The Indian Economy Blog

October 6, 2006

Outsourcing One More Time Around

Filed under: Business,Outsourcing — Edward @ 12:08 am

Manmohan Singh is quoted today as suggesting that India *will* create 10 million new jobs in five years from the global outsourcing business:

New business and service relationships are being forged across continents in a manner unimaginable even a decade ago,” Singh told a seminar on trade in services in New Delhi today. “I do not see any limits to these dynamic processes.

Well maybe, but there is nothing automatic about this, which the ‘I do not see any limits’ argument seems to ignore. Certainly India is not alone in going after this business:

Economists and analysts are startled by the Philippines’ runaway growth in the sector. “The pace of development of the BPO [sector] in the Philippines has been impressive,” says a recent report by U.S. investment bank Goldman Sachs. “Three years ago there was a question mark whether Philippines could develop some [outsourcing] momentum. Now it’s a $3 billion industry.”

So there will be competition, but even more to the point will the workers be there to do the jobs? What do people feel, is Singh being complacent, or is this a realistic target?

10 Comments »

  1. Nice hopes. Not saying it can’t happen, but to what extent and how it happens will be interesting to watch.

    This puts a huge amount of stress on the country’s educational and vocational training infrastructure. But it could be possible.

    Some personal anecdotes I want to share, from a recent work trip I made to India:

    * On landing at the Mumbai airport (sahar), I availed of a hotel car pickup by a smartly dressed chauffer who was holding a placard with my name on it just outside the arrival area. The young man who was muslim spoke broken/accented english, grabbed my baggage trolley and pushed it to just outside the car parking lot and rushed off to fetch the car. As I waited, I noticed he had left a book behind on top of my pile of luggage. I picked it up to take a look. Turned out to be a primary school text book on how to use computers. The young driver was going over his son’s book to do some father-son after-class lesson reviews on computers!

    *On a weekend visit to old friend’s apt building in suburban Mumbai during that same weekend, I came across what looked like a make-shift/impromptu tutoring session in the building compound. Turns out older/retired residents of the building were volunteering their time to teach some extra lessons to their slum-dwelling servants’ children, so they could get ahead in school.

    * Friend in Mumbai runs a software company where they build distance learning computer software. They’re doubling revenues every 2-3 years or so, and business emphasis is shifting from foreign demand to a rapidly growing indian market.

    My statistical sampling is narrow, but there could be huge grass-roots effort going on to fill in the education gap. I think more and more people, including poorer families who wouldn’t have sent their kids to school (setting them off to work instead), are now seeing the benefits of an education, and the changes in social norms and aspirations are enormous. Still, serious constraints remain on the supply side.

    Regards,

    Aninda.

    Comment by Aninda — October 6, 2006 @ 3:51 am

  2. Re India’s BPO/ IT growth: The biggest issue (#1 through #5) is on the labor supply side… everything else is secondary

    Comment by Prashant — October 6, 2006 @ 8:31 am

  3. “Economists and analysts are startled by the Philippine’s runaway growth in this sector..”
    If the quality of human resource is considered,Philippines is way ahead of India,so India should be ready for fierce competition.According to the Mckinsey Quarterly
    “For every 100 college graduates with finance and economics degrees from countries in our samples,executives of multinationals said they would hire 30 in the Philippines compared with just 15 in India;the corresponding figures for generalists and life science researchers,respectively were 25 versus 10 and 20 versus 15.The Philippines even compares favorably on the suitability of it’s engineering graduates for employment with multinationals,particular strength for India”[Read 'Attracting more offshoring to the Philippines' in the Mckinsey Quarterly]
    Further,Mckinsey Global Institute estimates that by 2008 total offshore employment will amount to 4.1 million jobs,that is equivalent to 1.1% of total demand for labor in services from developed countries.Hence Dr.Singh’s target of 10 million jobs in the five years is bit optimistic.And India must increase the investment in education,should encourage private sector investment in higher and technical education

    Comment by con man — October 6, 2006 @ 10:53 am

  4. - This is a link to the Press Note issued by NASSCOM, i think in May 2006, on the Knowledge Professionals Pool in India. http://www.nasscom.in/upload/5216/NASSCOM%20Knowledge%20Professionals%20Factsheet%202006.pdf (If the procedure of entering the link is not correct, then access the http://www.nasscom.in, and from there go into the factsheets section on the knowledge professionals.

    In this they are claiming that the IT sector is creating employment for an additional 3 mn. Or about 2.5 jobs for every job in the IT sector at the current levels and structure of the sector! Ofcourse there is adequate pool for the the 10 mn jobs if one looks into all the aspects of direct-indirect-induced. As the latter two aspects (indirect-induced) are largely linked to level of economic activity and not any aspect of IT related specialisation or skill. Hence in reality what they could be meaning are an additional 3 mn IT/ BPO people and another 7.5 mn jobs generated because of the economic strcuture/ activities required to support these two. And from the point of view of 3 mn IT/ BPO professionals over the next 10 years, it means another 300,000 per year, even assuming a uniform pace of recruitment. Given that the industry is already going at 200,000 new recruits, and this is only about 30-40% of the graduating pool, given the expansion plans of the educational institutes it should be possible to meet the demand. Hence the aspect of generating the 10 mn employable people is not entirely impractical from a politician/ prime minister’s point of view, as this is already the view of the Cheerleader for the Industry !

    Or is this too simplistic a view of what the Prime Minister meant ?

    Comment by envenkat — October 6, 2006 @ 2:40 pm

  5. ACM has released a a report on Globalization and Offshoring of Software.
    http://www.acm.org/globalizationreport/pdf/fullfinal.pdf

    Snippets from the report :

    An assessment by the consulting firm A.T. Kearney of the most desirable future locations
    for offshore work placed India at the top of the list, followed by China, Malaysia, the Czech Republic, and Singapore

    The Kearney report listed Brazil as the leading offshore source in South America; South Africa in Africa; Hungary, Poland and Romania in Central and Eastern Europe; and Canada and New Zealand among developed nations. Ireland, Portugal, Spain, and the United Kingdom were listed as the preferred destinations for offshore work within Western Europe.

    India is awarding a much higher percentage of its degrees in technical fields than the United States is. Each year, India awards approximately 290,000 engineering degrees which includes 120,000 information technology degrees, while the United States awards a total of approximately 75,000 computing degrees at the bachelor’s, master’s, and doctoral levels. India has also rapidly built up a set of institutions for training people for jobs in IT skills training and certification.

    And most importantly the report suggests an effective educational response to offshoring:
    http://smallpanda.wordpress.com/2006/10/04/principles-that-all-countries-can-follow-to-mount-an-effective-response-to-offshoring/

    1. Evolve computing curriculum at a pace and in a way that better embraces the changing nature of IT.
    2. Ensure computing curriculum prepare students for the global economy.
    3. Teach students to be innovative and creative.
    4. Evolve curriculum to achieve a better balance between foundational knowledge of computing on the one hand, and business and application domain knowledge on the other.
    5. Invest to ensure the educational system has good technology, good curriculum, and good teachers.

    Comment by Santosh — October 7, 2006 @ 4:20 pm

  6. To sustain our growth in BPO sector we hv to come out with short term courses (3 to 6 mths), which can be done simultaneously with graduation.These courses should focus on specific verticals Viz. Financial transaction,Hr processing etc.This will ensure a proper supply of well trained graduates who are competent in higher level of BPO work and not just in plain vanilla call-centers.
    We should also try to integrate our Graduate level studies with those of Western countries,Specially the US.
    Example: Teach our commerce graduates ‘US GAAP’.
    As of Phillipines it is going to be hard for them to Scale up their operations as fast as the Indian Companies or India based companies have done or can do,wowing to the sheer number of engineering graduates and other graduates and professionals that India can offer.Phillipines will be successful but India will be ahead.
    It is for India to loose not for Phillipines or other countries to win!!
    Regards :)

    Comment by RahulSenGupta — October 8, 2006 @ 2:12 am

  7. What is 10 million jobs against expected 50 million joining workforce each year?

    Comment by G.Kishore Babu — October 10, 2006 @ 9:53 am

  8. the PM is being realistic about the millions- but like u said it is not automatic- india has to ensure sustained quality and integrity in the service provided. indian bpo s aare aleady hogging the limelight for the wrong reasons – the recent scams in the bpo s can sabotage the million target.

    in my state (kerala) i find that the BPO s are bringing about a salutory change – the frustration levels of that group called ‘unemployed graduates’ has come down drastically. also this is not yet an area where the unions and political parties have begun to intefere. so far so good.the good newss is that the unemployed graduates who had hitherto ended up as pawns in the hands of politicians are now engaged in paying employments which are also demanding. this leaves them with neither the time nor the inclination for meaningless political activities. when politicians sit up take notice of this development, we can expect interference – demands of minimum salary, minimum working hours(!!!), perks, bonus so on and so forth. then it is bye bye to bpo industry in kerala. so long as other states do not take cue from this, Singh’s target will be achieved.

    lastly, the education sector will compulsorily have to rise to the occasion immediately to provide the expertise for the requirement of this industry.

    Comment by kochuthresiamma P. J. — October 11, 2006 @ 6:48 am

  9. IMO I believe it is achievable provided the government works harder, faster and smarter placing the infrastructure. I have noticed Indian government is apt to place things only when required. For eg: Metallic scrap to be imported only if accompanied with inspection certificate stating the scrap is clean and does not consist any ammunitions waste. Why did this happen – few workers back in 2004 died because a live shell went off during melting process. It took 6 months after the event for the government to react. I don’t think it is quick enough. After the incident many more events happened and on every happening the Government introduced new rules and regulations. Recently Child labor got banned. So far I have not read the alternative measures taken by the government of India. I have read lots and lots of posts by the Citizens about the rammifications due to the new law.

    Similarly – high hopes but what are the steps taken to churn out candidates to fill up these positions. As is there has been high turnover rate with employees due to pay war…

    Just my $0.02

    Comment by Dhaval Shrimankar — October 12, 2006 @ 7:24 pm

  10. The constraint is indeed in the supply side. If 10 million new workers qualified for outsourcing jobs can be produced from the education, we don’t need to worry about anything about India’s future. They will be the driving forces for growth no matter what sectors they are in, be it oursourcing or manufacturing.

    Comment by R-Squared — October 14, 2006 @ 4:52 am

  11. While one can debate the “*will* create” aspect of Mr. Singh’s prophesy, the fact remains that not all the growth will come from
    Offshoring IT Services. Other sectors *will* also have to take off

    Comment by Mohan — October 15, 2006 @ 3:10 am

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