Life is not going to the same for technology outsourcing players from the sub-continent as their much touted cost arbitrage over rivals are fast eroding, thanks to an array of factors such as spiralling wage inflation, talent crunch and commoditisation of low-end tasks. On top of it comes the threat from across the Great Wall, with China poised to take a leap into the technology outsourcing space. Vineet Nayar, vice-chairman and CEO of HCL Technologies, tells S Saroj Kumar of FE that late rising stars like China and Vietnam could spoil the great Indian outsouricing party.
What are the immediate and long-term threats that loom over the IT outsourcing industry for India?
We are undergoing unfriendly disruptions since the recent past like anti-outsourcing ban of Ohio state and hiking of H-1B visa fees mouting challenges to the $50 billion Indian IT industry. Uncomplainingly, Indian companies have to toe the line by abiding by ?locals first? assertion of the governments. I would say by 2015, China and Vietnam in APAC could have developed the potent capabilities to snap up commoditised business from India by flashing their low cost credentials. Arbitrage players for sure are expected to applaud the rising of alternate locations to India.
What kind of threat you perceive from China and the US ?
China is already servicing a large portion of Japanese manufacturing IT market that is different from India?s service-oriented IT sourcing. China enjoys cultural affinity with Japan and advantage of having Japanese speaking local software engineers and BPO (business process outsourcing) executives to work in call centres, contact centres and help desk servicing Japanese clients. It may not take much time to learn ropes of IT exports when China has proved its resounding capabilities in manufacturing exports. What?s happening in the US breeds even more wariness. Similar to Indian IT SEZs, the US government is planning to create India-like cost arbitrage centres in Western region of the country. The US federal government is planning to promote tax-free IT zones with lower tariffs in the Western region. This is to boost local job creation with native exclusivity and spread the IT penetration beyond the Silicon Valley. Passing through a painful job loss phase, the US government is doing all things possible to wrest high-paying tech jobs moving out of the country. Addressing issue of vacuum in tech talent base, Obama administration has already kick-started the ?Change the Equation’ programme? aimed at revival of Science Technology Engineering Maths (STEM) education among the young Americans. With pledge of support from top US business houses, the federal government is pursuing the STEM literacy programme with missionary zeal as it is targetting to reach 10 million students in next four years.
Besides China and the US, do we foresee challenges from technological advancement of IT ?
Besides upgrading the quality of human workforce, efforts are on to automate certain delivery capabilities like coding and programming negating the need to employ software programmers and code writers in large numbers in the Industry.
With China emerging as the world?s second largest economy, do you anticipate high flow of future outsourcing contracts from China?
Other than the US and Europe, China is one of the promising markets in APAC for India. The rising dragon offers large transformational opportunities for Indian IT firms in Asia. Indian IT has already built its niche by catering to the `Fortune 500′ club. Indian IT companies are ‘near shore’ when Chinese MNCs arrive on stage. The future potential could be flow of cross border IT outsourcing helping large-scale Chinese firms with niche and mature IT capability delivery models.
