Sunday, April 27, 2008

Global knowledge partners

Cost competitiveness is passé, it is strategic intellectual partnership now...

Companies from Middle East and South East Asia are finding it increasingly difficult to hire talent from India. And even if they manage to, they don’t get the crème de la crème, as Indian talent seems to earn almost equal, if not more, in India than what these companies have to offer. So, gone are the days when companies from abroad used to come and shop for Indian talent, taking full advantage of the cost arbitration. In fact, the way things are shaping up, it is just a matter of time that even American and European firms would find it challenging to hire Indians at current levels. And if this happens, then what happens to the entire off-shoring business in India, is a big question, and has been bothering the pundits since some time now.

Indian off-shoring boom, which started somewhere in the mid of last decade, had been primarily thriving on the cost advantage that India enjoyed over other developed parts of the world. And thus, the industry grew by leaps and bounds, clocking a staggering CAGR of almost 40% over the last decade. An industry which started off primarily with low cost based processes, gradually moved up the value chain and started catering to high end, technology, manufacturing, intellectual property, legal and financial related services. But irrespective of the service verticals, the key pivot for sustenance of these businesses had always been around the cost arbitrage, which India and Indian companies enjoyed over their developed counterparts. And, as cost advantage had been the key strategy, with increasing costs, most of the off-shoring service companies have started moving towards B and C-class towns within India, to remain competitive in business offering. Though for a short run, this move would definitely help them considerably reduce their real estate and talent hiring costs, which had been spiralling in the A-class towns in India.

But then the question remains – how long can this sustain? As more and more companies move south, invariably the costs are going to go up there too, probably pushing them to move out of India to further low cost destinations in Asia or Africa, but then if that happens, India loses the advantage that it had created as a knowledge destination. And that is going to be most unfortunate. To make sure that something like this never happens the industry has to realise that cost arbitrage was imperative for a foothold in the off-shoring business, but then it was always more of a strategic partnership, wherein India’s role was to offer an abundant reservoir of intellect to highly knowledge driven processes of Global companies. It is also for them to realise that with intellect, comes an infinite knowledge bandwidth, which the global firms are short of, and that’s where Indian companies can negotiate a premium. The day Indian firms effectively carve this niche and extract the premium, will be the day we would truly become a world class knowledge super power!! And if we fail to build this niche, then we are definitely going to lose out on the cost competitiveness to other developing and under-developed nations!!


No comments:

Post a Comment