Reverse Salient - Impeding India's march to prominence

Reverse Salient to impede India’s progress in IT

IT’s happening

Post the opening of its markets several years ago, India has progressed from being an outsourcing destination with a business model primarily based on cheap labour to one based on intellectual arbitrage. Along with the burgeoning IT outsourcing market came the rapid strides of development in telecom, healthcare, education and manufacturing. Today, India isn’t just about cheap coders; it is an integral part of the global supply chains. While the IT Services sector has been expanding its footprints at a scorching pace, it has also caused a ripple effect of growth in other sectors as well leading to the emergence of a consumer class that is larger than the total population of US. The substantial investments pouring into the country towards various sectors reflect how bullish the world market is towards India.
Sustaining the growth
Milestone growth in FDI inflows during 2006-07. As of April-October, FDI flows touched $6.1 billion compared to $2.6 billion during the first eight months of the previous fiscal.The days have been bright hitherto. However, the unprecedented and unmatched growth seems to have overtaken India’s developmental process. India, as several reports suggests is bursting in its seams as issues pertaining to infrastructure and availability of quality human resources increase by the day. There was a time, in the distant past, when development took simple forms – tractors replacing bullock-carts, mobile phones reaching more people than land phones, cable television over satellite, e-mails gaining prominence etc. But development gets more complicated as it advances. The simple forms become more elaborate, and they begin to merge into ever more complex systems. Today, a lot of the developments undertaken form components of such large and complex systems, and its success can hinge as much on other components of the systems as on their own specific developmental qualities.Today, it has become imperative to not only understand the systems but develop foresight on how they're likely to evolve and how such an evolution can be leveraged to gain advantage.
Well, it is certainly difficult to develop foresight. However, the concept of “reverse salient,” can be effectively put to use to understand developments, the various components forming the developmental process, the larger ecosystem under which the development takes place and the repercussions of the ecosystem formation. The concept of “reverse salient,” is borrowed from military jargon, where it refers to a section of an advancing force that falls behind the front and hence slows the progress of the attack. All developments evolve in a similar fashion with advancement hampered by reverse salient that occurs in the developmental process, some components of it or in the larger ecosystem.

Losing Edge

The proliferation of tier II and tier III IT companies in India have resulted in IT Services/ offshoring getting commoditized. With cost undercutting prevalent, Tier I IT companies are required to play the game differently and in came the strategy of scale-game. Companies are now ramping up operations by thousands of employees per week. Is India game for this? Well, a sneak-peek at the attrition levels of Tier I players reflect that all’s not well. The reverse salient here is that in a scale game, knowledge inventorying is overlooked, which will cost the company dear. With intellectual capital forming an integral part of any IT services company, retention of employees is a necessity as it enables institutionalizing processes, skills and knowledge. Hence, until and unless a company has a robust employee retention strategy in place, it is better to refrain from scaling up. Why not play the specialist?
The total direct employment in the Indian IT-ITES sector is estimated to have grown by over a million, from 284,000 in FY 1999-2000 to a projected 1,287,000 in the current fiscal (2005-06)

In addition to the nearly 1.3 million-strong workforce employed directly in the industry, Indian IT-ITES is estimated to have helped create an additional 3 million job opportunities through indirect and induced employment. Indirect employment includes expenditure on vendors including telecom, power, construction, facility management, IT, transportation, catering and other services. Induced employment is driven by consumption expenditure of employees on food, clothing, utilities, recreation, health and other services.
There’s perhaps only one resource that can beat the rising oil price – an Indian engineering graduate. India produces about 3 million students from its universities each year. According to a survey by National Association of Software and Service Companies, about 25 percent of them are engineering graduates. The number seems to be not enough, at least in terms of quality. The available quality resources come at a premium and their wage increase is creating waves not just in India but across the world. Last year, according to the Global Salary Planning Report, Indian wages grew more than and other Asia-Pacific country - by 13.5%. In the IT sector wages grew by almost 20%.The advantage of cost arbitrage suddenly seems to be diminishing. Another case of reverse salient. Having witnessed enormous growth in outsourcing, shouldn’t the country have had a team ensuring seamless growth by building a robust IT ecosystem? The reverse salient here is not only unavailability of quality engineers but number of engineers to cater to the IT industry’s requirements. A report by Nasscom-McKinsey suggests that India could come up short in the global outsourcing industry by about 500,000 professionals before 2010.
With the IT outsourcing market increasingly getting commoditized, feverish campaigning is on with Indian IT majors harping on “India Moving Up the Value Chain.” This will imply the need for Indian companies to “innovate” and develop software products. Does India produce graduates who can work on innovative software products? The answer is no. Out of the 350,000 engineers spewed annually by various colleges, less than 25% are employable in IT services companies. Software product development requires intensive research, understanding of the market place and a mind that is tuned to continuous innovation and unfortunately Indian engineering graduates does not measure up to that challenge. The need to nurture talent that can innovate is the reverse salient here.

Intellectual Arbitrage

That’s the new mantra today, a transition from labour/cost arbitrage to Intellectual Arbitrage. The idea is to focus on the numerator part of businesses and not restrict offerings based on denominator. One needs to be capable to change the mindset of existing/prospective clients from “lower price” mentality to “better/efficient outcome at the same price.” Vertical knowledge coupled with horizontal know-how is essential to take such a proposition forward? Can Indians do it? Well, revisiting the reverse salients and ensuring proper investment to get rid of such salients could enable India to change the battle ground where Intellectual Arbitrage will be the decisive factor.