Go global, young man

VALUE FOR MONEY

The Indian software and services industry has been somewhat taken aback by the US Senate outlawing contractors offshoring US federal government work.

In the past, Indian industry leaders have correctly left the job of crying wolf over the western backlash against offshoring to the Indian media. But it is also true that over the last one year, every attempt to play down the backlash issue, partly by averring that it is a creation of the Indian media, has been overtaken by a worsening reality.

Is it possible that the Indian industry, government and public would have been better prepared to respond to the latest developments had not the industry leaders consistently claimed that the backlash is small and will blow over?

Even now, a good number of industry players appear to be whistling in the dark, saying that the US president can still veto the measure, if he does not then it will lapse after October and even if it is renewed, it will die an inevitable death after the US elections.

Instead, it is much better to argue that "You ain't seen nothing of the backlash yet". On the balance, there is greater probability that US state legislatures will eagerly follow the lead given by the federal government and introduce a plethora of legislations putting similar curbs on offshoring.

Chances are also high that west European governments, much more sensitive to the opposition to offshoring, will not hesitate to pass comprehensive measures that will seriously affect the offshoring of government work.

This will be unfortunate as there is a huge IT opportunity in government in developed countries and putting a stop to offshoring parts of it will be harmful eventually for both the citizens of those countries and the Indian industry. Take the case of the National Health Service of Britain.

It is in urgent need to both modernise its operations and outsource treatment to tackle long waiting lists. The second cannot come before the first. The cost of doing the first will be greater and more forbidding if the option of offshoring a part of the work is not considered. Both Britons and Indians will suffer, the former much more than the latter.

It is the impact of all this on private offshoring that is the most serious. Already Indian software and BPO vendors have stopped talking about new client wins. This is unreal and the practice cannot be continued indefinitely.

Not talking about what you are doing goes against current trends of more transparent corporate governance. It is only a matter of time before things become known and trade union pressure builds up against offshoring. Such pressure is stronger in western Europe than in the US but even there the kid gloves are out.

Microsoft, for example, is probably going in for more offshoring than it would care to admit. Chances are that offshoring will get restricted to new jobs, thus putting a damper of corporate productivity improvement and Indian IT growth.

If we are to assume that the backlash against offshoring is severe and likely to stay for some time, what should be the Indian response? A transformation is already taking place in the Indian IT services industry which may help matters. Consolidation is on and the top few Indian companies are racing ahead of the rest in terms of growth.

This is putting them in the global league and fortuitously preparing them for effective action to tackle the backlash in developed countries. Once the Indian IT leaders become global in size, featuring in the top league, they have to become global in their mindset.

A transnational organisation is far different from one that merely exports a lot. Becoming transnational or global means making global acquisitions, having development centres all over the world, helping save jobs at the customers' site by organising training and imbibing a global culture in the organisation's higher management.

Here it is instructive to study what large, outward looking Japanese companies like Sony and Toyota have done. Toyota, in particular, has gone to the extent of developing higher-end brands like Lexus which have been consciously distanced from the Toyota name.

However, this and other measures like locating automobile production in the US and western Europe have not prevented a flood of anti-Japanese feeling sweeping the US and Europe from the late eighties to the early nineties.

Some of that is attributable to the perception that it is very difficult to crack the Japanese market, surrounded by non-tariff barriers. The Japanese also have a very strong cultural identity which makes it impossible for them to westernise and assimilate with the rest of the world beyond a point.

The island nation with poor natural resources has had to struggle to overcome poverty and become a world leader. In the process it has acquired a fierce nationalism for its domestic economy which it has not been able to discard at considerable cost to itself.

The Indian psyche and economic history give it certain advantages. Although there is still a very high tariff barrier around India, Indians' love of foreign brands is legendary. The large country with its federated structure and history of foreign physical and cultural incursions makes the Indian psyche very assimilative.

Hence, when Indian governments put their mind to opening up the domestic economy, they can do it much more easily than can the Japanese. What is more, low Indian purchasing power makes its own players so cost competitive that they have little to fear from foreign competition on their soil provided they attack their own inefficiencies.

Once India decides to open up (there are preliminary signs of it), it will do so much more successfully than Japan. At the end of the day, there is a lot in common between the US and India in terms of being culturally diverse, resource rich and with a robust and large domestic market.

So the best strategy for the young Indian IT industry is to go global and the Indian government to open up domestically. This can only do everyone a power of good.

sub@business-standard.com