot, another firm of consultants. It found that over three-quarters of the companies it surveyed had no business functions carried out offshore; just over one-third had no business functions outsourced at all, neither at home nor abroad.

Now Ms Farrell has written an article called “Smarter Offshoring” (published in the June 2006 issue of the Harvard Business Review). Echoing Mr Bravard's title, it pleads for a more thoughtful approach to offshoring. She argues that “the most popular offshore sites for service functions are overheating.” It is time, she says, for companies to look “beyond these hotspots and to base investment decisions not just on costs but also on talent, markets, strategic aims and appetite for risk.” Much as you would with M&A.

From Economist

Outsourcing.. health check..!

I am heading expenses reduction program in leading financial institution. one of very first & easy 'school-boy' decision was to outsource/migrate work to India from one of the EU countries... well, you would imagine very simple & easy solution and in just months bottom-line will be impacted ($ save). right??.. answer WRONG... not to my surprise; Data-Protection authority of that specific EU country had rejected the proposal stating India is NOT safe

The recent controversy over British tabloid Sun's purchase of confidential bank account details of some 2000 Britons from an employee of Gurgaon based BPO company Infinity E-Search has generated a lot of concern in the western countries over the data-protection issue. This comes close on the heels of the arrest of three former employees of Pune’s MphasiS BPO on allegations of siphoning off $350,000 from the Citibank accounts of four New York based account holders has sent shock waves across the Indian BPO industry. Some time ago, an Aligarh resident and employee of a Gurgaon based call centre, Arif Azim, was also taken into custody after he purchased a television set and a cordless phone using credit card data stolen from US customer Barbara Campa’s records. Although such isolated incidents are not specific to India and are not uncommon even in the US, they may just have given the dying US anti-outsourcing lobby a new lease of life.

India’s BPO success story is not entirely a fairy tale. The number of complaints received from the outsourcing western companies is growing especially with regard to the accent of Indian call centre employees, their not-so-humble attitude while dealing with customer queries and a laid-back attitude in solving their problems. The accusation that can have a far reaching impact for the stability and future of Indian BPO industry, however, is that private customer data is not safe in the hands of Indian BPO operators. This is indeed a serious development since the very foundation of the BPO industry is based on customer credibility and faith. If the bond of faith between the outsourcing companies and the service providers dwindles, it could well turn out to be the beginning of the industry’s downfall. China, Philippines and now even Pakistan would be happy enough to grab the BPO opportunity if India falters on this count. Our BPO companies are already feeling heat due to a stiff competition put up by a few aspiring IT powers and a rising attrition rate. We must, therefore, be pro-active in dealing with the new challenge before the data security issue takes a threatening dimension.

Considering the sensitive nature of the data safety issue in the west, however, the companies there leave nothing to chance in ensuring absolute protection of customer data.

In the absence of a solid legal framework, Indian companies take the standards-compliance root to assure their clients, and in turn their customers, that private data is fully safe in their hands. Many Indian companies implement international data protection standards, which ensure use of safe software, techniques such as data encryption, copy protection, intrusion detection systems, firewalls, anti-virus tools, network security, system security systems and monitoring systems and provide a well defined framework of dos and don’ts. Even then accidents do happen every now and then. Take the example of ISO 9000 certified MphasiS itself that has implemented a safety standard called SEI CMMI Level 5, hitherto considered as ‘invincible.’

It is high time that the government, Nasscom and the industry came together in taking solid, authentic steps to guarantee complete data protection to those it matters most. The sensitive issue cannot be handled by any of them in isolation. If the Indians are still not able to prove our credibility and trustworthiness to the outside world after being in such a dominant position in the BPO space for almost a decade, it would be highly unprofessional, unjustified, unfortunate and disastrous.

is Contracting an answer to outsourcing woes..!?

Recently come across interesting article- is Contracting is really an answer to outsourcing woes..!?

Credits: Silicon.com

A lack of suitable skills internally and the need to drive costs lower continue to tempt all manner of organizations to seek outside help - whether it's the best option long term or not. Stewart Baines explains how to make sure these projects work out for the best.

Most IT directors, in the ideal scenario, would prefer to manager everything in-house. In-house programmers, administrators, project managers and strategic directors can ensure more control, better communication and closer ties to business goals than working with an outsourcer.

Even Martin Hart, the chair of the National Outsourcing Association (NOA), admits this: "Our research shows the best way of doing things is probably in-house. But in-house has very high start-up costs and benefits take a long time to come in. Often too long. On the other hand outsourcers have a very quick set up time - they've done this stuff before - but you lose a lot of control. They want scale so they want to do the same for you as they've done for someone else. They will give you want they think you should have not what you think you should get."

But sometimes there may be no other way to grow or meet business goals than to look outside the company's boundaries for help, particularly for smaller organizations.

Dan May, operations director at mid-sized outsourcing firm Ramsac, is adamant that firms, particularly small and mid-sized, are relying too much on in-house skills and that they must look to outside practitioners.

"Most SMEs only have a small in-house IT team or a lone ranger," he says. "They struggle to keep on top of new technology and developments. You can't learn the job from a trade magazine. They'll recommend stuff that they want to play with or feel is within their knowledge. There's too much complacency from in house IT. How do you know you're getting value for money?"

May argues that, contrary to accepted wisdom, you get a higher standard of work with more openness from an outside party than you ever could with an internal team. "You get more transparency from an outsourcer. You get regular reporting of response times, resilience, security, data protection and so on; you get a service level agreement (SLA); you get experience. Can you say the same of an in-house team?"

What worries most managers and bosses about outsourcing is the lack of control they fear will ensue. Moving operational costs and capital expenditure off the balance sheet is good but risk rises as more and more complex business processes are left to outsiders whose loyalties lie elsewhere.

But there are ways to improve the chances of having a good outsourcing experience.

According to Martin Hart of the NOA, whether a successful relationship with an outsourcer or consultancy is possible is down to the preparedness of the client. He says: "You always need an intelligent customer within your organization. They have to be honest with the outsourcer about the task in hand and exactly what they expect back from the process, not some idealized goal. I think some companies are just not honest with their supplier. And you've got to get the basics right too - agree on handover processes or fault escalation policies. If you don't there's no foundation for a successful working process."

Hart believes many organizations would be best served by hiring a consultant or consultancy to manage the hire of an outsourcer - someone who can help set expectations and knows how to manage a supplier. One of the first steps they should take is to rid the deal of SLAs.

"The SLA is far too geared to the supplier. We recommend a business level agreement (BLA). A lot of the technical details in an SLA are too technical for a client and can't be translated into useful business intelligence so we advocate addressing that at the start," says Hart. "There's a real skill in converting technical data into business requirements. And it needs to be in a way that it can continue to be managed over the life of the deal."

Roger Rawlinson, head of consultancy at the NCC Group, agrees: "An exit strategy needs to be understood - asset transfer, performance bonds, SLA penalties etc all need to be firmly established at contract. Organizations should not fall into the trap of seeing in-house IT as a problem and then outsourcing the problem without first establishing what IT should be delivering in terms of business outcomes. This challenge can be particularly pronounced in smaller companies where board-level representation of IT is non-existent."

At the SME level, Ramsac's Dan May says: "SMEs need much more than outsourcing their IT staff or basic functions. We think they really need strategic IT direction, an outsourced IT director to sit on the board, help guide IT policy and connect it to business goals."

For the risk-averse, bringing in contractors and managing them in-house is the ideal half-way house between re-skilling their own IT department or opting for the full monty outsource.

Murmurs from the recruitment market indicate contracting is back in vogue. Joe Kelly, managing director of networking solutions at recruitment company Parity, says: "We've had a few years where contractors have desperately been looking for permanent work but now many ex-contractors are looking to get back into contracting. Clients are happy because it's a flexible employment model. In fact, the growth in outsourcing is not reducing the demand for contracting, it's probably the reverse. Many of the outsourcing companies are taking on contractors; it's the only way they can get the relevant skills."

One reason both clients and contractors are having a new love-in: Many outsourcing deals have failed because too much knowledge was retained solely in outsourcing and never communicated clearly to the client. Contractors don't operate like that.

NOA's Hart says: "If you move supplier, how does the knowledge of the process get transferred to the new supplier? The likelihood is that it will be lost. This is where contractors come into their own. They're on the client site, easily assimilated in the processes and culture of the client, and typically offer a skills transfer. They can also be 50 per cent cheaper than a consultancy."

And there's the rub. Full-time jobs disappear to contractors, consultants and outsourcers because of skills gap, a lack of experience, cost saving and, often, too tight a deadline to complete projects in-house. Thus in one form or another, getting IT staff off the payroll is an inevitable trend.