Several policymakers and decision-makers have said that India can become the global backroom to provide all kinds of services to the world. What’s happened in software and BPO can be replicated across other services segments. A number of CEOs one has met in the recent past have enthusiastically parroted that India can do what the US has done, after it faced intense competition in the manufacturing sector from Japan. For instance, when production of automobiles and other products began shifting to, initially, Japan, then to other East Asian nations and, finally, to China, the US became a truly knowledge/services economy. It retained its edge over other countries by graduating to high value-added areas.
At least, in software, a few of the midsized companies are rapidly climbing up the value ladder. MindTree Consulting has created a number of IPs in bluetooth,I-Flex has done the same with its product Revelus, and Subex has done some good work in the anti-fraud software space. Similarly, in financial services and the media domain, a huge amount of mid-level research work is shifting to India. The same is somewhat true in areas like design and pharma. But, at this point in time, it doesn’t merit the sense of achievement or excellence that is being portrayed by experts.
Let’s just consider one area, software, where India is perceived as a clear global leader. If the current marketcap of the top 20-25 firms is discounted, the hundreds of others enjoy a low respect among investors. Similarly, if one takes out the turnover and profits of the top 20-25, the average revenues or profits earned by the remaining software firms is quite small. And a trip to hundreds of smaller firms—I myself have visited some 50 of them over the past few years—shows that the quality of work can’t be too high. All these factors clearly indicate that the bulk of India’s software exports is of low value, and merely dependent on labour arbitrage (or the difference in wages between a developed and a developing economy).
In fact, many think that what India is doing right now is creating a new socio-economic segment in society, called software clerks. After years of generating administrative babus, inefficient public sector officials and robotic shopfloor employees, we are making slightly efficient software workers who end up doing monotonous work. And many of the huge software campuses are turning out to be nothing more than high-tech sweatshops. Hundreds of software guys I spoke to in leading firms privately admit they are merely doing mindless work—day in and day out. The only consolation is that their work environments are impeccable.
Another dark side of the software story that no one talks about is the perception that some firms are using the route to convert black money into white. Several investigating agencies in India have found cases where software exports were only on paper, but foreign exchange would flow in. Their conclusion: money stashed away in foreign banks and tax havens is being re-routed legally back into the country. And since exports are exempt from tax, the exporter doesn’t even have to pay a part of it to the government. This perception deepens when one visits the premises of a few smaller firms, where there are no employees, and only a nameplate and an odd caretaker greets you. You ask the caretaker about the work that goes on there, and he looks at you with a blank expression. The normal comment is that the owner visits the office once or twice a month for only a couple of hours. Otherwise, the offices remain empty.
I realise that many of the readers would be willing to strangle me at this stage for voicing such seemingly anti-nationalistic thoughts and for denigrating a sector which is globally recognised by everyone. That’s true, but, as usual, it reflects just one side of the coin. Since so much has been said of India’s software prowess, I am showing you the other side of the same coin. And both these images are true. If you think I am exaggerating, let’s take a look at another potential segment—BPO, KPO ITES—where India can become a global player.
A number of call centres and BPO firms are now hiring people who have just passed xii class. The industry claims it’s due to a huge manpower shortage as business is growing by leaps and bounds, and the high attrition rate. But without being condescending to the not-so-highly literate people, one can still safely assume that the firms hiring them aren’t involved in highly skilled activities. The work out there has got to be of low value. Most call centres actually do work that is shunned by most workers in the developed world. Ironically, call centre work is among the most hated professions in the US and many European nations.
Obviously, one shouldn’t make a hue and cry about medical and legal transcription, or even the low-end research work that’s being increasingly outsourced to India. The points I am making are simple. If India continues to dominate in low-end work, what’s happened in manufacturing will repeat in the case of BPO and software. In manufacturing, as I said earlier, jobs shifted from the US and Europe to Japan, East Asia and China. Even in software, one has seen the same trend, as jobs have shifted from the US to Ireland to India and the Philippines. But China is catching up fast, and threatens to dominate the world of BPO as it has in the case of manufacturing.
Therefore, India needs to get into high-value work—and fast. The window of opportunity that we have is getting smaller by the day. Three years ago, software CEOs used to contend that competing nations would take at least 10-15 years before they can seriously threaten India’s dominance. Now they are not even confident about five years. Many global experts feel that within the next 3-4 years, most of India’s software exports will be through their China-based subsidiaries—a clear indication that China would have overtaken India’s competitive advantages by 2008. It’s not a time to celebrate, but one to shift to fifth gear and accelerate.
