Home India 2009 Outsourcing to innovating: a lesson for the West

Outsourcing to innovating: a lesson for the West

by david.nunes
Author's PictureIssue:India 2009
Article no.:4
Topic:Outsourcing to innovating: a lesson for the West
Author:Tony Kalcina
Title:Chairman and Founder
Organisation:Clarity International
PDF size:355KB

About author

Tony Kalcina is the Chairman and Founder of Clarity International; he led the company as its CEO for the first ten years of operations. Since his appointment as Chairman of Clarity, Mr Kalcina has supported Clarity’s global expansion as its Chief Evangelist. Mr Kalcina has over 25 years’ experience in the telecoms industry in Australia and Asia. His career included ten years at Telstra, where he worked as a R&D engineer and three years as an expatriate CIO of the newly established Malaysian Telecom Company (Time). Tony Kalcina earned a B.E. (Elec. Eng) and BSc (Hons) in Computer Science and Physics, from the University of Sydney.

Article abstract

India’s outsourcing business accounts for seven per cent of its GDP. India’s outsourcing sector, famous throughout the world, is a major factor in the growth of its economy. Outsourcing has driven the creation of a vast pool of well-trained technical manpower and forced the deployment of a highly advanced, extremely cost effective, telecommunications system throughout India. Although India will inevitably lose some of its outsourcing business to newcomers, it can now source original products and services of its own throughout the world.

Full Article

For over a decade, outsourcing services in India has provided Western companies with a means to cut service development and maintenance costs, deal effectively with the peaks and valleys of demand and focus their own efforts on more strategic work. Both India’s government and entrepreneurs were quick to take advantage of this growing trend, attracting multi-national after multi-national to outsource their business services. In 2008, Indian ICT and business outsourcing services employed four million people and accounted for seven per cent of India’s gross domestic product. However, the extent of outsourcing in India is likely to decline over the coming years. The cost advantage used to be at least a 1:6 return, but this has now dropped to less than 1:3. The demand for workers in the ICT services industry has now outstripped the supply of labour to such an extent that a worker shortage is being created, driving up wages and pushing Western companies to outsource to Eastern Europe and elsewhere. Technology commentators have also pointed out that low value-added and easily automatable work should disappear over the course of the next decade. This has led some industry analysts to claim that India is facing an economic backlash, as Western companies take their business elsewhere. If India is to continue to thrive economically in the twenty-first century, they will need to diversify into developing their own products and services, rather than simply acting as a support for others. To this end, they will need to create a stable and advanced communications infrastructure to support their growing highly skilled workforce with experience spanning IT, finance and telecoms. Fortunately, this is a path India has already started down. The Indian telecoms market presents substantially different requirements to those in Western Europe or North America. They are also extremely lucrative; OSS Observer forecasts revenue growth in emerging markets at 11 per cent from 2007 to 2012. Even so, developing India’s communications infrastructure will be a long and difficult process. Indian telecommunications companies face the enormous challenge of providing service to a huge, largely rural population, living in a rugged region of over three million square kilometres. For Indian operators, the key will be in accessing their large and often rural populations that typically have low tele-density; 70 per cent of India’s 1.1 billion population lives in rural areas with tele-density of around 2 per cent. Operators can then support business models based on rapid growth and high customer subscription. While the opportunity for customer growth is clear, the automation and intelligent management of manual activities to generate operational efficiency will be critically important when maintaining services for so many subscribers spread across such a large area. One Indian operator currently has a 1:1, 750 staff to subscriber ratio. Anyone who believes that Indian operators only need to provide a basic level of customer service is also in for a rude awakening. It is a common misconception that subscribers in emerging markets do not expect a high-quality customer service experience. In reality, any providers who do not scrupulously maintain and improve their Service Level Agreement (SLA) face extinction. Subscribers in emerging markets are technology literate, and competition from other operators is relentless. Indeed, competition is a major reason why India has some of the lowest mobile rates in the world, at just two cents per minute. This need to defend market share and capture new subscribers is also driving innovation in service offerings. In addition to coping with rapid subscriber growth, operators in India must reduce the time-to-market for new products, since demands for 12-15 new products and features per year are not unheard of. Another challenge facing Indian operators is their comparatively low average revenue per user (ARPU). The estimated ARPU in India is around US$8 per month, which is slightly lower than Indonesia, the Philippines, Malaysia and China. However, this is only around a tenth that of some Western European operators. While operators in developed markets usually grow their networks with demand, the Indian market required a different approach. One Indian operator invested around US$9 billion in their network – projected to support 135 million subscribers – and then focused on achieving high utilisation through customer growth. This allowed them to garner an early market share (through high performance from day one) but also meant that they needed to see a rapid return on their investment. To tackle these problems, Indian operators have once again shown their ability to innovate by opting for single unified OSS packages. Modern OSS has been shaped in developed markets, culminating in a best-of-breed approach potentially unsuited to emerging markets. Best-of-breed approaches to OSS cost more money due to the need for integration and data synchronisation, as well as deal with latencies. In contrast, a unified OSS allows for the simplification and consolidation of end-to-end services – improving and stretching the supply chain wherever possible, from equipment supplier to end customer. This presents operators in emerging markets with a sophisticated OSS without the associated long lead times and high costs. This has meant that some Indian operators are now seeing increases of a million customers per month and are rapidly expanding their offerings and rolling out next-generation services. It is also important that OSS providers in emerging markets help their clients take control of their OSS and work with them in partnership. Often, an Indian operator’s cost constraints are such that they can only maintain their OSS in the long-term by doing it themselves, supported by the product vendor as needed. The vendor must have knowledge transfer strategies that gradually introduce their OSS to the operator’s IT staff. Achieving complete transfer of responsibility within a few years is a realistic goal, with proven results, when supported by the product vendor. Indian operators are also deploying advanced convergent network management, so that they can manage both their fixed-line and mobile services through their OSS. This creates a multi-skilled operations staff with up to 30 per cent of the personnel implementing both fixed and mobile processes. The consolidation of the core network reduces the number of management platforms needed and effectively equates to a 30 per cent reduction in staff and a proportional reduction of operating expenses. For many Indian operators, next-generation (NGN) technologies are not a long-term aim, but a starting point, since NGN systems actually provide solutions to many of the problems they now face. From a technological standpoint, Indian operators are not merely creating networks that rival those in Western Europe, but that actually surpass them. Indian operators are currently deploying broadband optic fibre networks that completely bypass the copper lines still used in many developed countries. One Indian operator has the world’s largest IP-enabled optic fibre cable network with 230,000km now laid. Copper wiring is becoming increasingly expensive; it is also subject to theft – a serious problem in the rural areas of developing countries, which often lack rigorous law enforcement. Since optic fibre cables have no intrinsic value, it makes more sense to lay them than copper. Other operators are deploying WiMAX and IMS systems to provide ‘instant’ broadband service. Wireless broadband is an excellent means of reaching rural or transient populations and spots where coverage is blocked out. Unlike copper cable, one can secure wireless broadband equipment against theft and it costs much less than laying and maintaining hundreds of kilometres of cable infrastructure. Indian operators are also increasingly wary of equipment vendors ‘giving away’ their equipment and providing technology tied to their management solutions. Instead they are investing in the longer term use of flexible, multi-technology and multi-vendor OSS platforms, providing holistic network management, future-proofing for evolution and customer centric perspectives. As its telecommunications infrastructure becomes more advanced, India will be able to source a wide range of new services and products, not just outsource the operations of others. It will not be long before a 21st century communications network is available to India’s highly trained workers. With ARPUs falling worldwide, operators now desperately seek to add value to their services. As medium and high ARPU countries increasingly feel the bite of revenue reduction on their operations, they must question whether their networks can provide them with the means to exploit economies of scale. The Indian approach to these problems can teach us valuable lessons about the challenges that developed markets have not yet had to contend with, but may soon find themselves facing.

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