Low cost mantra will no longer work
It’s time to focus on quality and information security

India can no longer sell itself as a low cost outsourcing destination because other locations are now competing on the cost front, so feels Mr. Mark Kobayashi-Hillary, Director (Global Research) of CBC Technologies. “The entire Indian IT industry does need to shift attention away from the low price mantra and onto quality and safety - or trust”, he said.

“Countries like Ghana can beat India on price, they speak great English, the time-zone is more attractive, Ghana is a stable democracy and they have well-educated teams of people who can deliver the services,” Mr. Kobayashi-Hillary said in an interview with Amitabha Sen. About the European market he said that the European buyers of services have heard the cost argument for many years, “so you cannot fly into a sales conference, preach 30% savings and expect to walk away with a handful of contracts.”

AS: A perceptible shift is visible today – from developed countries to developing ones who are keen to adapt, absorb and utilize the Information Technology as a development tool for their countries economy, education, healthcare etc. How would like to interpret this change?

MKH: It's part of what Thomas Friedman has termed the 'flat earth' effect. IT and knowledge tools are allowing services to be delivered from remote locations as never before in history. It's only natural that developing economies with large resource pools should tap into this opportunity to provide services to the world.

AS: In a digitally divided world what is the prospect of globalization?

MKH: Globalisation is too large a concept to define within this interview, however it can be argued that paradoxically it is both helping to bridge the digital divide by creating opportunities for the developing world and creating a larger gap between those regions as the wealthy nations export their own services and products further.

AS: UK is the largest market for Indian IT services (12% of IT services exports - nearly $1 billion). To Indian IT industry, UK is also the gateway of EU market hence assumes great significance so far as Indo-UK cooperation in the IT sector is concerned apart from India’s positioning in the EU market over the years. What is the prospect of Indo-British IT cooperation? Could you identify areas that leave room for greater cooperation in this sector?

MKH: Due to the cultural alignment, shared history and use of the English language this excellent partnership does exist. One route to further ties is through working with the UK membership of the European Union. As companies within EU nations can compete equally for EU government projects, there is a great opportunity to work more extensively with the UK as a location to bid for these contracts.

AS: CBC Technologies is playing a nodal agency’s role in bridging the digital divide within and among the Commonwealth nations through its IT programmes. What role Indian IT industry can play and how they could get involved in this process?

MKH: Nasscom is already taking an active role in this regard. The Nasscom research team headed by Sunil Mehta is working on several industry initiatives, such as some of the issues related to data protection. However, the Nasscom Foundation, headed by Saurabh Srivastava of Xansa, is working on many more developmental issues focused on bridging the digital divide for India.

AS: Could you tell us about the prospects of Indian SMEs in CBC Technologies IT programmes/schemes?

MKH: There is a large untapped market of SMEs requiring IT or ITES services in the UK. They usually prefer to work with companies of a similar size because they feel unimportant to large vendors and do not want to work with a very small inexperienced vendor either. So mid-sized suppliers have a great opportunity, their challenge is to present themselves in a professional way and to realise that to win SME business, the supplier needs to either offer a modular service that can be reused many times or to do some of the analysis work you might expect a larger client to have performed themselves.

AS: "Outsourcing is not a one-way street”, you said during the launch of your book Outsourcing to India- The offshore advantage. Could you please elaborate it further?

MKH: It is an emotional argument. As we observe the globalization of services meaning that India can offer IT and ITES services to the UK. Clearly it can be very hard to understand because the natural instinct is to observe these jobs being created offshore, rather than at home - and so to consider this as a zero sum game. The argument is far more complex and what should really be observed is the opportunity for UK firms to compete with the world and to remain competitive or to become more innovative. A UK-based insurer has to compete with every other insurer in Europe so anything they can do to create more value for the end user of their services has to be good for their customers, their employees and their share-holders - most of whom are the institutions in which UK citizens have their pensions invested.

AS: Based on your experience gained over the years through research, studies and interaction with leading IT personalities, do you think that cheap labour cost is the primary deciding factor behind corporates preferring India as their outsourcing destination?

MKH: It certainly used to be, but India can no longer sell itself in this way because other locations are now competing on the cost front. I recently worked with a delegation of 16 Ghanaian IT and back office service companies who were visiting the UK on a trade mission to promote their region. They can beat India on price, they speak great English, the time-zone is more attractive, Ghana is a stable democracy and they have well-educated teams of people who can deliver the services. Some of those African companies have yet to master the art of selling to Europeans, but then this is also true of many smaller Indian firms. At the recent 'Outsource World' conference in London I did not see a single Indian firm try to sell their services with a more complex argument than the 'low-price' mantra. European buyers of services have heard the cost argument for many years, so you cannot fly into a sales conference, preach 30% savings and expect to walk away with a handful of contracts. We need to know that you have a local base; local employees and support, an attitude that shows you are in service provision for the long term and can handle my critical services without fail.

AS: What are the technological edges you think that puts India above others in BPO?

MKH: I don't think there is a technological advantage in India. Technology, by its nature, can be adopted anywhere very quickly. There is nothing in use in India that cannot be used in the Philippines or West Africa.

AS: As a first mover India will always have some advantages but to retain that global leadership, what would be your suggestion to the Indian BPO industry?

MKH: India has built up many years of trust through its domination of the offshore IT outsourcing market. This has been capitalized on through the rapid growth of the BPO market, but the entire industry does need to shift attention away from the low price mantra and onto quality and safety - or trust. Look at how the Indian software industry has shifted from being viewed as a place that just bodyshops programmers to the global leader in high-quality software. For BPO this is even more important as BPO is 'always on' - services need to be even more reliable than software delivery because the failures cause an immediate problem in the supply chain of the customer. Some Indian companies may seek to provide higher-value services, such as complex research or R&D, but those who continue with the lower priced work cannot consider it to be low value and of low importance to the client. If I am an insurance firm and I need claim forms to be processed then it may be fairly repetitive work, but if that process fails it could damage the reputation of my company.

AS: "India is managing to build on the trust that has been created over many years of delivering offshore IT services, so that it is now the natural destination of choice for IT enabled services, or BPO." CBC Director-General Dr Mohan Kaul said at your book launching ceremony. But incidents like selling secrets of client information are also taking place, though those are regarded as stray incidents. What is your impression about the existing Information Security system being followed by the Indian BPO firms in general?

MKH: Last year Nasscom performed a security audit on all those Indian BPO firms who asked for the service. This has given many service buyers a stronger sense of security, though the recent front page story in British newspaper 'The Sun' ("Your Life: For Sale") has scared many consumers into questioning where their bank or credit card company is processing their details.

The ISO and BS standards exist to create strong security procedures within an organization and every back office vendor I have visited in India working on these kind of secure processes has exceeded the standards required formally. However it is difficult to prevent insiders from selling personal data whether they are working in Mumbai or Manchester.

The Indian BPO industry is now creating a self-regulating body to police the softer aspects of this type of crime. The hard standards such as BS7799 are in place already, but they are working now on how to make employees aware of how to prevent data loss. The CBC is working with the Metropolitan Police in London on a research programme that examines how to prevent or limit this form of economic crime and to their credit, Nasscom has been the first organization to join this research working party.

AS: What would be your suggestion to the Indian IT firms to shape up as most trusted sourcing destinations?

MKH: The standards are already in place. Now the focus has to be on the people implementing the systems and processes. It's all about your employees. The new BPO industry initiative and our own economic crime working party will be extremely important in helping the policy-makers to decide on how best to deal with those who try to break the rules and sell personal information. Never forget that this problem is taking place here in the UK, in the US and everywhere else where personal data is of value.

AS: While talking about trust, Information Security plays a very crucial role. Do you find the Information Security arrangement being followed by the Indian BPO units is satisfactory one? What is your feedback from the user industry? Any suggestion to strengthen the Security system further?

MKH: As mentioned, I have found the vendor community actually implement stronger security than that required by the standards such as BS7799. The focus for increased trust now has to be in how those who break the rules are dealt with.

AS: In many cases outsourcing is failing to yield the desired results in terms of improving the bottomline. While many others are highly satisfied with outsourcing to the same country. Studies by Delloitte and National Outsourcing Association have revealed these two contradictory pictures. Why so?

MKH: Outsourcing is a complex business tool and can be undertaken in many ways. If a local government department hires a company - such as Xansa or Capgemini - to work on a process and all the employees are transferred to the vendor, then it is likely to succeed, especially once the vendor can engage in process reengineering. However, the outsourcing could be to an internal unit; or offshored to a captive unit or outsourced to an offshore vendor or created through a Build-Operate-Transfer arrangement. There are really so many permutations that it is only natural for some organizations to say it has worked for them and been a failure for others. It really helps to compare very similar deals when making these comparisons.

AS: What is the prospect of India, China joining hands in future to form a super IT power in the world? What is the possibility of China emerging as India’s competitor in software and BPO?

MKH: I think that India and China have already joined hands in this market. Just look at how all the major Indian IT suppliers have started building delivery centres in China. The two nations will be able to work collaboratively in future and China's software services industry can learn from India. The twenty-first century will belong to India and China and this market is just one of those leading the path to a new world of global services.

AS: There are talks about countries like Philippines emerging as India’s competitor in global BPO market. Do you find any strong and justifiable basis for such an apprehension?

MKH: One of the most important requirements for BPO is a stable environment. As a service buyer, I would never consider placing critical BPO services in a location where the government and society is unstable. India's reputation as the world's largest democracy carries a phenomenal importance in this respect and the shock election result of last year just underlined the nature of governance and the rule of law in India. The consistent allegations of graft and the fact that the President of the Philippines is so embattled, to the point of being protected by the clergy, rather than her own politicians, do not strike a foreign observer as a stable environment. It may be a great location for back office services, but these headlines do the nation absolutely no favours and work strongly in favour of India.

AS: In India the state of West Bengal emerging as one of preferred IT destinations. Early this year you had been to this city. What is your opinion about this state as an IT destination?

MKH: West Bengal has an excellent opportunity to tap into the flow of IT and IT enabled outsourcing work that is being performed from India. The skills are available in the region because of the strong flow of local University graduates and yet the environment is more pleasant than the frantic growth of a city such as Bangalore. The operation cost in Kolkata is more attractive than many of the other major metropolitan areas in India.

Many of the major Indian IT service companies are making WB a key part of their future strategy by locating facilites in the region and so I am personally delighted to be involved in the Infocom event this December, helping the State government to promote investment in the region.

July 20, 2005