February 12, 2006
India unbeatable - Reasons why sceptics are wrong!
Doubting Thomases have raised two issues in recent times even as the latest strategic review of India's IT and ITeS sector by Nasscom, the country's largest IT and ITeS industry association has predicted that India is well on track to achieve IT and ITeS exports of $60 billion by 2010, and that it will continue to maintain its leadership in the global BPO market.
Rising wages, new challengers
The first issue is: with the demand for BPO/KPO out of India rising, the labour cost arbitrage that is now driving BPO/KPO business to India will narrow down, perhaps even disappear and India will begin to lose its dominance in the global BPO market. Incidentally, India now enjoys a whopping 44% share of this market. To prove their point people are citing the recent move by SAP AG to look outside India for its offshoring needs as it has claimed that labour costs have become too high in India. The second issue is the claim that China and other destinations are fast emerging as major challengers to India in the BPO market.
Mismatch is temporary
Both are really non-issues! Yes, in the very short term there is likely to be some mismatch between demand and supply for labour in India's BPO/KPO industry and that at the moment labour costs in India are moving northwards. But let me assure you that this is just a temporary phenomenon and will be overcome in the very near future. The reason for this is that the Indian government - both at the federal as well as the state levels - is very much aware of this problem and is, therefore, making concerted and conscious efforts to overcome this. Most states have already introduced and made compulsory some kind of IT education even at the primary school level. Most school going Indian kids can now operate a PC, can surf the Internet, play online and offline games and know the basics of standard and widely-used applications such as MS Word or Power Point or Excel. By the time these kids come out of school, all will be armed with basic IT skills.
Training, training, trained!
Second, government, industry and academia are working hand-in-hand to set up new IT training institutes, introducing new courses that will train people in skills required by industry or are fine-tuning existing training courses so that those trained have the skills needed by industry. Third, India being a poor country with a high level of unemployment, both students and their parents are very much aware of which sectors have the highest employment potential with the result that students inevitably rush to get trained in those skills that they think will help them get jobs easily once they pass out of school or college. So, any perceived shortage of skilled workers now is purely a temporary phenomenon. In the very near future, supply will outstrip demand and that is a certainty rather than the other way around!
The Chinese demographic dragon
Coming now to the second issue about other destinations posing a challenge to India. The only destination that can provide any real threat is China with its huge population. At present India leads all other destinations in terms of talent pool by a factor of 2.5 and that figure is surely going to go up in the days to come because of what I have said in the previous paragraph plus the fact that India's population growth rate is around 2% a year and it is going to remain that way for quite some time to come. Secondly, India's demographics are excellent with more than 50% of the population being aged below 25 years. China's demographics, on the other hand, are very much skewed in favour of the aged and despite its larger population, China is all set to see a shortage of people in the working age group in the years to come. You can't really afford to fool around with natural rates of growth and dictatorially impose a one-child per couple norm without having to face some kind of backlash somewhere down the line. If in the short run they have managed to push back the population growth rate, in the long run they are going to suffer for it!
The English edge!
Finally, India will continue to maintain its lead due to the English language factor. No other country can hope to catch up with India in terms of an English-speaking talent pool, not even China despite its larger population and despite its efforts to train people in English language skills. Some time back there were reports out of China that parents there were resorting to surgical interventions on the tongues of their children with a view to make these children better able to pronounce English words. I have no doubt that such moves will only cripple many innocent children but will not really solve the problem. India has too much of an historical edge to beat here. And as long as the United States and the UK continue to be leading global economies with most BPO/KPO jobs emanating from there, nobody can stop India's dominance. If the Chinese have any edge anywhere it is only with regard to the Japanese market. Japan so far has not taken to offshoring as much as the US or western Europe but things are changing. But trust me, India will be there too! So, all those envious of India's leadership position in offshoring will have to remain just that - envious - for a very long time to come. Good news for them will be hard to come by!
Read more: Business Process Outsourcing - Advantage India
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