Previously we wrote about:

- Programmers’ passage to India and back – Brahmins dominate or is it just simple caste bias?

- Programmers’ passage to India and back – the country’s outsourcers are trying to move up the value chain

The above stories pointed out that members of upper castes are most likely to enter IT industry suggesting. The postings were also citing research that reports how economic inequality continues in post-secondary education and how this all affects the recruiting process for IT jobs in India.

But in the context here, it is also interesting to note that India’s education system seems to be unable to produce enough high quality graduates in science compared to other countries. This fact plus the increasing demand for such talent in part due to the outsourcing boom is making human capital with software and programming skills a scarce commodity. In turn, hiring the qualified people that are needed to foster growth in the higher margin knowledge process outsourcing is becoming ever more difficult and expensive.

- Tehelka – 2007-01-14 – Nr 2 – Placement Issues ‘IT sector is not immune to caste bias’, p. 18

INFOSYS

Infosys is trying to take a somewhat different route to higher and more profitable growth in the outsourcing business. Just some facts that were mentioned earlier:

- Infosys was founded some 25 years ago by Founder of Infosys ‘ N.R.Narain Murthy’ (retired 2006-08-20). Current Chief Executive Officer (CEO) of Infosys is ‘Mr.Nandan Nilkeni;’

- revenue-per-employee is US$38,000 per Infosys employee versus $ 277,002 for IBM for the year 2005;

- Infosys Technologies’ growth was generated from the following business lines during 2005-06:

54% “development and maintenance”
4% “business process management”, and
1.8% “engineering services.”

HUMAN RESOURCE MANAGEMENT AND TRAINING – IT SKILLS

The above indicates that to increase its margins, Infosys is trying to get into knowledge process outsourcing. The firm has began to establish branches in the markets it serves, such as the UK and the U.S. to mention two examples. For those, however, local talent needs to be found. Hence:

- Infosys Technologies is bringing western graduates to Mysore

- 2006-07 first-120 students started from the US and this number has increased to 126.

- 2007- first 25 UK trainees will be on campus.

GETTING THE FACTS

So the above facts were a bit sketchy. So we went ahead and wrote an e-mail that summarized some of the questions that would be raised by most educators glancing over the above. Here is what we sent to the person – Ben Paintal Dhawan – who is listed as point of contact:

Dear Bani Paintal Dhawan

I read about the Software engineering fractory at MySore – InfoSys Global Talent Program and I would like to write a story about it…. but for this purpose I would need some information regarding these issues:a) What are the requirements to apply for this program?- degrees (preferred course work)
- tests to be taken by the applicant(s)b) What is the curriculum used for these students (course outlines, teaching approach, etc.)?In the Financial Times we found this information about the above questions giving one a first indication but not much more:
The GEC runs a 14.5-week centralized residential foundation program, which imparts generic and stream-specific training in various technology areas, along with soft skills and leadership programs, to fresh engineering graduates who have joined Infosys. The GEC aims to equip individuals with the requisite skills that will aid in transforming them into complete software professionals thus building intellectual capital within Infosys. (incidentally, the Financial Times journalists copied the above paragraph pretty much out of the press material he got – see below)c) How does the curriculum between a computing science and history graduate differ? The latter receives one month more training. However, what he or she is exactly being taught during this month that computing science graduates will not receive is unclear to us.d) Will the additional month of training then enable the history or sociology graduate to embark on the same career path at Infosys as the computing science graduate does?

The above inquiry got this reply:

Dear Sir,
Please find attached a fact sheet on the program that will address the questions.
RegardsBani

- Get Infosys’ fact sheet about the Global Talent Program at Mysore in pdf format;

After getting the above information we fired off another e-mail to ask for answers, since the above document says little besides providing us with some general bla bla. Unfortunately, Bani Paintal Dhawan chose not to answer.

Hence, we thought it might be cultural thing and we sent off a message to the Infosys U.S. to Peter McLaughlin (Fremont, CA). Surprise, surprise, we did not get a response at all.

WHAT DOES IT MEAN FOR OUTSOURCING IT work WITH INFOSYS?

As a prospective client one would hope to get more than just a standardized answer that fails to provide the information one needs to make a decision. Moreover, failing to respond at all does not instill confidence in Infosys’ capabilities in handling customer requests.

What does it tell us about the program? One just has to wonder how good the educational program is that Infosys offers. The information one can obtain is scarce at best. How they managed to get press coverage without revealing much detail (e.g., depth, breadth, curriculum design and more about the program) indicates that the firm’s media office knows how to schmooze with journalists.

Additionally, as far as we can tell, the program is an indication for Infosys hiring more people for “development and maintenance” work, the low margin business, where time is limited and profits are accomplished through economies of scale. Hiring these locals from U.S. and UK markets while getting them trained to work within the organization is a good thing. However, if this will help Infosys to cope with the skills shortage for highly qualified IT engineers and computer science graduates in India remains to be seen.

The information provided also does not indicate if these graduates from computer science or history will do technical and/or customer relations type of work. Some of our readers may wrongfully believe that computer science graduates know more about computers than what can apparently be compensated for by one additional month of training at Infosys Masore campus. Inquiring minds want to know…

_More Information_

Quality control, transparency and customer responsiveness are an important factor the outsourcing business. Unfortunately, our experience with Infosys and the information we found about the firm online suggests not all is going too well:

India Times – Infy: campus hiring no guarantee – if you do not pass the test the 2nd time around you get shipped out

As Rediff sees it – is IBM legacy and Infosys the future

TIDBIT
We know that we have to keep the number of mistakes per 1,000 lines of code as low as possible. But looking at the Fact Sheet I got from Infosys regarding its Global Talent Program at Mysore one can discover several mistakes (grammar, spelling, etc.), including but not limited to:

- Notre Dame University
- University of California – Berkley

where it should say instead:

University of Notre Dame

University of California, Berkeley or UC Berkeley

I do hope that this is not an indication on how exact Infosys does its outsourcing tasks.

If little errors like the ones in the pamphlet mailed out are representative regarding the work that Infosys Technologies’ staff perform, I should clearly worry about reliability and validity of the computer programs written by its staff. All it would have taken is to proofread the Fact Sheet and checking on the web regarding these illustrous institutions’ proper names.

What do you think?

Previously we wrote about:

- Programmers’ passage to India and back – Brahmins dominate or is it just simple caste bias?

But besides possible issues regarding affirmative action, recruiting bias and discrimination against certain groups entering the IT industry in India as outlined above, the outsourcing boom has caused a real shortage of IT talent in India. Outsourcing part or all of a firm’s infrastructure management is the trend. Nonetheless, this does not come without some costs, such as the risk the firm takes by doing this in a country where the infrastructure leaves a lot to be desired:

- UBS IT infrastructure fails – can we learn anything from this event?

FACTS TO KEEP IN MIND

So what do we know about this outsourcing boom that has led to rapid growth of such firms in India? Let us take some ‘local’ examples such as Infosys, Tata Consulting Services and Wipro.

_Financial Facts

- Infosys was founded some 25 years ago by Founder of Infosys ‘ N.R.Narain Murthy’ (retired 2006-08-20). Current Chief Executive Officer (CEO) of Infosys is ‘Mr.Nandan Nilkeni;’

- revenue-per-employee for IBM in 2005 was $ 277,002 in contrast to Infosys that made about US$38,000 per employee (NO WONDER IT ENGINEERS ARE CHEAPER in India than in Germany or The Netherlands);

- The market capitalisation-to-revenue ratio in 2005-06 is as follows:

10.21 for Infosys,
8.49 for Wipro,
7.22 for Tata Consulting Services,
1.42 for IBM,
1.47 for Accenture and
0.7 for EDS;

The first three are all Indian success stories, the latter three in the above list are international firms.

- Infosys Technologies’ growth was generated from the following business lines during 2005-06:

54% “development and maintenance”
4% “business process management”, and
1.8% “engineering services.”

Hence, most growth is still generated in the price sensitive and low margin development and maintenance area. Something needs to be done to move up the value chain and, most importantly, justify Infosys Technologies’ comparatively high capitalization-to-revenue ratio (10.21 see above);

- within the first nine months of 2006, Infosys has filed for 58 patents in India and the US – however, these were all so-called process innovations in IT services for which the firm would most probably be unable to get a patent for in Europe.

CONCLUSION

The above indicates that outsourcers in India are generating most of their revenues with so-called business process outsourcing a somewhat commodity-type business that generates low margins. Revenues generated per employee of the amount of US$38,000 suggests low salaries for engineers and, as well, low margins for the firm’s doing this type of work.

In turn, enterprises outsourcing to such providers are well adviced to make sure that they have made their homework before signing the dotted line (CT31RIT0003-Outsourcing-offshoring-risks.pdf). Once they have signed there is little margin for error and the outsourcer is most likely unable to accommodate any changes without a hefty price to make sure a profit can be generated from the business at all.

The above also suggests that knowledge process outsourcing is a new field for these firms in which they must succeed to justify their market capitalization-to-revenue ratio compared to their international competitors. To help gather more business in the knowledge process outsourcing area, prices for these services have been squeezed in recent months. For instance, Europe’s financial industry has benefitted from being offered highly attractive prices for moving some of their IT work to Indian outsourcing firms. With margins being squeezed so much to secure the business needed to foster growth, the question remains if these firms can deliver on their promises CT31RIT0002-Outsourcing-KnowledgeProcesses.pdf), while securing high enough margins.

Apart from the above issues, unless the educational system in India is able to supply the industry with the graduates in engineering and computing science they need, human capital will become even scarcer than it already is today. Previously we pointed out that about 1.7% of school leavers enter the science stream in India compared to 5.9% in China, 13.9% in the U.S. and 23% in South Korea (see also Deshpande, Satish (June 17, 2006). Exclusive Inequalities. Merit, Caste and Discrimination in Indian Higher Education Today. Economic and Political Weekly, 2438-2444).

These statistics indicate that the current outsourcing boom cannot continue at its current pace due to ever greater scarcity of human capital required to feed the boom. Besides, India media has pointed out that falling academic standards represent a serious threat to the country’s economic growth prospects:

- Tehelka – 2007-01-14 – Nr 2 – Falling Standards – Science claims hit slippery path, p. 10

Nonetheless, Indian outsoucring firms such as Infosys are changing their strategy to assure the human capital they require. We discuss this in detail in our next posting here:

- Programmers’ passage to India and back – Infosys is trying but inquiring minds get no answers