Human resources are a key indredient for successful IT and ITES companies. A sustainable Human Resource talent pool is a major challenge. What are the IT Workforce Development initiatives adopted to ensure availability of globally employable IT professionals?

Abstract

It's a question on everyone's mind, will and how can India sustain its momentum? Our panel of very senior and very into the game people debated on the initiatives that are needed to keep the momentum get going. The debate established India as an emerging and preferred choice for R&D related work. The educated talent pool coming out of the Indian universities are the key to carry the momentum forward.

Discussion

Maninder Singh: Welcome to the session- the new world sustaining the India advantage!

We have predominantly six agenda items as you would have seen. In this session agenda, the main topic that we wanted to talk about was the human resources advantage which India brings to the table. Well India has just much more than the people advantage, it's about process capability and maturity, it's about sustaining value and innovation, it's about the whole ecosystem of education and government policies which has sustained this advantage so far and it's also about the booming Indian IT market itself and of course, our key differentiation for building a world class framework for compliance, IPR protection for many of our customers in various industries we worked with.

Kiran Karnik: Maninder said that we need to move beyond the human resource advantage, and I think that's quite true. There are huge advantages and I would mention some of them in the passing. I do want to dwell a few minutes on that very advantage which is key to us - and that's human resource and I want to talk about it from the point of view which is of concern now. The growing concern - that it has huge advantage but, are we beginning to scrape the bottom of the barrel, I want to take that issue and start by saying no - there's a lot more to where things come from. And in fact, if anything you've got the endless supplies coming from there and let me spend a few minutes in saying why I say that. When you look at the position today you straightaway see that the number of people whom the IT- BPO Industry needs, the kind of people we need, the kind of skills we need are available in the graduates, the ordinary graduates which means a BA, a BSc or a BCom or somebody from the professional stream- engineering, computer science, technology and so on. If you look at the first category of graduate which is not a professional degree, we turned out about the 3 million in a year. Now, if you look at the second category of professionals, there are already over 550,000 seats in the engineering colleges alone in the country. When you look at these numbers and look at the demand pattern, there is a comfort factor which I think gives us more than enough margin not to worry about. The concern which is affecting the industry is not the availability, it is suitability. Of these people who graduate, how many are suitable and there we do run into a serious problem which is why you see problems of rapidly rising wages and also increasing attrition. A lot of companies chasing a few people and everybody identifies as being the right candidates whom they want to select. What gives me hopes is the fact that basically the raw material is very good. They have gone through a great foundation, the problem that's there is taking that and doing a little honing, a little polishing and a little finishing and our work has shown that if you can do as little as three to four months of an intensive finishing to these people, what we have called a finishing school, you can double your selection ratios. If it is somewhere in the teens for the BPO industry today you can take that up to the thirties. If today, in the core IT services you are looking at a selection ratio of 25 to 30 percent, you can move that easily to 45% with just three to four months of intensive training on updating them with regard to technology, and very importantly, bringing in an element of soft skills which we find missing in many of them.

So it's not as if you don't have enough people in which case you need a sixteen year lead time to start from grade one and get people to graduate - it's really a short term fixing of three to four months. In parallel, there is a lot of effort going on to look at the basic curriculum, to do faculty training, to improve the abilities in terms of pedagogy and to expand the systems. These are the steps that are going on in synchronous with finishing school concept. You may have read announcements of a huge increase in proposals, proposed IITs and engineering colleges, increase in the IIMs and the whole higher education system and the university system is facing a rapid expansion. In addition, there is a lot of pressure to look at not just private public partnerships, which we are already beginning to do but to look at an increasing reform in education which we are going to do to get the private sector in playing a much more central role. As you open it up to private investment you are going to see a huge expansion in the professional education but also in high quality education at the level of Commerce, Economics, Science and therefore when I look ahead, I speak with some confidence to say that though we are concerned, though the position now is not great, we need to do a lot more. No longer are we the main consumers of such people and there are other sectors in the economy that are booming, that are also looking for the same kind of talent. Even taking that into account, I think there is a sense of comfort. I thought I would spend some time on this because to many people this is a top of the mind issue, the issue of concern, the symptoms of that are attrition and high wages, the core problem is demand-supply in terms of suitability and I do think we have got that fairly firmly in control.

From Nasscom itself we have put in steps already in position, some steps which are sort of demand pull things through something called the Nasscom assessment of competence for the BPO industry which is being evolved now for professional education which created benchmark that would create the training ecosystem of these kinds of finishing schools that I mentioned. Two other things which I see as being a key - one is innovation because as you begin to look at what outsourcing brings and you say, better, quicker, cheaper, but what else? After a particular period of time you begin to get that curve flattening out. What else can you do-and that 'what else' has to be something different, not just better, not just cheaper, not just quicker but something that's different and unique and I think India is specially positioned in that area. Innovation after all comes from two key factors- both of which are available in abundance in India, one is diversity, and the second one is adversity - problems. If you have a problem you find a way out, and in India we are great at that. If you have a traffic jam, you just drive on the pavement, and you always find a solution to whatever there is. I think the one thing it does reflect at a deeper level is the fact that every Indian is thinking differently, is thinking out-of-the-box, and that if you translate to what might have been in the business space, I think it gives me great hopes. I think innovation is the key. The last one is your comfort factor with regard to the whole area of security - Cyber security, network security, security of intellectual property rights, and security of your data. The ultimate concern would be- is it safe and secure, and I do think we have proved over the years that the Indian IT industry is acutely conscious of this and our track record is outstanding. So I think we're going to see India increasingly positioned as the fort Knox for data security - as a place where your data is safer than at home, as the bank's safe deposit vault. I think these are some of the advantages and given those I am very comfortable that we will continue to sustain the India advantage. We have got a lot of work to do but we are at it.

Maninder Singh: Kiran, can we hear your views on what is happening at tier 2, tier 3 cities apart from Delhi, Mumbai, Banglore, Pune, Chennai and Hyderabad. What are we doing about that?

Kiran Karnik: I think two things - one is that we have talked to all the state governments who are very keen to attract IT investment because this is the glamour industry which everyone wants to show. We have told them that the secret to this issue, please offer us the incentives of the cheaper land, concessional power and everything else that you can. The critical one is to improve your infrastructure in your cities and to get industries to come there, and the second one is to invest in your talent pool, and one way of doing that is to ensure there is training, subsidize it, promote it to whatever. So we're seeing a lot of action in the so called tier 2 and tier 3 cities. And it's doing two things- one - it's helping to reduce costs, second - you are tapping into new talent pools. Not everybody from the cities is willing and able to migrate to big Metros and so you are tapping into additional talent pools. Third - stickiness is more, the attrition rates are far lower, which means your recruitment training costs drops and I think that there are both cost and talent advantages there.

Naveen Rao: That was really very good. I think the glass is half full. My comments are going to be predominantly from the pharmaceutical point of view. If you really look at it and if I were to address sustaining the India advantage in the pharmaceutical research driven arena, I divided the world into the external and the internal and I thought to myself that there are some external factors happening that would continue to happen despite us and it's the rising tide raising all boards. For example, the Indian economy is booming and we will ride that wave and pharmaceutical companies would do better because of that. If you look at the pharmaceutical industry in India, which is around $6 billion and expected to grow to $20 billion in the next eight years, this growth of extra $14 billion that we are going to realize is going to come mostly from income growth- meaning people would be able to afford the products. So most pharmaceutical companies will do well again, and the tide is rising. Also the infrastructure is improving, so better hospitals, better access to medicines, better sales for pharmaceutical companies but there is also an underlying current here that would also help the pharmaceutical companies and that is the disease prevalence.

If you look around right now, life style diseases- they're all coming to India. So that way, to sustain the India advantage from the environment is almost straight forward. Recently there was a survey that when they asked the pharmaceutical companies what is it that would make them come to India, it was very clearly differentiated between the non-pharmaceutical and the pharmaceutical companies. The non-pharmaceutical companies - one of the driving factors was the tax breaks whereas for the pharmaceutical companies, it was the research and development credits. So as opposed to tax breaks what is going to sustain the India advantage for the pharmaceutical industry is clearly the drug discovery development and research and development in that way, R&D in India. So I would tell you what are the four main factors that play into R&D, and how we can sustain the India advantage.

Number one definitely is innovation. If you really look at innovation as best said by professor Mashelkar that people come to India for the cheap hands and then stay for the cheap brains. So, if you really look at innovation, beyond coming initially for procurement and cheaper way of doing things, our chances of drug discovery and innovation are much better here.

But another way to sustain the India advantage is to help pharmaceutical companies mine the R&D potential. This is definitely intellectual property and the debate is - on one extreme, access, at the other extreme is intellectual property and innovation. It is access versus innovation. Somewhere in the middle is the truth and the only way out of this bind is through the public private partnership. To allow us to sustain the India advantage we need to be able to make sure we do R&D here at low cost.

The next point is about the skilled workforce. The fact is that there are about 3 million graduates out of them perhaps 20% are employable and we need to be able to inject science, research the inquisitive mind and we need to be able to make a commitment. Merck has made a conscious decision that way to keep R&D pipeline flowing and sustaining the India advantage would be to make commitments for technology transfer, for partnership with the academic institutions to do more public private partnerships, and just to take that academic institution partnerships a little more into the next level, perhaps in the other countries. In India, we have Gods for everything. We have a Goddess Saraswati for knowledge and we have a Goddess Lakshmi in charge of money. So you were either Lakshmi, or a merchant and believed in money and profit or you were a Saraswati where you believed in knowledge, academics and actually had a disdain end for the money. But very soon, we have realized that if you can teach the Saraswati's academics that you can get to Lakshmi and still stay pure and use the knowledge, whether to patent, or play in the marketplace. So that is the kind of skill that we would like to bring. So it's not just technology but also to integrate public private partnerships to build the skilled workforce because looking downstream, we need to be able to come out with innovative new drugs based on to research in India.

The last thing is the talent pool and we are finding it a shortage. You IT folks have a leg up on us because your image- the best and brightest are still going to IT , so we need to be playing it the right way, we need to make the right partnerships. My mantra is public private partnership and definitely the India advantage is sustainable in the Pharmaceutical R&D world.

Maninder Singh: Thanks, Dr. Rao, one question to you. Innovation- we've got the cost advantage, we are at a stage where we have momentum, we have size, scale, simple answer whether this is an inflection point for us to move to the next level which is more innovation and value driven than volume driven.

Naveen Rao: Absolutely, but it will take an appetite for risk and a long-term perspective, which we're not used to here.

Sid Pai: From our perspective, definitely the main advantage of India is certainly its people. One of the things I like to point out is that when the British left India - the average life expectancy of an Indian was 26. Today, like the good doctor said it is 62 or 63, 64. That's quite a change. Now stop and think about all these people who should logically have died off, did not, and had children. So we today have a demographic dividend where 65% of this country's population is under 30. The advantage will continue to sustain as a result. Mr. Karnik talked a little bit about the raw material being available and I think through public private partnership or as a matter of fact, even just as the private enterprise realizing that they need to go out and have these sorts of people, you'll see things suggest campuses being set up by the likes of an HCL or any of their competition in this space as well, where they are in fact going and trying to now train these folks in the finishing schools or something else like that in order to make them employable in their own industry. And by the way, that's not just in the IT industry, it happens in the other industries as well. The raw material is definitely here and by the way it's not in other countries. In countries like Japan where there is an aging workforce, there is really nobody to replace people who are leaving the work force and if that work still needs to be done, it's going to have to come to a country where you have the people. So that in and off in itself will sustain for a while.

On the other side, we have spoken about labor arbitrage; we have spoken about the cost differentials and so on and so forth. And what's happening in the Indian economy, much is being said about the fact that there's attrition, there is wage inflation and so on and so forth. I would like to point out that attrition is certainly an indicator of an extremely healthy economy. People are moving from one job to another because the demand is there. The other side of it is that people talk about the wage inflation and that wage inflation really exists only at the middle and senior levels especially in this industry. It does not exist at the entry levels. And that's really where the cost disadvantage is beginning to come up. But again, given the fact that most of the people who are coming into the workforce are now fresh graduates, that cost advantage for India will also sustain for at least the next decade. The raw material is in place, the cost advantage is in place, and thirdly what it really needs in terms of sustaining is public private partnerships. I think as long as the government continues to stay away from regulating private enterprise and allows it to figure out answers by itself, in so far as that happens there be sustainable competitive advantage that takes place and we will continue to sustain. Competition also does a lot.

There's an old story I remember. There was a gentleman who used to export frogs from Kerala, from the rice paddies to France. And he never put a lid on the boxes that he would send out and the French restauranter who was importing all these frogs, got extremely annoyed at the Indian and said, "You guys, you don't know how to finish anything, you don't put a lid on any of the boxes, what's wrong with you?" So the Malayali said "well, have you counted the number of frogs in a box? And he said, "You are right, there are a hundred frogs to every box." He said, "Yeah, that's because these are Indian frogs, if one frog tries to jump out, the others will pull him back in." The flip side is basically the fact that competition actually provides significant leaps in innovation and in the capability to stay ahead of the competition. Frog leaps aside, you do find that private firms will come up with what is required and what the government really needs to do is to just enable that environment, stop meddling in it, get away from it and, enable the environment to make it happen. I am really very bullish on the future of India as an economy in general and specifically in particular for the IT and BPO industries.

Maninder Singh: Thanks Sid, you know it's often said, India has done well in IT, beauty and Pharma because there's been no government there. We talked about the cost advantage, sustaining the cost advantage and why it would remain, probably if can, just a quick thought on the whole process and tools innovation which is happening and the majority of Indian companies in that aspect compared to other outsourcing destinations.

Sid Pai: Absolutely, I remember when working for the larger American firms -being told that the Indian competition don't have that quality, they don't know what they are doing. Few years later, most of the world's CMM Level 5 firms are Indian firms and happened to be here. So the question then became - it is not a question from a client perspective of whether or not the Indians have the quality to do it. The thing is, do you have the quality that can match what the Indians can do - so those sorts of things have come in. So transform the way their clients are actually doing business, if they were used to do in 'X' ways yesterday, they have to now change it and do it in a more efficient fashion because the partners whom they are working with demand that sort of efficiency. So that definitely happens.

Question(Audience): So I'm going to probably circle back to Kiran- the whole tax breaks, the dollar rupee issue and the SEZ, STPI. So Kiran, if you could probably share some thoughts on- one we have the talent pool there is in a sizable scale that's going to come and sustain the advantage. How is the whole ecosystem around foreign exchange, the SEZ policies going to probably add, or probably not add to that and we had some posturing few months between ministers and the IT leaders? If you can share some quick thoughts there.

Kiran Karnik: This industry has thrived on a very positive ecosystem. in a sense it's right that industry has done well because the government stayed out of it. While the role of the government has been very important and I do want to emphasize that I know this is a minority view amongst the IT industry but it needs to be recognized. The creation of a positive ecosystem was something that the government did very well and that continues. The policy framework within which this industry operates today is very strong. Whenever we go to the government whether it is in the area of human resources for private public partnerships, whether it is for other policy matters, we get a very positive and a very good response. We are a bit concerned about this tax and service tax on leased accommodation which is for everybody but hits us particularly hard or FBT on ESOPs which is again across the board but the IT industry suffers more than others. We are actively taking up these with the government. The big one from the industry's point of view is the need to look at the tax breaks that we get for exports. We are concerned that that part of it which did so well for this industry which really allowed you to be a virtual tax break- you could be anywhere in the country you could get the same benefits. It was not geographically based. You just need to be close to your talent pool preferably, even that is not essential any longer. You can pool your talent and integrate them from across the world. So we have been arguing this case very strongly and from a very practical point of view as far as the industry is concerned. The SEZ scheme is in fact in some ways from pure tax point of view some steps ahead of the STPI scheme. Working ahead to the future where the big of tomorrow is going to be necessarily those who are small today we need to see how to sustain the STPI kind of scheme and we have been in active discussion with the government on this. So, to your question, I think, the ecosystem is critical. Overall it is good, we are concerned about some of the recent changes, but, we are in dialog and I'm quite hopeful that we should be able to move ahead on that.

Maninder Singh: So no major causes of worry on that.

Kiran Karnik: Not really from the tax point of view because those who want to will go there and those who don't, it's a conscious business decision which some would make, and despite the rising rupee, the bigger companies continue to do it. I think it's a concern - not the rise of the rupee but the too short a period to rapid rise particularly vis-a-vis the dollar specifically against the dollar and not so much against the other currencies. Again we are seeing what can be done to alleviate that. The bigger companies have handled it very well but show the resilience of Indian industry to take these shocks. So its not that there isn't any concern - but it shows something else which is unique to the India advantage and that is the management capabilities of Indian companies, which have come to the fore in seeing how do you optimize, how do you reduce your bench strength, increase your efficiency, cut the flap. So rising rupee is definitely of concern, but I do think as long as we don't see extremely volatile movements adversely, it is handlable.

Question (audience): Kiran, you mentioned or described as three or four months I would call it a finishing school, which improves the suitability of candidates for the use in industry. If you could talk about that how it would work out given the variability across the industries and even within the particular IT or pharma, there are number of different disciplines. How do you see that being designed? How do you see that being funded - those kinds of things?

Kiran Karnik: This is yet early days and we have looked at two kinds of experiences- one which are those that are done within companies, many of our bigger companies, and we have tried to learn from that to see what is the content, what are the people they take and how can they manage. We have had some experience now of trying to do it in partnership with academic institutions, partnering the regional engineering colleges in India, integrating people and did a less than two and a half months finishing school there and they worked very well. What we are trying to do there is to take a core IT related curriculum on the technical side where you are really upgrading, updating skills which they may have missed out because their curriculum is not up to date or may be their faculty didn't even know that. So we'll have to get some of those taught but we have also spent about 30% time on soft skills which is communication, articulation, teamwork, things which we found were important and which very important reasons for rejections. Now some of the soft skills I want to stress can't be imparted in a three month course but if you want to up your selection ratio from 25, 26 to 38, 40 we find that the short input can help. It's still early stages. To your question on private thing, there are some private companies - they have taken inputs from industry, we have helped to coordinate that, they have got a model that's built, and they have worked a model with companies. You have got a nicely integrated ecosystem. You have got training institutions that have the right curriculum with reasonably high fees which the banks are giving loans for and these guys get jobs. So it works well.

Maninder Singh: What we are doing and we have seen, probably a lot of our peers are doing that in the industries. They really go to colleges which are running engineering courses, diplomas and tell them that one semester or a three months of a course is a course defined by us, which is in consultation with people who are practitioners and people who are academicians and say run this and we will make sure that the person is employable. So that's one more thing which is bringing that finishing touch in the final semester of a graduate program or a diploma program for a candidate.

Audience: We have something similar in Microsoft, we do internships or we take people in, starting as early as high school. We also recently instituted a two year rotation program for a number of people. We actually take in freshers at work through the usual term and the department works and the company actually pays for them to rotate through within that particular discipline, which is a new program.

Question (Audience): Kiran, you spoke about quicker, better, cheaper. Haven't we gone past that already because in the last couple of years post 2003 especially, it's primarily been more around talent capabilities but it's also about somewhere sustainability. So that's question number one that I need your view on. The second is you spoke about the rupee value and most of the companies have started strengthening their focus towards the European markets than the American dollar markets. Can you throw more light on that?

Kiran Karnik: I think you're right. The capabilities in India have gone beyond cheaper, better, quicker but I do want to stress that in my understanding, it is yet a crucial part of what customers come for so I don't want to belittle that when I talked of innovation in the future. I think this is going to be there but I think it's going to be layer, you are going to add an additional layer. Another India advantage is governance and that's an important part also. I want to stress that in this combination of cheaper, better, quicker, I am yet convinced that India brings a unique value more than many other destinations. On the rupee appreciation, yes, you're right. Europe and Japan are expanding as fast as the US but we are seeing in many individual companies how can they penetrate more in the large European markets which have been sometimes easy, sometimes rather difficult, but there is definitely an attempt. I am sure many people will also look at how to relook their contracts, their pricing and whether to denominate only in dollars.

Maninder Singh: Sid, your quick comments on the market issue.

Sid Pai: Cost is still one of the most important factors that clients look for when they think of offshoring. It actually reminds me of a story of an Indian, a native American, standing in grand central station and a bunch of people going past him and going- hello chief, how chief, and he goes " chance, chance". So somebody is watching this and after a while walks up to him and says, "Well chief, how come you know when people come up to you and say how, you are going chance". "Well that's because I know how already, now give me a chance". That's where the industry is at this point. They already know how cost has been taken care of, everything has been taken care of, but now, the question is, will the industry be given a chance actually be able to take it to the next level which is the transformation, which is the innovation, and so on and so forth beyond cost.

Question (Audience): So, Sid, you just said that cost does matter, your explanation on wage inflation vis-à-vis supply demand- wouldn't that suggest that unless you actually figure out a way to manage that, that actually becomes a detrimental self fulfilling prophecy and Kiran, back to you doesn't it suggest a saturation in the pool of talent that you described that is driving the cost portion, salary wage increases that are exponentially growing in India.

Sid Pai: Most the firms in this business whether Indian or otherwise, hire people who are more and more young. So the task of training them, and getting them adhering to the processes and everything else is a big issue. At the end of the day people are coming here for the demographic advantage. So industry will find its way around it- whether it's finishing schools or whether it's more time actually on the bench before they're allowed to work for the clients, so on and so forth. Are their short term risks such as quality problems, such as issues with having people who are less experienced in doing some of this work? Very definitely, yes and the firms that will work through these risks will end up being the winners.

Question (Audience): Dr. Rao, are we doing a good job of selling beyond the cost arbitrage as a country?

Naveen Rao: Not yet- in the pharma research arena. We are still playing on that, we're still attracting them for the cost that we hope to keep them for the innovation.

Kiran Karnik: I think we are beginning to but more than that the customers are beginning to demand that. The customer is looking for something more and the competitive push is very high, and the issue becomes how do you differentiate when this gets commoditized. After all even outsourcing has got commoditized and so each one is going to be looking for that differentiator now.

Sid Pai: Cost savings are now like table stakes. Without having the table stakes to go to the table, you can't really gamble - so that's table stakes. Everybody talks about it but the question is what really are you bringing me is different and that is actually going to change my business and those are the things which people stay for eventually.

Concluding remarks from the panelists

Kiran Karnik: What is often forgotten is the India advantage of the management and governance. We talk of the human resources, the English language, cost and even innovation but I think these two are often forgotten. The capability to the recruit 20,000 young people a year, recruit them which is not easy and train them and get them on the job, integrate them with your company and get one fourth of your company, sometimes one-third of your company which is completely new to imbibe a culture which is coming from the previous two-thirds - is not easy to do. Second is governance. I think it is the key. The transparency brought about by the fact that Indian companies are on the NYSE or NASDAQ or London Stock Exchange plus India's own listing requirements are so stringent. Transparency in governance is demanded legally. I think the governance that you see is key after all, if you are a customer who comes to a company, you just don't want to know what this is or that, we want to know who owns this company, what is it like, what is the balance sheet, am I looking at it right, am I going to be, maybe in a year from now in trouble. I think that sense of comfort is very important.

Naveen Rao: For me, obviously as a knowledge based industry, we are hoping to follow the IT successes and realize the same within the pharma.

Sid Pai: On governance, I think one of the things that we tend to forget especially when we're talking about emerging economies, is the framework that India has had for things such as basic Contract Law, Intellectual Property rights, things like that have been around for 200 years. We have known what it is to get into contracts, whether verbal or otherwise for a long time and that's part of the ethos of doing business already in this country and that's only going to stay, but other emerging economies- they still haven't figured it out.

Maninder Singh: Sustaining the India advantage- it's there to stay. We have sustained it. Cost advantage will be there, there might be a little bit of change here and there, but there is a big push on putting the innovation agenda on the table and that's what industry has to work on. So please stay invested, and help us sustain the India advantage.