Thursday, May 31, 2007

Project watch - Indian outsourcing


Despite its initial success, there are concerns among India's software and services companies about whether the country can maintain its dominant outsourcing position.

To most outside observers, the Indian IT industry is in rude health. Recent figures from India's National Association of Software and Services Companies (Nasscom) suggest the sector is growing at close to 30% per year, driven by software and services exports that are expected to have topped $31bn in the 12 months to the end of March 2007.

This theme was summarised by the forum's final speaker Lakshmi Narayanan, vice-chairman of Nasscom and CEO and president of Cognizant Technology Solutions: "The Indian IT industry's position is by no means dominant globally. Not everything is hunky-dory. The underlying health of the industry is not so good."

Narayanan's comments served as a reminder that India's rapid growth is built on an infrastructure that often struggles to cope with the demands of high-tech industry. He also alluded to widespread fears that the country's education system may not be able to keep up with rising demand for highly-qualified employees.

Yet India is unique among its competitors as it currently has a surplus of people available for work. "We're not concerned about demographics," says Neeraj Gupta, executive VP at second-tier Indian vendor Patni Computer Systems, "but we are concerned about the quality of personnel, the level of investment in training and the ability to move staff up the training ladder."

Many of the leading names in the Indian IT sector are already doing just that, embracing the concept of corporate social responsibility (CSR). At its most simple level, this requires commercial organisations to make decisions based not only on financial factors such as profit and return on investment, but also to consider the social and environmental repercussions of their actions.

In Andhra Pradesh, for example, the state's IT and communications department has established a partnership to install a broadband network across the entire region. The total cost of the project, which is designed to give Hyderabad the best connectivity in India, is estimated to be about $100m.

According to the department's special secretary to the government, M. Gopi Krishna, the state authorities are also taking great care to ensure that revenue from IT goes to where it is needed, with a particular focus on rural areas.

Local governments are prepared to go out of their way to accommodate the needs of the IT industry, as the benefits it brings with it are just too great to pass up. In Andhra Pradesh, it is estimated that IT has created 165,000 jobs in the last five years. The rapidly growing needs of the market also mean that investment, while initially concentrated in so-called tier-one cities, will gradually flow into tier-two and tier-three cities, leading to greater levels of development in these locations. Already, the government of Andhra Pradesh is touting Vishakhapatnam, Vijayawada, Tirupati, Kakinada and Warangal as up-and-coming offshore sourcing locations.

Far from being an opportunity for back-slapping and self-congratulation, this year's Nasscom conference revealed some of the IT sector's fears for its future. These are focused on the ability of India's infrastructure, from transport to communications to education, to cope with the demands of supporting such a rapidly expanding industry. While these concerns are well-founded, the fact remains that India's IT industry is growing by almost 30% a year, impressive by any standard, and some commentators have forecast that this performance will continue well into the next decade.