Global Economics

China is India's 'Only Possible Threat'


The new chairman of Nasscom talks about his priorities, the U.S. slowdown, and the search for talent

India's trade body and chamber of commerce of the IT-BPO (business processing outsourcing) industry, Nasscom was established in 1988 to facilitate business and trade across the country's software and services industries. The association has over 1,200 members, which include 250 global companies.

In an e-mail interview with ZDNet Asia, Natarajan discussed the challenges facing the Indian IT-ITES (IT and IT-enabled services) industry, and underscored the need for local companies to innovate and reinvent themselves for India to remain the preferred outsourcing destination.

Q: Congratulations on becoming the chairman of Nasscom. What are your top priorities as the new chief?

Natarajan: We have identified six key themes. Our agenda for this financial year includes issues like tapping opportunities through innovation, building communities of best practices, adopting green IT, societal development, and education and skills building.

Today, the IT industry is well on its way to make the transition to process quality and innovation. We believe these themes will help chart the way forward and maintain a steady growth for the industry.

With the U.S. economy slowing down and the rupee continuing to strengthen, do you think it's a good time to head Nasscom?

These are all challenges of growth, and therefore, a good problem to have at hand. The U.S. slowdown and Rupee appreciation are short-term challenges.

In the long term, the Indian IT-ITES industry will continue to maintain a healthy growth rate, and is well on its way to achieve the US$60 billion mark.

Do you think the U.S. slowdown is hitting Indian IT-ITES companies hard? What can the industry do to counter the impact of the slowing U.S. economy?

The U.S. slowdown is impacting the industry in the short term. But in the long run, the Indian IT-ITES sectors will continue to maintain a healthy growth rate.

While the companies are making firm level efforts to counter the challenge, the key is innovation. As the traditionally successful sourcing model comes under strain, companies need to reinvent themselves and innovate for India to remain the preferred sourcing destination.

Commoditization of IT services, advent of new disruptive technologies and the blurring of the distinction between hardware, software and services, indicate the need for the Indian IT industry to move toward a more consumer-centric business model. And the only way to do that is through innovation. While it often means a new technology or product, it is equally applicable to processes or services.

With rapid economic growth, skill scarcities have been on the rise. Is this an area of serious concern?

The large and growing talent pool remains a key differentiator for India as a global sourcing destination and the fundamental driver of its IT-BPO growth. However, as the IT sector continues to grow and develop new competencies, talent suitability is becoming a concern.

So far, companies have adequately addressed these challenges through their own efforts around recruitment and training. But, as demand continues to grow exponentially, it is becoming difficult for the industry to address this challenge.

Is Nasscom undertaking any initiatives to meet this challenge?

Nasscom has led several initiatives for narrowing the gap between the industry and talent. For instance, we launched Nasscom's Assessment of Competence (NAC) as an industry standard assessment and certification program to ensure the transformation of a "trainable" workforce, into an "employable" workforce in order to create a robust and continuous pipeline of talent for the BPO sector. We have now signed memorandums of understanding with several Indian states for the NAC.

Encouraged by the success of NAC, Nasscom has developed a similar testing and accreditation program, NAC-Tech, for the IT services sector starting this academic year. The aim is to make NAC-Tech an industry standard for evaluating students aspiring to find jobs in the technology or engineering industries.

We are also working with the Ministry of Human Resource Development (MHRD) on several skill enhancement initiatives. The MHRD, with support from Nasscom and the IT industry, has recommended the launch of five new IIITs (Indian Institutes of Information Technology), based on the public-private partnership model, by the year 2008. The MHRD aims to set up around 20 IIITs over the next few years.

Nasscom has also partnered with the MHRD for the "Finishing Schools for Engineering Students" program, which is expected to enable young technical graduates to become industry-ready.

Besides talent, what are the other challenges before the Indian IT-ITES industry?

The Indian industry needs to innovate in order to remain the preferred sourcing destination and at the same time create wealth. The traditionally successful business model of the Indian IT industry is increasingly coming under strain. Therefore, the need for innovation is greater now than ever.

Infrastructure is another area of concern. Expanding the urban infrastructure is critical to sustaining India's leadership position in the IT industry. The ongoing rapid expansion of the IT and BPO industries beyond the five metros, hinges on the timely creation of basic infrastructure in the tier II and tier III towns and cities of India.

Today, India needs more targeted actions to capitalize on its long-term IT-BPO growth opportunity. Some of these initiatives should go toward enhancing the education system and continuing the current framework of fiscal incentives for the IT-BPO industry.

We also need to constantly enhance efforts toward service quality and information security.

Of late, countries like the Philippines, Malaysia, Mexico and China have emerged as strong contenders to India in the BPO arena. Do you think India faces a growing threat from these countries in the long-run?

While countries like Philippines, Malaysia and Mexico have emerged as competitors to India, they are still not a threat.

India continues to offer a compelling cost advantage backed by a strong value proposition of suitable talent, enabling business environment, infrastructure and high standards for information security.

The cost advantage is being consistently enhanced through a combination of gains in productivity and utilization through ongoing process improvements, flattening employee pyramid through greater process orientation and increased span of control, and exploring previously untapped pools of talent.

The only country that could be a possible threat is China and it's largely because of their manpower size and the government's incentives to industry for growing in this area.

So while there is no real threat from any major destination in the short-term, it is important that the Indian government continues to support the IT sector for the country to compete with other emerging destinations. For example, in other countries, good transportation and related security are a given. It is only in India that companies need to spend time and money trying to address these infrastructure challenges.

What is your view on the future of the Indian IT and ITES industry?

Sufficient demand, strong fundamentals and a favorable environment support a positive outlook for Indian IT-BPO exports. Further, strong imperatives for increasing technology adoption in India and growing numbers of Indian MNCs (multinational corporations) represent significant potential for growth in the domestic market as well.

Indian IT-BPO is on track to reach US$60 billion in exports, and US$73 billion to US$75 billion in overall software and services revenues by 2010. Achieving these targets will also increase the IT-BPO sector's contribution to India's socio-economic development. At the aspired levels of growth, IT-BPO will employ about 2.5 million to 3 million professionals directly in the sector, account for direct investment of about US$10 billion to US$15 billion, and contribute 7 percent to 8 per cent of the national GDP (Gross Domestic Product).

Yet, the size and scope of this opportunity, and the strategic advantages in realizing its full potential, are significantly larger. At US$52 billion, excluding hardware), India accounts for about 4 percent of the worldwide IT spend on software and services. Further, global sourcing penetration is estimated to be growing at nearly four times the rate of absolute technology expenditure The combination of these two facts alone signifies immense opportunities for rapid growth.

While India is uniquely advantaged to best address these opportunities, they are not lost to others. Key stakeholders need to continue working in a focused and coordinated manner, for India to realize its potential.


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