Friday, June 22, 2007

Global outsourcing arena heats up


Research released last week from sector skills body e-Skills UK echoes the common observation that UK IT graduates need more business skills, because lower-level technology jobs that do not require such expertise are being offshored, mostly to India.

But as the global market matures, the Indian IT industry is starting to face some of the same issues as its UK counterpart.

There are already warnings that the subcontinent will face a talent shortfall in its technology workforce by 2010, although Indian IT trade association Nasscom says there is still time to avert a crisis.

Unlike in the UK, where technology degree numbers halved between 2001 and 2005, recruitment is not a problem in India. The country produces more than three million IT graduates a year, and the current workforce stands at 1.6 million.

But as market requirements change, the industry is starting to question whether degree courses are producing the right skills, says Nasscom spokesman Ameet Nivsarkar.

‘The cause for concern is that the three million graduates are not all ready and competent to enter the workforce,’ said Nivsarkar.

Like e-Skills UK, Nasscom is working on initiatives to bring graduate training in line with private sector requirements. One current scheme, for example, aims to create finishing schools that offer three short courses to bridge the gap for graduates between academic learning and the kind of business skills required in the real world.

"The training shortfall is largely in communication and the ability to present oneself before a customer," said Nivsarkar.

Skills issues are part of wider changes in the offshore market. Until now India has been the undisputed leader, generating about $48bn (£24.2bn) in annual IT services exports last year.

One of the biggest threats to India’s dominance is China. Its vast pool of cheap labour is increasingly attractive to suppliers catering for growing demand, including Indian firms such as Wipro and Infosys.

Ironically, the sub-continent’s economic success is also presenting new problems. Indian supplier TCS announced earlier this month that it is moving 5,000 jobs to Mexico because of wage inflation at home.

Global currency fluctuations can have a major impact on the economics of offshoring deals, according to Mark Kobayashi-Hillary, director of the National Outsourcing Association.

"Margins are being eroded as the Indian rupee becomes stronger against the dollar, so hiring elsewhere has become a more attractive proposition," he said.

But there are also changes in the shape of the global outsourcing market that may play out to India’s benefit.

As offshoring becomes a more established practice, the supply market is fragmenting and specialising. Ukraine and Russia, for example, are making major in-roads into the high-end scientific software niche.

Growing specialisation could help India offset the business it has lost to cheaper rivals.

The country is still the dominant player in the business process outsourcing (BPO) sector, which is expected to grow by another 32 per cent to £4.2bn this year. And while better educated staff may be pushing up Indian prices, customers’ selection criteria are also likely to change, says Kobayashi-Hillary.

For Indian firms, the decision to hire staff from abroad reflects their emergence as truly global companies.

"They are no longer just Indian firms. They are deliverers of IT services and need skills from all over the world," said Ovum analyst Phil Codling.

The difficulty for suppliers, regardless of their country of origin, is that requirements can change so quickly.