India’s Tech Industry Must Reinvent Itself

The Wall Street Journal - June 5, 2009
Raman Roy, chairman and managing director of Gurgaon-based Quatrro, is widely regarded as the pioneer of the Indian outsourcing industry. With more than 16 years in the business, he shares his thoughts on the future and what India needs to do to secure its dominant position in the industry. This is the first of three India Journals he will write in the coming week.

Year before last, India's Business Process Outsourcing industry did about $12 billion in sales. Last year, it was estimated at about $14 billion, which is a pretty decent growth rate of 15%-16%.

To what size can this industry grow in the next few years? A Nasscom Everest study said it's possible, if we do it right, for this industry to grow to $50 billion to $52 billion in the next five years. If we let the industry carry on at its normal momentum, we will reach $28 billion to $30 billion in five years. If we manage to rejuvenate the momentum of the industry and all stakeholders take a role, we could reach that $52 billion.

What's terribly exciting is an incremental 2 million jobs that can be created over and above the 800,000-odd we currently have if we can reach that goal. It is estimated that a $50 billion-a-year BPO industry could add 2.5 percentage points to India's GDP. And in addition to 2 million direct jobs, it could add 6 million indirect jobs – that's pretty serious, pretty robust for us as a country.

But there are multiple clouds and challenges that we face. First and foremost, the workforce. Then the growth (at least six-fold, as per the study) in the number of delivery centers needed. And the resultant increased movement to tier two and tier three cities in order to tap available talent pools. This necessitates the creation of enabling ecosystems that cover physical and social infrastructure, regulations etc.

“This is no more about labor arbitrage but the talent pool we can offer and the training and capabilities we have.”

Most importantly, where are these 2 million people going to come from that we could create jobs for? What are they doing today and what are we doing to train them for the time when these jobs are created? What is the skill set they need? These are the vital questions we as a country and we as an industry need to answer to make the most of these opportunities.

If this brings out that we are not very well prepared, there is more. Not only do we have to figure out how we will fulfill the growth in our industry, we need to reshape the industry as a whole to take advantage of new growth areas.

McKinsey and Nasscom released a report about a month ago with a vision for the year 2020. They said there was a huge future for BPO and information technology industries globally. But, lo and behold, 80% of what will happen in the future is in areas India does not play in today.

These are newer areas and a lot of companies will have to rejig to capture this. Brazil, Russia, India and China – the BRIC countries -- could provide $380 billion in new sales, according to this study. Small and medium-sized enterprises globally could add another $230 billion. The public sector, healthcare, utilities could chip in a further $190 billion.

The size of the market today is estimated at $500 billion globally but by 2020 could grow 40% to $700 billion, according to this study. But these areas mentioned above could add a further $800 billion – so a total market size of $1.5 trillion if you include the newer areas in which this industry could play. We are not even addressing that $800 billion opportunity today, If we are to remain dominant in this industry we need to reinvent ourselves. This is no more about labor arbitrage but the talent pool we can offer and the training and capabilities we have.

Are we as a country architected to create the talent pool or will we again leave it to the companies? We are all very proud of the huge facility Infosys has in Mysore for training people. But if a company like Infosys has to operate out of India in a world class manner, does it have to run a university? Or can we get trained people who in four to six weeks can generate revenues, the way that large companies overseas operate in any other part of the world?

The opportunity is there for India to leverage. We need to make a strategic gameplan.

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