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Thursday, Jun 06, 2002

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IT-enabled services market -- Unlimited opportunities lie ahead

Pawan Sohi

THE information technology enabled services (ITeSs) market is emerging as a key business opportunity for the export-driven IT software and services segment. Nasscom (National Association of Software and Service Companies) projects global opportunity for ITeSs — or remote processing services — at $611.4 billion by 2005. In a short span, ITeSs in India have grown from Rs 4,100 crore in 1999-2000 to nearly Rs 7,100 crore ($1.5 billion) in 2001-02. The ITeS sector currently employs around 107,000 personnel. According to a Nascom-McKinsey study, the ITeS segment is likely to generate over 1.1 million jobs in India by 2008. India is projected to attain the status of the `service process centre' of the world, capturing 38 per cent of the market share. A study by The Economist (`Back office of the world') states that costs of up to 40-50 per cent can be saved depending on the country to which the service is outsourced and the process that is outsourced.

The ITeS skeleton

An analysis of the definition of outsourcing and ITeS leads to differing views with similar baselines. One school of thought is that "ITeS is a special form of outsourcing service of non-core activities to a third party who owns and manages the process. This being driven by the need of the organisation to reduce operating costs on various elements hence increase profitability." While the others see ITeS "as the outsourcing of such processes that can be enabled with information technology, where these outsourced processes are critical to the organisations but operating at a low level of satisfaction with the in-house capability and expertise therefore requiring process improvement under stringent quality initiatives."

Categories, sectors

Processes, which were initially part of the legacy system, are now being increasingly outsourced to attain process efficiency and effectiveness. An ITeS category broadly includes:

Industry-specific processing service, with focus on improving delivery quality and experience.

Customer management services, for enhancing process experience, capturing the mind share of the customers' customer.

The predominantly popular back office support services, which are increasingly being outsourced to reduce costs and, hence, attaining profitability. Increasingly complex and diverse needs are spread over different industry sectors of banking and finance, retail, telecom, logistics and entertainment.

A synergetic approach between government and industry players can create a congenial environment for India to leverage on its strengths.

Companies are looking to India as their back-office. For instance, Standard Chartered Bank (SCB) has already initiated this process with the opening of SCOPE International, with its shared service centres handling the back-office for SCB. The World Bank, too, has initiated the process.

Advantage India

India has immense advantages supporting ITeS operations. These include time-zone difference, which results in 12 effective working hours; and low costs of skilled resources with salaries between a fifth and a tenth of that of developed nations. In addition, there is the technology advantage, with 4.2 million IT professionals and 17 of the global 25 `SEI CMM Level 5' companies being from India.

According to the `Destination India' survey by Merrill Lynch, cost-cutting is a key criteria for outsourcing to India while cost saving was viewed as India's main competitive advantage in this industry.

Liberalisation of global markets and reduced transaction costs (aided by the use of shared infrastructure) augurs well for India, which is also focussing on convergence (providing shared communication facilities), digitisation (enabling immediate distribution) and networking (developing global network markets for easy access and wider reach — the levers for success in the ITeS market. Domain excellence centres can leverage with the balanced use of market and technology focus.

Risk factors

There are certain risk factors that need to be addressed regularly to avoid pitfalls, and these fall into three basic categories. First, the factors that add to the cost of services, comprising power supply problems, unclear scope of ITeS for tax concessions, and lack of structured training programmes and government support with regard to regulation.

Second, the inability to provide innovative services. This is because of poor telecom infrastructure, lack of adequate training in domain skills and restriction on interconnectivity of facilities. And, third, the risk of competition from other countries with similar cost advantages as India's.

The first two factors can be addressed locally with collaborative efforts and synergetic views. But competition is an issue of concern. Other countries are fast increasing their presence in the ITeS market, these being largely from the Asia-Pacific region. A KPMG study reveals Ireland and China as major competitors. Ireland is fast investing in building its infrastructure and skills, while China, with a balance of strengths, is all set to hit the global market. China's vibrant domestic IT market and its increasing share of the IT services export segment are indicators of its growing strength.

The focus areas

By focussing on people, process, technology and perceptions, the baseline factors of ITeSs, India can develop the right environment to gain a major share of the global market.

The skills of the vast pool of English-speaking people, the country's main asset, must be honed. The focus of training must be to develop soft skills — that is, improving the knowledge of foreign languages, reducing regional accents, and cross-cultural training. To improve domain skills, the focus should be on specific areas such as HR, finance and law, and familiarising the people with industry-specific terminologies. Functional skill training, being the most important, should look to enhancing customer care and sales techniques, marketing concepts and business skills.

Tata Infotech has already initiated ITeS courses in this direction. Intel is joining hands with NCERT to promote a better interface between technology and the educational curriculum to build the concepts of ITeS right from the beginning.

As regards processes, a joint effort by the government, support industries and industry players is needed to propel ITeS into an independent industry. Regulatory reforms on data management, data security and disaster recovery must be in keeping with international standards.

Moving to technology, a study by Tom Soja and Associate Inc. (2001) shows that the international bandwidth requirement (IPLC) for India-based ITeS providers alone is projected to grow from 0.1 Gbps in 2000 to 375 Gbps by 2010.

This clearly highlights the need to improve telecom infrastructure along with property, power and transportation facilities. Quality initiatives such as Six Sigma, COPC, and so on, need to be embedded into the delivery mechanism and processes.

India has already gained an appreciable market position with its onsite/offshore software development model. ITeS players can gain mileage from this and build favourable perceptions, achieving higher market share. Strengthening this with better client relations and trade fairs highlighting India's presence as a global outsourcing destination can develop client trust and, thereby, enhance the service delivery experience.

Marketing speed, innovation in service delivery and noticeable global presence are essential for success. India needs to study the competition by keeping a close watch on the rapidly changing business environment, business needs, infrastructure developments, new technologies and skills development.

(The author is a consultant with Mafoi Management Consultants.)

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