IT’s rockin’

The rush to join the IT bandwagon is great. But will the party last?

Arun Varma Delhi

AH Srinivasan, a manager with a large financial enterprise, is cracking his fingers in anxiety. "If my son can get computer science at Vellore Institute of Technology, I will immediately proceed to Tirupathi to thank God," he says. Joseph Jacob, a senior officer in the ministry of home affairs, and his wife are trying hard to persuade their son to opt for information technology (IT) as a career. Justin Jacob, an alumnus of St. Columba's school, New Delhi, wants to pursue hotel management instead.

Like it or not, Generation X cannot escape the glare and glory of IT. Some are willing to be drawn, others will be pushed into it. This is the effect of the grand entry of an industry that promises to consume more human resources than the country can produce. And it is going to grow further. Or is it? To get the answers, some parallel thinking is required.

The software industry and the country's earnings from it are surging. Today, industry earnings stand at around $16 billion. Industry apex body, NASSCOM, is predicting over 15 per cent growth on a year-on-year basis. IT-enabled services (ITES), is one of the biggest employers. Allied services like human resources development, finance, and semi-skilled professions are also growing. Overall, these function as persuasive arguments for Srinivasan and Joseph Jacob to push their kids into IT careers.

But there are hurdles. And clouds can be seen gathering on the horizon. Ramalinga Raju, chairman of Satyam Computers, one of the larger software companies in the country, reported a 3.9 per cent (Rs.138 crore) dent in their second quarter earnings this year and put the blame on the appreciating rupee. Infosys issued profit warnings to investors before it announced its second quarter results. Tata Consultancy Services (TCS) and Wipro are watching. Clearly, a stronger domestic currency is not going to favour companies that depend mostly on foreign currency earnings. With the increasing rupee-dollar parity, companies will have to rework their strategy.

Some companies have already made sure-footed moves towards what is called 'reverse offshoring' — Indian companies, which are becoming major players in the international arena, are hiring aggressively in the United States, reversing the earlier trend when they always transferred Indians to work in America on temporary visas. A recent report by Forrester Research names India's largest offshoring firm, TCS, and software giants Infosys and Wipro among them and says that some American workers who were laid off have now been re-employed in Indian outfits after receiving training in India.

Wipro Ltd, for instance, is scouting US locations for two big software-writing centres, each of which would eventually employ hundreds of programmers. Cities on its short list include Austin (in Texas) and Atlanta (in Georgia), because of their deep tech-talent pools and reasonable salary costs, a leading business magazine says. "The work we're doing requires more and more knowledge of the customers' businesses and you need local people to do that," Wipro Chairman Azim H Premji was quoted as saying.

Today, only 2.5 per cent of Wipro's global workforce is non-Indian. But the company wants to boost the number to more than 10 per cent in a few years from now. Indian outsourcers say their US expansion plans predate the latest concerns over immigration and jobs. But they acknowledge the fact that the trend might ease tensions as the US Senate mulls new regulations concerning H-1B visas (temporary working papers for foreigners).

"If we can hire close to our clients, we don't have to bring in somebody from India to the US on an H-1B," says S Padmanabhan, Human Resources chief for TCS. Secondly, the vast ocean of Business Process Outsourcing (BPO) and Knowledge Process Outsourcing (KPO) firms can exist as long as they demonstrate capability on both delivery and costs. On the cost front, BPOs and KPOs are getting a beating. Over the past one year, the rupee has appreciated about 10 per cent against the US dollar. This is bad news for BPOs and KPOs. On the second aspect of capability, Dr Paul Roehrig, senior analyst with Forrester Research, points out: "Global giants like Accenture and EDS lead the pack of software services. Though India has the reputation for being the hub for offshore BPOs, there are only four companies that qualify on a multiple-parameter quality assessment. They are TCS, Wipro, Infosys and, though small, HCL Technologies. Satyam is a contender."

So where have all the other companies gone? Nowhere. As of now, they are working fine. But there could be a problem sooner than later. NASSCOM realises this. Kiran Karnik, the president, says: "The smartest way for the Indian ITES is to climb up the value chain, quickly." This is easier said than done. Some of the data leaks and thefts at Indian BPOs have cast a gloom over the industry and raised security concerns for foreign corporations about letting these BPOs handle their proprietary data.

Climbing up the value chain also means hiring specialists in respective fields. Large clients are mostly abroad. Constant interaction with them requires that professionals should be stationed near them. Rupee appreciation means that hiring professionals from the local areas is less expensive than sending Indian IT professionals abroad. Thus, we once again come back to reverse offshoring.

It can be argued that every Indian BPO or offshore software services company is not at risk because of these concerns. The Wipros and the Infosys' fare high by any global yardstick. Still, this does not guarantee a safe future for them. No Indian company is a software developer. All of them are software services companies. This puts our software giants way behind Microsoft, Sun, Oracle or SAP. Computing behemoths like IBM, Intel and HP also have their own proprietary software.

Anticipating the growth stagnation in software services, large companies like TCS and Infosys have already initiated work in research and development of software. However, worldwide, companies have a history of spending millions of dollars without any results. Software development is also somewhat of a treasure hunt that can yield great results or leave a company bankrupt. Ratan Tata's biggest success was that he could develop the small car Indica at a little over $700 million, way below the average cost of $1-1.2 billion elsewhere.

On the brighter side, however, is the cost factor. Like Tata Motors that developed the Indica at a lower cost, now Microsoft, Intel, HP, IBM and Oracle are all setting up their research and development (R&D) programmes in India, hoping to develop software at cheaper rates than what would cost them in their home country. S. Koppolu, Director, Microsoft's Research, says his company has long-term plans for India. The India Development Centre is gaining its own identity for its independent research.

However, competition is just around the corner. China is doing everything it can to prepare a generation of English-speaking, cost-effective computer professionals. The Philippines, though small in area, has long been an English-speaking society that has had very close ties with the US. As a result, India may no longer have the large BPO/KPO pie all to itself. By the time Justin Joseph graduates in IT, under pressure from his parents, the party may very well be over. After all…let's not forget the dotcom bust.