The business world is being disrupted by the combined effects of growing emerging economies, shifts in global demographics, ubiquity of technology and accountability regulation. Infosys believes that to compete in the flat world, businesses must shift their operational priorities.

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September 15, 2006

The Role of Countries

by Stephen Lane, Group Manager, Infosys Technologies 

Many readers have commented about trends in resource availability and infrastructure.  Leaving geopolitical risk for another day, then, I’d like to open a discussion about the role of countries in global sourcing with respect to human resources, convenience, and infrastructure in India. 
India possesses clear early mover advantages, especially in terms of human resource availability, quality, and cost.  These are, for the overwhelming number of companies, the primary motivations for global sourcing.  Starting with demographics, India presents a much more positive picture than most other low-cost sourcing locations, including China, with their projected steep declines in the number of working age individuals as a percentage of total population in the next 10-20 years. 

However, only 61% of India’s people are literate and a mere 7% in the 18-to-20 age range is enrolled in higher education.  The numbers for China are roughly 91% and 15%, respectively.  Ensuring a large labor pool, not only to meet future demand but also to maintain a cost advantage, means investment in education and bringing more people into the workforce.

By convenience I mean cultural compatibility, the availability and expertise of potential sourcing partners, business transparency, and travel.  Here again, India possesses clear advantages.  Leading service providers such as Infosys have well-established relationships brand-name clients and world-class business and corporate governance practices.  And, as long as the demand side for global sourcing is focused in Anglophone countries the Indian services industry is well-positioned to maintain its leadership. 

How long will be the case, however, is open to question.  Especially as demand begins to shift to non-English speaking countries and, as one respondent noted, China begins to realize the results of its large investment in English education. 

Finally, in spite of its many wonders, India is not exactly the ideal business travel destination, which brings up infrastructure.  Granted, India has far more important needs than making things easier for services companies and business travelers.  Nevertheless, companies must heavily invest to make up for the poor infrastructure.  At the same time, negative comparisons to China continually appear in the industry press, causing people to note that India’s infrastructure problems are having a negative impact, not only on my industry but on economic advancement in general.  True or not, perception is reality.

I raise these points not to sound an alarm about India’s services industry.  I am well aware of things that Infosys is doing to ensure its future as well as maintain its role as a good corporate citizen -- as well as efforts by the national and state governments.  Moreover, if one were to ask me about China, Russia, Brazil, or other countries I could come up with similar concerns, some even more grave than those facing India. 

Nevertheless, although India’s services workers are among the best in the world, they are not some new species immune to changes in the world around them.  So, concerning the role of countries in global sourcing – or any other business in the flattening world – I would say that it’s about creating environments where people can flourish.

September 1, 2006

Global Sourcing is not Olympics

by Stephen Lane, Group Manager, Infosys Technologies

The question as to whether or not China will someday supersede India as a sourcing destination is a debate in search of an issue.  It overlooks changes in the global sourcing market as well as characteristics that different countries – and the service providers that operate from them -- possess that would make them attractive in a flattening world.

Look at the current sourcing market in China.  There companies have elected to outsource IT functions and business processes and/or established captive centers there primarily for the following reasons.    

  • Support operations in China that require local knowledge as well as IT or business process skills;
  • Serve Asia/Pacific markets that are culturally, linguistically, and economically linked to China;
  • And, Avoid over-dependence on other low-cost sourcing locations such as India or the Philippines. 

Responding to, and in some cases anticipating these market forces foreign services companies such as Infosys and others have established development and delivery centers in China, and not simply because of the country’s low cost skilled labor. 

For example, Japanese companies are the largest foreign consumers of China’s IT skills, responsible for nearly 60% of the outsourcing and captive center activity, followed by Taiwanese and Korean companies.  Multinational service providers also use the country as a base to serve markets in the Asia/Pacific region as well as existing clients operating in China.  

Global service providers are also attracted by the country’s potentially huge domestic demand for IT services.  Although Chinese service providers have adopted global delivery models, they too tend to concentrate on China’s domestic market.  The result a services industry that is quite different from that of India or that of any other global sourcing location.

Country specifics aside, the problem with the view of the global sourcing market as some sort of Olympics is that it looks backwards at a model where companies select sourcing locations primarily for their ability to provide skilled low-cost labor.  Although it is true that cost management remains an important objective, mature global sourcing practitioners have adopted much more strategic approaches in which decisions about where – as well as what, how, and to whom – to source are based on multiple criteria.

Finally, the China versus India debate assumes that the Chinese government and services industry can or are even looking to replicate the combination of market conditions, business drivers, government policies, entrepreneurialism, cultural factors, and luck that enabled India to achieve its current position.  History doesn’t repeat itself.

Ultimately the future of global sourcing will not be about country versus country.  Just as China is emerging as a sourcing location the picture in India is changing, as it is in other countries.  China may indeed become a leading sourcing location someday but it will be in a market that is significantly different from the one that exists today.

IT sourcing in China

I've asked Stephen Lane, an Infosys global sourcing expert to comment on this topic. 

Stephen has spent 27 years in the IT industry with more than 15 year’s experience in outsourcing delivery, advisory consulting and industry analysis.  He works with leading Infosys clients to identify and share global sourcing industry best practices.  He holds a master’s degree in East Asian Studies, which partially accounts for his long-time interest in China and its role in the global economy.