Computers Today, November 1-15, 2000; Tech Trends; Finding the Right Mix

Vast opportunities lying at the doorsteps of India Inc. will go untapped if we are unable to improve telecom infrastructure and move up the value chain

"Geography is history," says Raman Roy, CEO and founder, Spectramind, "in today's networked global village." With technological advances in the telecom sector and the dawn of the era of convergence, distances have been rendered meaningless. Given the vast pool of English speaking/writing and computer literate workforce, and cost arbitrage due to low salary structure, what is stopping India from becoming a hub of IT-enabled (remote) services?

Though we have made a humble beginning, there is a long way to go before the country is able to convert the potential into revenues (read dollars). At present there are 45,000-odd people employed in IT-enabled services or remote services, earning a revenue of Rs 2,400 crore ($560 million) for fiscal 1999-2000. But the more heartening aspect is that the industry holds promise of generating annual revenues worth Rs 81,000 crore by 2008 and could provide employment to more than 1.1 million people in that year, says a NASSCOM-McKinsey report 1999. Michael Dertouzox of MIT, regarded as a computer guru, on his part estimates that in the next 4-6 years, India could earn about a trillion dollars through the outsourcing industry.

The Spectrum
Among others, IT-enabled services include the following broad segments:

Call Centres: They are used by most of the large services and manufacturing organisations to provide customer information and services. They are used for responding to customer queries, telemarketing, etc.
Medical Transcription: This consists of transcribing medical advice recorded by doctors into Dictaphones or other such recording equipment, and sending them back electronically. The recorded advice are sent to offshore medical transcription centres in remote locations, mostly through electronic means.
Back Office Operations, Revenue Accounting and other ancillary operations: Using high-speed diatom links for back-office and data processing operations, organisations like airlines and banks with extensive data turnover and customer interface are able to save costs and improve productivity.
Insurance Claims Processing: Insurance companies, receive a myriad of claims from their customers. These can be handled remotely.
Web/Digital Content Development: Services required for developing digital/Web content for intra-organisation dissemination, Web site development and maintenance, CD ROMS and other forms of new media channels. Already a multi-billion dollar industry.
Animation: Both, 2-D and 3-D animation opportunities are increasing in the global market. The country has a high potential of not only making animation films but also providing such sercices.

Apart from these, there are a plethora of opportunities in data entry, data processing, payroll, GIS, database services, data digitisation, online education and many other emerging IT-enabled sercices.

Says Veer Sagar, CEO, TCG Software Services Pvt. Ltd, any activity that does not require face-to-face interaction between the service provider and receiver of service qualify for remote services. The fact that most of the companies in the West, specially in the US, are willing to outsource remote services, leading to the growth of this industry. There are three basic factors which are driving the growth of IT-enabled services; they are: outlocation, outsourcing, and the Internet. Outlocation is the term used for obtaining services outside the national borders of a company. Outlocation helps companies to lower costs, take advantage of the global 24-hour clock, find the most optimum global talent and achieve economies of scale by concentrating resources. A host of firms are now outlocating their services.

Western companies, such as Bechtel, GE Capital, British Airways and many others have set up shops here. Bechtel has set up its own engineering design subsidiary in Delhi. Over 500 employees in this subsidiary provide engineering design services to Bechtel customers over telecom and data networks.

GE Capital has also set up a subsidiary in Gurgaon near Delhi to manage payroll accounting and call centres, and to process mortgage-based loans and insurance claims. The subsidiary employs 1,000 people; this number is expected to rise to 3,000 by the end of 2000.

Outsourcing, on the other hand, relates to obtaining services from another organisation (or third party). Services currently outsourced include processing credit cards, claims and payrolls; providing information systems, such as data centres, networks, and help desks; and undertaking business processes, such as customer service, finance, logistics, and human resources, among others. Outsourcing has become a large market; currently it amounts to over $100 billion in value worldwide.

For Indian companies this mode holds the maximum promise. But there are many factors that are inhibiting the growth in this category. Other than infrastructure bottlenecks, Indian firms have to overcome hurdles like investments, lack of marketing presence in host country, indifferent quality and a host of related issues.

Most of the IT-related remote services require heavy investments in infrastructure and building up redundancies. And with long gestation periods, usually lasting more than a couple of years, only those companies that have deep pockets can hope to be successful.

Also, for Indian companies to be able to get business in host countries, they need to have a local presence, specially a marketing office.

Accroding to Tony Hales, CEO, Healthscribe India Ltd, a company engaged in medical transcription, "No American company will outsource work though brokers or to a company located outside the four walls of the country. Hospitals and doctors (in case of medical transcription) need to have a high comfort level that will ensure that the company they are outsourcing their works to are real brick-and-mortar companies which can be reached easily."

Like in most other areas, the Web is stimulating the growth of IT-enabled services as well by allowing companies to centralise services and/or operations at the globally most optimal location while providing access to customers anywhere in the world. Providing services through the Web is also significantly reducing transaction costs. To illustrate, an industrial company can reduce its transaction costs by 40 per cent by providing customer services through the Internet rather than through call centres.

Says Sagar, "Web-based business models will define the future thereby throwing up more and more opportunities for outsourcing operations that can be managed remotely."

E-enabled services have the potential to play a pervasive role across industry sectors and across the business system. According to McKinsey & Co., activities accounting for over half a trillion dollars could be performed by global E-enabled services by 2008.

A big opportunity awaits India in the field of online education. The E-learning market is expected to grow from $1.1 billion in 1999 to $11.4 billion in 2003, says IDC. Key contributors to this growth are the Fortune 500 firms who would be spending increasing amounts on knowledge management (KM) within their firms. It is estimated that KM alone will generate global revenue of $8.8 billion by 2004 (source: Ovum).

Says Sudip Sen of Karrox Technologies Ltd, the other driver for growth would be (online) education and training where mid-career professionals would be reskilling themselves on the Internet. According to Peter Drucker, the growth in education spending would not be in traditional colleges and universities, but instead, would be ramped up by Web-enabled continuing adult education.

Clearly, two of the biggest challenges facing Indian companies are the telecom infrastructure and power. There is an urgent need to provide reliable communications infrastructure at globally competitive prices. According to industry leaders, affordable and on-demand connectivity with 100 per cent uptime and reliability, in other words, adherence to global parity in telecom infrastructure, is the first step towards leveraging the goals. Warns Roy of Spectramind, "The disruption in STD services the country witnessed recently can spell doom for an IT-enable company in particular and the country as a whole."

The power situation is no better. General Electric CEO Jack Welch, during his recent trip to the country, sounded a word of caution for the India Inc. "All this talk of India having a huge opportunity in IT (and IT-enabled services) is fine but nothing will take off unless there is adequate power to drive the ventures."

Further, the country should not only take advantage of its large supply of talented and skilled workforce but also position itself as a global hub for remote processing. This would require all-round and continuous work in training more workforce, providing telecom infrastructure, new technologies and leadership in remote services.

Again, for companies engaged in development of bandwidth-hogging multimedia and E-commerce applications, lack of sufficient bandwidth at affordable prices is a major inhibitor of growth. In the West, the tariffs are discounted heavily as the volume increases, which doesn't happen in the Indian context.

Salary costs in India are sometimes only one-tenth of the salaries of developed nations. This cost-effectiveness more than offsets any additional telecom costs that the companies incur in outlocating their services to India. However, India faces challenges from a number of countries. The foremost challenge comes from Ireland, which like India has established itself as a major offshore software and services centre. It also scores over India in terms of infrastructure facilities. But the biggest drawback that Ireland faces vis-�-vis India is its limited number of skilled workforce. Other countries, specially in the Asia-Pacific region, are also in the fray for the remote services pie. They include New Zealand, Kuala Lumpur, Japan, the Philippines and China.

Here, China is emerging as key player and can be a major threat to India in the remote services arena. It has embarked on a massive plan to train people in English to overcome its handicap in the language. Industry experts feel that India has to aggressively look at long-term goals of providing skilled workforce in related areas so that at no point of time there is a dearth of quality workforce. Moreover, the country needs to move up the value chain and offer more value-added services than being satisfied by providing just remote services.

Currently, call centres and animation are the largest opportunities, accounting for 85 per cent of all IT-enabled services. But the scenario is likely to change over the next few years. According to the NASSCOM study, by 2008 content development and animation will witness the maximum growth and will lead the tally with a revenue of Rs 25,000 crore (from the present Rs 820 crore). Back office operations is expected to gross Rs 21,000 crore (present: Rs 950 crore), while customer interaction services (call centres) will take the third slot with a revenue of Rs 20,000 crore (present: Rs 400 crore). On the other hand, transcription services are likely to gross only Rs 4,000 crore (present: Rs 120 crore).

Third party management will form a significant share of the market in IT-enabled services, says the report. Companies will shift from obtaining these services through offshore subsidiaries to obtaining them from a third party.

The offshore economics of IT-enabled services will be as good as those of IT services. Revenues per employee for many areas of IT-enabled services are comparable to those of IT services. In fact, they could even be higher, since IT-enabled services could have a greater cost advantage given that the salaries of software professionals are rising rapidly, says the report.

For India Inc. to leverage the opportunities, it certainly needs to move over from just harping on the cost arbitrage factor, say experts. For this, it has to enter the second phase of growth-that is the companies engaged in remote services will have go in for process improvement by providing value-added quality services. For example, if a company were engaged in data entry, the next logical step would be to provide data analysis and data mining facilities. This way the company can help consolidate its place. And this is the only sure way to survive in a fiercely competitive world of remote services.