Indian IT industry in mild trouble


by Rumbold
5th March, 2008 at 11:27 am    

A study has found that firms are increasingly outsourcing their IT services to Eastern Europe, China, and Morocco. India still has a fair share of the market, but with the rupee so strong some companies are looking elsewhere:

“According to the study, since the beginning of January 2007, UK’s 20 largest IT services suppliers have opened 21 new global delivery centres. However, of these only two are were located in India. Four such centres were set up in China, while Eastern Europe and Morocco had three each, the study added.

“India’s position as the premier low-cost IT sourcing centre is not under serious threat in the near term. But what we are seeing is vendors (are) looking to reduce theirreliability on India’s heated labour market…,” Nick Mayes, a senior consultant at PAC, said in a statement. The 20 largest IT services vendors in the UK are based on rankings in PACs annual SITSI report. These include EDS, IBM, Fujitsu, Capgemini, Capita, Accenture, CSC, HP, BT Global Services and LogicaCMG.”

While IT outsourcing and call centres generate large amounts of money, they still only employ a fraction of the Indian workforce. India will only really be shining once farming becomes a notably profitable industry. This state is perhaps not too far away, as food prices continue to rise (although this causes inflation to rise in India, so it is a mixed blessing):

“Finance Minister P Chidambaram on Wednesday said that an investment boom in India was continuing but a sluggish farm sector was hurting overall growth. The Indian economy, Asia’s third largest, has grown at an average 8.8 per cent in the past four years and is estimated to grow 8.7 percent in the fiscal year that ends in March.

The farm sector, which supports nearly 60 per cent of India’s population and accounts for 17.5 per cent of the country’s gross domestic product, has stagnated in the past few years. Chidambaram expects the economy to grow 8.8 percent plus in the 2008-09 fiscal year.

Talking about the inflation, he said in India it is still a threat because of high food prices, as he promised to consider policy intervention if growth slowed in any industrial sector of the $1 trillion economy … India’s food output has failed to keep pace with the demands of its 1.1 billion population, most of whom rely on the land for all or part of their livelihoods.”

At the moment high food prices are hurting India, because their farming is so inefficient. But if farming improved then they could become a net exporter of food, which would put their long-term economy on a much firmer footing.


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Filed in: Current affairs,Economics,India,Technology






23 Comments below   |  

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  1. Absent Traveler — on 5th March, 2008 at 2:33 pm  

    Dear Rumbold,

    Check http://finance.yahoo.com/currency/convert?amt=1&from=USD&to=MAD&submit=Convert to see how the Moroccon Dirham has risen in value against the USD over the past few weeks or so.

    By contrast, the rupee is depreciating now against the dollar. Today, it traded at 40.26 to a dollar–up more than a rupee from 39.16.

    That apart, comparing India and Morocco in terms of IT prowess is hilarious. Morocco is an Islamic dictatorship and a known drug-dealing state. Few companies would want to venture into such waters.

  2. Rumbold — on 5th March, 2008 at 5:14 pm  

    Absent Traveler:

    I am not too well-versed in economics, but over the last couple years the rupee has appreciated against the dollar (as, I suppose, have most other currencies). There is also a public perception in India that a strong rupee is creating a lot of problems. Thanks for the link.

  3. sonia — on 5th March, 2008 at 5:58 pm  

    yeah sure, why should the indians have the lion’s share? they’ve had it good for a while, there is now more competition opening up elsewhere.

    i don’t think india will be shining until something happens about the vast inequalities.

  4. Raul — on 5th March, 2008 at 9:46 pm  

    Both Forbes and BusinessWeek have written about this in the last few days.

    Sonia – making more than one billion predicted to be around 2.5 billion plus by 2050 shine will require serious talent, commitment, integrity and luck and with the current state of governance a distant dream.

    India is reconciled to inequalities and poverty with more than 70% missing access to basic services and unable to spend more than 20 rupees a day. Most Indians seem to be more interested in pride, amplifying the smallest achievements and dreaming about super power status and in the interim in the absence of any tangible achievement to back that up, heading with shovel to the past, boasting about ancient flying sadhus and manufacturing an oppressive nearly xenophobic ‘glorious culture & unique morality’ hence kneejerk reactions to criticism and in this case a very valid wake up call on the sustainability of wage arbitrage with little value add. Unfortunately introspection and reflection is not on the agenda.

    Sramana Mitra who started off the latest drum beating with an article in Forbes and has a take on the issue here http://www.forbes.com/home/enterprisetech/2008/02/29/mitra-india-outsourcing-tech-enter-cx_sm_0229outsource.html

    and on her blog
    http://sramanamitra.com/2008/01/22/death-of-indian-outsourcing/

  5. digitalcntrl — on 6th March, 2008 at 12:15 am  

    I have seen such reports many times before, all have come to naught.

    From 2003:
    http://www.news.com/2100-1011_3-5074725.html

    As well as counterpoint to Ms. Mitra’s article:

    http://www.forbes.com/technology/2008/03/05/mitra-india-outsourcing-tech-enter-cx_pf_0305outsource.html

    Better to await more conclusive evidence then jump on this bandwagon as yet.

  6. Raul — on 6th March, 2008 at 10:58 am  

    Interesting ‘rebuttal’.

    “Moreover, Mitra claims: “Yet, India, for all its glory, is still the world’s back office. India’s tech industry is a “services” industry. The Indians don’t do the thinking. The customers do. India executes.”

    But wait–isn’t that the point? Mitra plainly fails to discuss the fact that the better the Indian services become, the greater the number of services that require “thinking.” This “thinking” represents the ability of staff to apply real business situations to their work.”

    Honestly that sounds weak if not downright deceptive, the sort of thing you will tell your child if he asks too many questions. The author of this article clearly has no clue of the work that happens, but of course he does, he would just like to ‘reposition’ it to make everyone happy.

    I would be glad to hear from Indian engineers who are doing ‘R&D’. US companies don’t do R&D in India, but they do spin a lot about doing it. 3 months later the poor engineer realises this is not the sort of ‘R&D’ he was thinking about. But this is to be expected, the money is coming from foreign clients, they take the decisions that require thinking, the industry executes and does the dog’s work.

    Indian technology companies are risk averse and arbitrage oriented. R&D is something they are really not interested in or have the appetite, skill or expertise and culture for. I am sure there are exceptions to the above, but they are just that, exceptions. I have heard Tejas networks, Mindtree, Sasken do some stuff and I am sure there are many others.

    This is not a criticism of the current IT industry, there is room for process oriented service companies with little interest in innovation and place for companies that are interested in innovation.

    The later hasn’t happened yet but because of the former we have a whole class of Indians who are getting paid decently and kick-starting the economy. Whatever criticism you may have of IT, this is the first industry that started paying well and sharing more of their profits, before them 8-10 thousand rupees would be a good salary with a minority of the business owners cornering money in the economy and creating zero demand. This just proves how misguided the inward looking policies of import substitution over the last 60 years were, growing internally is a reckless illusion.

    All it did was encourage crafty businessmen with ‘connections’ to offload third grade technology and profiteer in a closed economy. With the result that India doesn’t have an R&D culture or the infrastructure to support it, right from education to industry and government. IT services has raised the bar here but we will need R&D and innovation to move up the value chain to create products and services for the world market and in the process add more value to our engineers and inventors, have more per-capita income, consumption, employment, growth and prosperity all around.

    Wage arbitrage is not sustainable in the long run, there are wise issues here, it will be silly to depend on that for the continued growth of the Indian economy. Other countries will catch up and be cheaper.

  7. douglas clark — on 6th March, 2008 at 11:40 am  

    Absent Traveller,

    But the relative trends of the Indian Rupee / Morrocan Dirham and the US Dollar show a structural shift. From the same source:

    http://uk.finance.yahoo.com/currency/convert?from=USD&to=INR&amt=1&t=5y

    and:

    http://uk.finance.yahoo.com/currency/convert?from=USD&to=MAD&amt=1&t=5y

    The difference being that these are five year graphs. The trends are pretty clear. I’d have thought that it meant that both Morrocan and Indian product was becoming less affordable in the USA, although that kind of thing is always relative. Perhaps an economist could explain?

  8. digitalcntrl — on 6th March, 2008 at 12:17 pm  

    @Raul

    Although I am not in the IT sector I think it is important not to dichotomize between “good” work that is worth doing and “dog” work that is useless. If I had that kind of attitude I would tell my boss that most of my responsibilites are “beneath me”. You learn from all your expereinces. Even that Indian techie doing “dog” work learns the language a little bit better. What the counterpoint’s author wants to get across is that trust and greater responsibility take a very long time to build. As foriegn employers have more and more positive experencies in India there willingness to risk more high profile projects increase. At the end of the day these people are capatialists, they don’t really care if their employess are Indian, western, or otherwise.

  9. sonia — on 6th March, 2008 at 12:36 pm  

    “Sonia – making more than one billion predicted to be around 2.5 billion plus by 2050 shine will require serious talent, commitment, integrity and luck and with the current state of governance a distant dream.”

    quite.

  10. digitalcntrl — on 6th March, 2008 at 12:38 pm  

    “i don’t think india will be shining until something happens about the vast inequalities.”

    I would disagree, not to say that wage inequality is a good thing, India’s problems stem more from the lack of money with a consumerist middle class (which would create demand and in turn jobs for poorer Indians) than the unequal distribution of money to the poorer classes. Being equally poor does nothing to improve the country’s situation. In fact India’s Gini coefficient, the measure of income inequality, is lower than the United States. Does this imply that the US is in a worse of situation?

    http://en.wikipedia.org/wiki/Image:Gini_since_WWII.gif

  11. Raul — on 6th March, 2008 at 12:43 pm  

    I think my post touched on more issues than that. I clearly mentioned there is space and value in both types of work for the Indian economy and the contribution of the IT industry to the growth we have witnessed over the last few years. ‘Dogs work’ is not meant to deragatory but classify the type of work that is easily done by anyone, anywhere. That can’t be your USP for long, can it?

    But you seem to have missed the point of the post. The gist was not categorizing work but looking at it from the point of sustained growth and a better life for a larger majority of India’s which can only happen once we move up the value chain and create and innovate.

  12. sonia — on 6th March, 2008 at 12:50 pm  

    “I would disagree, not to say that wage inequality is a good thing, India’s problems stem more from the lack of money with a consumerist middle class (which would create demand and in turn jobs for poorer Indians) than the unequal distribution of money to the poorer classes.”

    what rot

  13. sonia — on 6th March, 2008 at 1:15 pm  

    “Most Indians seem to be more interested in pride, amplifying the smallest achievements and dreaming about super power status”

    spot on.

    and in my opinion, the pride thing is a big problem, not just on the country level, but its been a factor keeping up caste inequalities, family secrets, the works. till any of that is going to change, there is no shiny shiny india in my opinion, just maybe a surface shallow polish.

  14. Sofia — on 6th March, 2008 at 2:06 pm  

    I agree with Sonia #12….if you look at the upper end of the middle classes in India, it’s all about which western university they can send their kid to…a shallow interpretation of “western” popular culture with little regard to other aspects such as equality, workers’ rights and the rights of women. Yes you will see more Indian women in the workforce than say Pakistan, but there are still practices such as no second marriages for widows, female infanticide, dowry blackmail, endemic discrimination against the “lower” classes etc etc.

  15. Sofia — on 6th March, 2008 at 2:08 pm  

    “create and innovate” again agree with this..only have to look at Japan for innovation in technology fields.

  16. sonia — on 6th March, 2008 at 3:18 pm  

    yep sofia. and until social inequalities cease, what is really going to change from the caste system ‘trickle down’ – oh yeah the consumerist middle classes are going to have lots of servants – so they’re going to treat them better cos they have more money? Ha bloody ha. till we get some egalitarian spirit, there’s no shiny anything.

  17. sonia — on 6th March, 2008 at 3:19 pm  

    …i.e. the age old hierarchies, is what i meant, you have always had richy rich people in india, and the concept of someone is ‘beneath’ you – is still very much entrenched. in fact id say there is very little recognition of humans as equals, across the indian subcontinent, and this is THE big problem. Money doesn’t change that at all.

  18. Sofia — on 6th March, 2008 at 3:36 pm  

    “the age old hierarchies, is what i meant”…yup…it’s like the french revolution got rid of the monarchy but the old elite still exists…although this type of old fashioned vs nouveau riche will always exist..equal opportunity for all and a recognition of how the servant classes are treated would be a starting point.

  19. sonia — on 6th March, 2008 at 3:44 pm  

    yep, a very good starting point. its shocking how our own families ( i put my hand up) who are supposed to be ‘civilized’ have one code for themselves and their children, and quite another for ‘servants’ because they are not ‘good people’, not our ‘jat’ whatever excuse. its really disgusting.

  20. DR1001 — on 6th March, 2008 at 6:36 pm  

    “Morocco is an Islamic dictatorship and a known drug-dealing state. Few companies would want to venture into such waters.”

    It hasn’t stopped clothing companies like Zara from doing business there.
    business is business.

  21. kELvi — on 6th March, 2008 at 9:28 pm  

    Inequality will always be with us, poverty must not, if we can help it. absolute deprivation is a problem. moving up the supply web is a gradual process. R&D is not a matter of choice. if TCS/Infy/Satya/Wipro don’t do R&D neither do their competitors Cap Gemini and Accenture. This is not a sector that is R&D intensive. It is about running processes more efficiently for customers. And as Indian companies take on bigger contracts (the big four having already moved out of being the subs of the international giants) the difference between them and the international consultants will fade away. It isn’t about to happen any time soon, but one acquisition could change all that overnight. Now R&D is a different matter. Indian businesses are only slowly becoming S&T driven and are decades behind the curve. There is no likelihood of any Indian/Chinese firm threatening a GE or a DOW or an Eaton. There is a lot of action on the semiconductor enabled applications business and it is simply a continuation of the Japanese success in electronics appliances three decades ago, which is now being threatened by the Korean and Chinese companies. But this is one step removed from the sort of more basic research that drives the semiconductor business itself. And then not to forget the UK, French, Scandinavian, and German companies that are still very significant players in basic knowhow driven industries – heavy engineering, chemistry, materials, and light engineering. It is still a X-Atlantic tussle. Japan is somewhere part of the way, and China/Korea are about half way to Japan. India is trying to (and not many realise this) use its expertise to create IP for others, in a way that was unknown in the years past. This is a model of IP development that exists only in the US – contract R&D – which is why contract R&D companies in the US have decided to converge on India for expansion. The hope in India is that it will be able to generate IP that governs the process of creating knowledge itself. Because Indians, if nothing are realistic. There is no way ever that India can recreate a GE or a GM, it will take far too long. You may acquire and grow if you have to gain momentum to generate money for the future. You don’t prepare yourself to fight the battles you have lost. You target the future. Acquire assets in select industries and control the process of knowledge generation. Everything else can be bought.

  22. digitalcntrl — on 7th March, 2008 at 10:49 am  

    Raul: ‘Dogs work’ is not meant to deragatory but classify the type of work that is easily done by anyone, anywhere. That can’t be your USP for long, can it?

    DC: I would not characterize IT work as being something anyone can do even if it is only simply programming. Joe Schmo off the street certainly would not be able to do such work w/o significant training.

    Raul: But you seem to have missed the point of the post. The gist was not categorizing work but looking at it from the point of sustained growth and a better life for a larger majority of India’s which can only happen once we move up the value chain and create and innovate.

    DC: Agree. However such responsibilities only come with time. The IT industry in India has only really been around to a large extent for about 10 years. No business will bet the farm unless they are damm sure of people’s abilites.

  23. digitalcntrl — on 7th March, 2008 at 11:11 am  

    SO: yep sofia. and until social inequalities cease, what is really going to change from the caste system ‘trickle down’ – oh yeah the consumerist middle classes are going to have lots of servants – so they’re going to treat them better cos they have more money? Ha bloody ha. till we get some egalitarian spirit, there’s no shiny anything.

    DC: Whoever said that economic development would treat India’s fetish for elitism? Elitism as well as clannishness are part and parcel of Indian culture. Exposure to the outside world via foriegn investment has helped to reduce the latter (especially in my family’s case). The growing consumerist middle class is certainly not going to treat their servants any better. However at least it does give greater economic opportunites to those individuals so they can improve their lot.

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