Tag: India

OM in the News: Why Indian Firms Outsource Even More Than American Ones

The front page headline in the New York Times (Dec.2,2011) reads “Outsourcing Giant Finds It Must Be Client, Too”, describing how most employers in India rely on contract hiring agencies to avoid India’s restrictive labor laws. India, of course, is known the world over as a prime innovator of outsourcing for foreign firms which take advantage of its cheap, English-speaking labor force. Less well-known is the extent to which Indian companies outsource their own jobs within their own country.

To skirt laws that prevent companies from laying off workers, Indian firms hesitate to hire permanent employees, instead turning to firms like TeamLease to field “temporary employees”. Factories employing more than 100 workers, for example, are not allowed to lay off employees without government approval. Economists assert that firms will continue the outsourcing trend, although they are reluctant to admit to it because of political and societal pressures. Already, 1/4 of India’s industrial laborers and perhaps 1/2 of service sector workers are on outsource contracts.

Walk into any of India’s shiny new shopping malls and many of the store clerks, janitors, and security guards will be on the payroll of outsourcing companies. Firms like TeamLease supply workers who are paid half of what a “permanent employee” can earn, with few benefits to boot. Today, one of TeamLease’s biggest clients in India is Whirlpool. It has hired 1,850 salesmen for the American giant and sent them to stores to sell appliances. This avoids the myriad of employment laws and taxes that differ by region and simplifies Whirlpool’s entry into a new market.

Discussion questions:

1. How does outsourcing impact Indian companies and employees?

2. What are the disadvantages of outsourcing in general?

OM in the News: “Frugal Engineering” Helps India Challenge Chinese Manufacturing

The Financial Times (May 20,2011) just published an interesting article on India becoming the world leader in what is known as “frugal engineering”.  Always behind China as the world’s low-cost manufacturer, India  has chosen the path of producing low-cost products that are resistant to tough environments such as Indian or African roads and weather–and have robust quality standards. India,  already known as the IT back office of the world, is now creating hubs for global manufacturing of small cars, wireless telecomm equipment, and low-cost innovative products  for emerging markets ( as well as such items as small decentralized power plants for areas of the world with no electricity).

“The story of India’s rise as a key contributor to the global supply chain is very different from the one that elevated China to ‘factory of the world’ status. India is putting less emphasis on hard-core manufacturing , but it’s taking a leadership position in research and product development”, writes the Times. Products developed by “frugal engineering” for Indian markets  fit well in other developing world markets in African and Latin America.

Ford, which has invested over $1 billion in a 200,000 auto/year state-of-the-art plant in Southern India, is making cars for emerging markets, where manufacturing costs are often higher than in India. “We now recognize it as a hub for small and fuel-efficient cars”, says the head of Ford-India.

India is also becoming a more popular destination for global manufacturers who want to decouple and de-risk from China, whose wages are rising, whose markets are highly regulated, and where intellectual property rights are often infringed.

Discussion questions:

1. What is India’s strategic advantage over China and what is China’s advantage over India as a global manufacturer?

2. Why is India a world center for frugal manufacturing?

OM in the News: Philippine Call Centers Overtake India

For the past decade, when you called an 800 number for customer service or a plane reservation, the chances are you would be speaking with a young person in Bangalore or Gurgaon, India. But Businessweek (Dec.6-12, 2010) reports  that you are now more likely to be phoning up the Philippines. With $5.7 billion in call center work this year,vs. $5.5 billion for India, the Philippines have overcome a slow start in outsourcing. OM managers in the US may wish to take a note.

Why the move from India? (1) English is taught in all schools; (2) Filipinos have a cultural affinity for the US (with teens weaned on radio stations that play US Top 40 and hip-hop);  (3) Special economic zones offer tax breaks and exemptions from import taxes on telecom gear; and (4) power is more reliable than in India, where companies often rely on diesel generators. The call center  jobs are popular, as nocturnal workers can earn $6,850 a year in a country where per capita income is 1/4 of that.

This is not to say that India is giving up its dominance in outsourced work that requires a higher level of skill. Its overall outsourcing revenues are still $70 billion (vs. $9 billion in the Philippines). Indian outsourcing firms are migrating from answering  phones to account management,high-tech support (it graduates 400,000 engineers annually),and financial and supply chain consulting. “In IT and software, India really doesn’t have any competition”‘, says a Wipro exec.

As a sidebar/update, on Jan.10,2011, USA Today devoted a cover story article to the Philippines call centers.

Discussion questions:

1. Why are the Philippines a popular call center alternative for US, European, and Australian firms?

2. How has the call center industry matured in the past decade and what has been its impact on India?

3. Identify other outsourcing industries that have migrated from one country to another in the past 20 years.

OM in the News: Hospitals Fear Outsourcing Records to India

Whenever I blog on the subject of outsourcing  (see Chapter 2), I find myself using the word “controversial” (as on 10/12/10). And, indeed, this week’s Wall Street Journal article (Nov.2,2010) describes the contentious issue of outsourcing digitizing of hospital medical records to India. Overseas providers, it is commonly feared,  do not have the security and privacy controls that US hospitals require. “As soon as it leaves the confines of the US, its not subject to the same rigorous laws as we are”, says the CIO of a Texas chain of 40 hospitals.

Every company in IT wants to cash in on the lucrative $50 billion US health care market fueled by a federal mandate for hospitals to convert to electronic records by 2017.  Amazingly, only 20% of US hospitals currently have electronic health records. Its a carrot and stick approach, with $6 million grants to an average sized hospital (I wonder where all this money comes from!) and penalties for missing the deadline. Its “like another Y2K opportunity” for software firms, says the head of New Delhi’s HCL Technologies.

So the real question is, who should get the contracts? Its not so simple. HCL has about 2,400 American employees in N.C. Then again, Cognizant Technology Solutions is a US firm in N.J., but has most of its staff in India. Indian tech giants Infosys, Wipro, and  Tata are all lined up with bids. But so are IBM, Xerox, and Dell in the US.

Discussion questions:

1. How do students feel about sending medical records abroad for automation?

2. Can this impact relations with India, which sees this as protectionist? (President Obama visits India in 2 days).

3. Why was Y2K such a boon to the IT industry? (Some of your students may not remember the drama that year).