A couple of hours after I finished writing the post below, another perspective came to my mind which made a lot of sense and was in a way a little contrast to what I had written in that post! But then again, I believe, some perspective is better than none!
In the post below, I mentioned that the growing IT/ITES/BPO/KPO market in India is mainly thanks to the growing developed nations like US and developed part of EU and that now that when the developed nations are showing slowing growth or stagnation, this will directly impact the growth of the IT/ITES industry in India.
However, when I thought about developed nations stagnating or growing slowly. I instantly thought the margin pressures that these developed nations will immediately face due to the recession. These margin pressures will in-turn enforce cost-cutting and efficiency improvements in the companies, for which I believe they will again turn to comparative-low cost and knowledge-based economies like India.
This will lead to more offshoring of activities with focus to improve efficiencies. Again, the amount of this offshoring will be not a very impactful size as the unemployed in those developed nations will also be utilized at a low-cost to generate the same efficiencies.
I have been meaning to write this post as soon as I wrote the earlier post of "At the mercy of developed nations", however my laziness took over me. I saw an interview with Stephen Roach, Chief Economist, Morgan Stanley on TV yesterday where he mentioned a similar perspective, which reminded me to put down my thoughts here.
More offshoring - Bring it on! Right guys? We can take on some more of US depending on India to save some of their losses :)
But considering the entire corpus/size of offshoring is likely or logically should go down if US hits recession, I would still think that the net effect would be a slight reduction in offshoring.
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5 comments:
So India missed the manufacturing bus..BIG DEAL.
If you look at the evolution of any major economy, it has evolved somthing like this : Agriculture-Trading-Mining/Petroleum-Manufacturing-Trading again and finally services. You will note that I do not mention IT. I think of IT as an enabler of core industry more than anything else.
We did not go through that whole cycle. We jumped from a largely agrarian economy to a services based one in the span of a couple of decades. Sure, we do have some manufacturing and many of our folks are in trading, but at this point in time, services is driving the economy. and guess what.. we are servicing someone else.
Once that pipeline shuts down, will our economy slow down ? I think not. This is why, IT/ITES has been priming the pump, just getting it started.
More IT cos means more real estate. more real estate means more cement, steel, power. this also means that there are more people who can afford goods. This in turn will drive manufacturing of automobiles, kitchen appliances and houshold goods. having these goods means that people would need to use them and would in turn translate for better quality of goods ( food etc).
Once the cycle starts, the economy will be able to break free of servicing the west. The demand will be locally generated.
So I think you can expect to see more local businesses coming up. People will take more risks in setting up places like cafes or video chain stores to serve local needs.
And when the recession does finally hit the west, it will not impact us all that much, simply because we have a support system at home.
Many other individuals never realized that our generation is no longer under the industrial era. Our time evolve faster than ever, so we must take a look that our time is already under the IT or communication era....wherein computer technology dictates the pace.
There are still people who concentrate on agriculture, mining and many other industries. But most of the businesses happen faster thru the net.. Yes, service is not excluded. All industries cover services, even in our own time. That's why people keep going to school because of service..
Have a great time!
Interesting perspective, however, last month I happened to read an article which spoke about a US based firm's Bangalore office which provided back-office operations to hedge funds in the US and the UK closing down abruptly. The reason cited by the management - increasing attrition and rising costs for closing its Indian operations.
Interestingly, a recent Forrester report stated that in the past two years, more than 300 North American and European companies started their own offshore set-up to lower the cost of product development or back-office operations in India, but clearly over 60 per cent of them were struggling due to spiralling costs, rising attrition, lack of integration and management support.
India may also soon loose its competitive advantage of low cost English speaking labour pool due to the appreciating rupee and the rising attrition rate in this industry. So not all may be as rosy as it looks for this industry and there could be a phase of consolidation which started out as a mad frenzy where everyone wanted to have a 'back-office' in India.
The industry would mature and companies would re-evaluate how much exposure should they be taking in India. Infact, there has been news of various captive centres being put on the block (the most prominent being the Citigroup’s BPO arm) and other third party BPO’s struggling to maintain growth and margins, so interesting times ahead?
Well said.
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