The Hindu Business Line : Political unrest can be costly to offshoring biz

Cost may be a major advantage of offshore working, but it would be a mistake to ignore the quality benefits, says Elizabeth Anne Sparrow in A Guide to Global Sourcing, from Viva (www.vivagroupindia.com) .

"IT (information technology) professionals employed in the offshore industry tend to be educated to a higher academic level than their colleagues employed in similar jobs in the US and Western Europe." Also, because wage levels are lower, offshore service providers are able to `invest in training and infrastructure,' despite operating under competitive conditions.

Few companies are confident enough to talk openly about their offshore work, rues the author. Such self-censorship around offshore sourcing has a stifling effect on honest information exchange, notes the preface, citing Computerworld.

"In the UK, there are many conferences and seminars about offshore outsourcing, but these are invariably dominated by consultants and representatives from the offshore industry who understandably stress the advantages and benefits of offshoring," writes Sparrow.

Her book, therefore, aims to provide `an impartial and balanced analysis of the offshoring trend'.

Resuming the quality advantage, the author concedes that early offshore projects were often bedevilled by poor quality and difficult communications.

"Realising the importance of improving standards and establishing a reputation for good quality, the Indian offshore industry in particular has invested heavily in setting up excellent quality management processes and complying with international standards. The major Indian suppliers have typically reached a higher level of certification than companies in other countries."

While that may be heartening to read, there is a sobering discussion of risks in a different chapter. Sparrow mentions the Kashmir dispute between India and Pakistan as an irksome factor in the geopolitical stability of the subcontinent. India holds the major share of the offshore market, but since the countries in conflict are nuclear powers, any military engagement could have `very serious implications for Indian businesses,' the author cautions.

"Venezuela illustrates the damage that can be caused by instability. The country was emerging as a potential offshore location until social unrest greatly diminished its prospects of developing a successful global IT services industry. Companies run the risk of becoming locked into a particular country that is stable now but descends into unrest in future years."

Among the other risks that the book lists are exchange-rate fluctuations (a current worry), and salary inflation (`wage levels for Indian software engineers are much lower than in the UK, but they are higher than salaries for Chinese and Philippine programmers').

Plus: "India's legal system is generally regarded as overly bureaucratic and slow, and organisations buying services from Indian suppliers often look for contract enforcement outside of India so that disputes can be resolved without lengthy delays."

Resourceful `guide' that you may source for your shelf.

IT factor in the growth story

Some argue that growth was triggered by an attitudinal shift on the part of the national government towards a pro-business (as opposed to pro-liberalisation) approach."

"After decades of slow growth since independence from the British Raj, Indian economy registered its own small miracle, when growth rate of GDP (gross domestic product) per capita surpassed the long-term growth rate of many advanced economies. What caused this miracle?"

Suparna Chakraborty of the City University of New York poses this question and searches for an answer in `Technology as a channel of economic growth in India' - an essay included in India Macroeconomics Annual 2006, edited by Sugata Marjit of the Centre for Studies in Social Sciences (www.sagepublications.com) .

"The common understanding is that the Indian economy saw an unprecedented spurt of software development, which, coupled with drastic changes in policy encouraging free markets and liberalisation, led to a rapid growth in productivity. This development, coupled with the fact that India is traditionally a cheap labour market, which now became a source of skilled labour, at least in the software arena, led to increases in output per capita." Simple enough theory to comprehend; only, `literature in this area has been comparatively sparse', and conflicting.

Chakraborty cites two prior works, one for and the other against. Singh, N. (2004) argues `for', in his paper titled `Information Technology as an engine of broad-based growth in India' that the IT sector played an important role in promoting economic growth.

"This view, perhaps not surprisingly, finds great support among the IT pioneers of India," comments Chakraborty. The `against' view is from Subramanian, A. and D. Rodrick (2004). "They argue that growth was triggered by an attitudinal shift on the part of the national government towards a pro-business (as opposed to pro-liberalisation) approach."

Seeing that the debate is `very much alive', Chakraborty adopts `an alternative approach to the entire question by trying to quantitatively account for the extent to which the growth rate of GDP per capita can be explained by growth in aggregate productivity', using `a dynamic general equilibrium model with exogenous productivity as representative of the Indian economy'.

The study looks at the period 1982-2002, `because the data on the availability of employment and hours was available only from 1982 onwards'. What are the findings? "Productivity as measured by TFP (total factor productivity) did play an important role in the Indian economy especially during the booms. However, during 1988-1993, the Indian economy experienced a sharp drop in productivity... ."

For the research-avid.

Tailpiece

"The boss is so hooked to his new BlackBerry... "

"That he refuses to take his eyes off the handset?"

"Exactly! And he waits for us to message him after entering his cabin... "

dmurali@thehindu.co.in