Changing nature of outsourcing-let us understand!

The world is flat and India is at the epicenter of the flat world!

Outsourcing is Bangalore IT industry’s new cutting edge opportunity. It started in several forms, business process outsourcing to now so many other more focused areas.

The current mood in Bangalore is one of restlessness of youth employed in this sector, the typical average age group is 23-31 years and they represent a new skills set and experience that was not there a few years ago. That makes all the difference for the new India and the young India that is emerging fast.

The youth aspire for more exciting deals, they seek a fast track career growth and surprisingly, money alone doesn’t drive their motivation and commitment. This is an entirely new phenomenon in the Indian development scenario, this youthful enthusiasm and a daring to change jobs and careers in a quick succession cycle. More than 70 per cent of them have been promoted in the last one year, more than 75 per cent of them have been with their current employers for less than 2 years of experience in IT and IT related fields.

The average annual salary of job seekers in IT profession, in Bangalore and Gurgaon is just above Rs 6 lakhs, the highest in the country. Chennai and Hyderabad come next only with only around Rs.5 and 5.5 lakh rupees.

Another changing trend is the constant search for new job prospects.60 per cent of them have posted resumes on job portals revealing that they are constantly in search of new avenues, new high salaries and also new satisfying jobs. Only 29 per cent are highly satisfied with their current jobs.

The new thing is that so many startups are coming up, each with a unique business model; the new BPO startups are as varied as there are human needs, from matrimony to jobs to tutoring and what have you. The social network sites are now spreading and with the fast changes in technologies and devices, so many new innovative businesses and business models we can only anticipate, anticipate with betting breath!

Now comes the news that low cost locations are also changing. The first principle for any outsourcing deal is how low cost is the location. Even now, India and China are big bets. But other countries are also emerging very faster. A news report says that in Eastern Europe, after the Communists vanished the outsourcing opportunities opened up for Western countries and it said with a sweet irony once the Communists moved out, the capitalists moved in! Yes, it is as simple as that! Now after 18 years, the economic freedom these new countries enjoyed is changing. The unprecedented boom may go bust very soon. Experts warn that the boom could lead to high costs and once this happens they, these economies might price themselves out.

It has happened before, Singapore, Mexico, Thailand where the cost advantages disappeared and no longer these destinations count these days. Warn experts similarly for Eastern and Central Europe, very soon the outsourcing deals might move further East, to Russia, Ukraine and Belarus. Of course, outsourcing here doesn’t apply to IT industries; it is for other ones like clothing and textiles. Also, Rumania, Hungary and Poland might lose out to Russia and Ukraine.McKinsey predicts that by 2008 more than 130,000 new jobs might be created in Russia and Ukraine in these outsourced industries.

Cultural proximity is another new factor in outsourcing within Europe. The industries prefer closer locations than far off countries in South East Asia. One more new consideration is the smaller towns with universities which could supply low cost skilled hands! Our universities also must take a leaf out of this news for our universities have to redesign their curriculum to the business demand created in the outsourcing space.

Education and training for the outsourcing industries must be the new curriculum focus. McKinsey gives the example of a new town of Cluj, the northwestern Romanian city where Nokia has just announced to open a cell phone making plant! Nokia will invest 80 million dollars in this new plant. Imagine the jobs creation potential of this investment in a remote city in Romania! Jobs of 15,000 predicted for this centre. Romania’s IT industry grew 35% in 2006 to over 1.6 billion dollars.

If wages in a location grow to within 70-75% of US salaries, then the US loses interest in such locations. What gives India and China an edge in outsourcing, says experts, is the fact that these two countries have kept compensation levels down to 3% of the US levels. By contrast, in some sectors in Romania wages are rising as much as 50% of US levels and are growing by 20% a year. This spells doom.

Czechs are the top wage-earners in Central Europe. Last year, their average monthly salary rose by 6.5% to the equivalent of $963. Yet high wages it seems don’t seem to deter South Korean investors, Hyundai or Samsung that are putting up plants there.

Microsoft is also a heavy investor in Eastern Europe and where it has now 1,000 people, now another 600 more software specialists.” the snowballing of outsourcing is big and it can’t be instantaneously stopped” said a Romanian software company spokesman.

Now, Thomas Friedman of the flat world fame says that Kenya is also fast emerging as a call centre outpost. KenCall located at an avocado processing plant is the largest of Kenya’s blooming outsourcing call centre, employing 300 employees, earning 3.5 million dollars, since three years when it opened. This is good news for the entire African continent.

Yet, the point is that the rising wages in Eastern and Central Europe are causing concern in the outsourcing sector outside Asian countries. Bangalore IT companies are now progressively entering into high end jobs. Infosys and TCS are working with Airbus and Boeing on highly technical jobs, their software is now going to redesign the cockpit in the new generation planes which will have half the hundreds of switches, replaced by touch screens. The outsourcing jobs are becoming more demanding and more and more Indian engineers are being employed and in fact they are employed to stay in India and do the work.

“India is at the epicenter of the flat world” says the VP of IBM India and China. IBM has shrunk its American workforce by 31,000 since 1992; now its Indian staff in Bangalore and elsewhere has jumped to 52,000 from zero. Bangalore city is itself a visual changeover as a witness to this dramatic shift. Once the desolate airport road is now dotted, choke a block, with all MNCs, Intel, IBM, Dell and what have you. The per square space in and around the Bangalore airport must have more IT companies, the numerous small flats and apartments must also house perhaps the largest number of startups, from one to 5 to 10 and more small and compact outfits doing unbelievable outsourcing jobs!

The cost in Bangalore is about one fifth of the American costs. Plus, the time cycle, the typical American outsourcing jobs work starts at 7.30 pm and continue till 6.30 am. It is this time advantage that has changed Bangalore into an all night work city and transformed the very infrastructure, be it the traffic, the taxis, the restaurants, the power backups and the very willingness of the youngsters, both men and women to stay wake up and make the most of their skills into hard currency deals!

Silicon Valley, the original home of the micro chip which transformed the very technology face of the world, from 1971 to 1981 and then on to WWW to Internet is all old stories now. What matters now is the Indian Silicon Valley’s growing technical skills that make India a software powerhouse, now the higher end jobs that once thought is the American preserve is more and more being invaded by the Indian engineering skills.

One doesn’t know how long these good times persist. It looks from all the available indications, given the Indian skills creating capacity, the very many engineering colleges producing highly qualified graduates, the Nasscom body’s prediction of India facing shortage of skills of some 500,000 engineers by 2010 is a very encouraging long-term prosperity.

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