A Thought paper for identifying competitiveness and a case to invest in growth of services exports sector in India By: Amit

Bhushan Date:November 2011

A case for Growth of select sectors in India- (2011-15) (Opportunities for Youth in India)
The financial turmoil has upset growth prospects of many businesses. The corporate and many governments across the world are constrained to look for new alternatives for growth of the economy. This is even as the struggle to protect existing businesses and jobs. Several Financial Institutions across countries have been jolted and are in serious need of repairs & restructuring. Those that have managed to stay afloat either due to largesse of the monetary policy or due to Governments charitable benevolence for support of the financial backbone. These institutions however have been chastised enough and are now far more cautious about where they put their Money, henceforth. Large Business Conglomerates across the globe are busy reassessing their plans, reorient to the emerging situation, renew emerging demand-supply scenarios & busy defining new & more robust supply chains to effectively cater to emerging situation. Effects are being seen everywhere as several people being rendered jobless even as quite a few others are transferred and witness role changes with redefined wages. The same are results of corporate adaptation towards emerging demand scenarios, restructuring of the length, breadth & depth of their product-lines and assessment of required production capacity. Governments across the world are adapting their monetary & fiscal policies to help population & organizations adjust to the emerging realities. This is even while quest for reassessment to make changes to the Regulatory Regimes and Business Policy & procedures, Institutional Support Architecture and Infrastructure Support development continues across the Globe. While the Corporate quest for stability continues; it can be said with some conviction that with such volatility in commodity prices, interest rates and currencies shall continue for the next few years. This shall have huge impact of Storage costs (due to interest rates); Haulage/Transportation/Logistics Cost (due to Bunker/Fuel oil/Gas); Processing/Production costs (due to Currency fluctuations, Interest rates, commodity prices). Also, we witness a sea change in our understanding and perception of Risk and hence the plans for mitigation of those Risks are quite different from what they used to be, previously. Senior Managements at Corporate are now constrained to plan for various scenarios that may play out. They are more demanding in terms of hedges for their Risks, so as not to be caught unaware and do not receive unnecessary blames. They are trying to assemble an integrated/holistic view of the entire organizations activities, the various regulatory constraints each of their units operate under and the multitudes of possibilities that each of those units may possess. They are seized to identify potential opportunities there under including ways to cut costs, reduce risks or improve client servicing by

By: Amit Bhushan Contact: amitbhushan@rediffmail.com Author works with a major International Bank in India. Views expressed are personal

adding new customers.

products

or

new

This is resulting is a lot of opportunities in Finance and Administration space of the corporate. Frequently a lot of this work is being outsourced and being moved to low cost locations such as India. The outsourcing service providers there are presently engaged with relatively low value added work. These centers/service providers shall be required to metamorphose into high value added insight provider in the future; failing on this count will lead to atrophy of such centers to other lower cost destinations in the increasingly demanding environment. It is being noted that Labour Cost Arbitrage which is one area of stability (sans the currency fluctuation scenario, of course) and making decision on this count is seen as relatively lower Risk. This is being further supported by scores of changes that are being spearheaded/facilitated by Government in the spheres of regulatory policy, Tax regimen, infrastructure changes & environmental regulation changes so that businesses find it easier to start business and benefit from the economic situation. The changes are reshaping the way in which business shall be conducted, ability to source/provide services to the Global corporations and engage effectively with global economic environment. The corporate also are changing the way they measure threat perception regards security of the systems, personnel, assets and the manner to mitigate the possible impact these changes will pose of business continuity.

They are increasingly aligned to carry forward Business in the direction economy is moving in their quest for stability, profits and growth. Thus frequently the concerns are being set aside to move their business processes overseas and benefit from the opportunities offered by the situation. The changes also helps in looking at even the most minute aspects of their businesses in a comprehensive manner and weigh upon each opportunity and threat in the light of the changing paradigms. The Global corporations had already initiated sourcing of services in areas of Human Resource process outsourcing, Client Relationship Management process outsourcing, Vendor and Dealer Management process outsourcing, Payments process outsourcing, Logistics and inventory management process outsourcing, Global Sourcing processes outsourcing, Legal process outsourcing, Medical transcription process outsourcing etc. However most of these processes were on discrete legacy systems and of relatively low complexity though requiring a large human effort. Now backoffice activity of highly integrated & sophisticated systems is also being moved to lower cost destinations. Result is a clutch of high end processes are increasingly being considered to be moved to lower cost destinations. However, support for transitioning and migration of the processes shall be forthcoming only if professionals display a lot of Sensibility and Sensitivity along with technological capability and understanding of the subject.

A Thought paper for identifying competitiveness and a case to invest in growth of services exports sector in India By: Amit Bhushan Date:November 2011
Sensibility is required to understand the context in which changes are being made and associated conditions & consequences. What is required is full appreciation of concerns of the host country (from where process is being outsourced), their service requirements, perception of Risk and Risk control/management framework. Added to this is the need for appreciation of process standardization and integration requirements of the Global corporate/headquarters which are at the core of driving these changes. Also, appreciation of impact of global changes in accounting regulations such as advent of IFRS or the impact of Sarbanes-Oxley act etc. is required in order to make process improvements and to make them more user friendly. Thus professional demand is to be able to decipher a more complete picture of the system and chaos across the corporate basis limited discussions and information disclosures, solutioning and service delivery to the satisfaction of stakeholders. Sensitivity is required to understand how various processes are stacked together to meet end customers requirement and also on which processes/activities are being moved. How such a transition shall be carried out to be effective. What can be go/no go areas while a makeover/transformation of the process is carried out so that residual risk remains under control and how hand-off of information shall be carried out from both sides, performance requirements etc. There is need to convince outsourcers regarding ability to perform services as per requirements with Reliability; and display Responsiveness towards any concerns/issues that the client may have including ability to understand the concerns/issues fully (& thus maintain information levels equal to the levels at the host/global levels). Thus he understanding to adequately man onsite and offshore processes with proper information/knowledge transfer procedures and balancing of understanding level at all levels is required. Quite a few processes being considered for outsourcing are from Financial organizations itself like Banks, FIs and Insurance companies. Some of the Credit rating companies may also be considering moving processes overseas to the extent these processes are standardized, stable and low risk allow considerable savings in manpower costs without any deviation in results. The processes being considered for moving overseas include processes like client on-boarding including maintenance of static data and associated processes like credit/insurance application processing (i.e. those processes that may be carried out effectively from low cost destination such as preparation of financial spreadsheets and financial risk ratings, collateral and margin maintenance/evaluation etc. and miscellaneous processes related to client acquisition and underwriting). Then there is always the manpower intensive transaction processes some which like Trade Finance and Services, Payment processes, Custody operations, Treasury operations

By: Amit Bhushan Contact: amitbhushan@rediffmail.com Author works with a major International Bank in India. Views expressed are personal

etc. where deal entry, authorizations, validations may be required to be carried out at back office and outsourcing may offer considerable scope of cutting costs. The same may also be true for supply chain financing, e-invoicing processes, e-commerce arrangements etc. Claims Settlement/ Management processes, Credit rating information processing and management for Rating companies, Utilities, Card companies and retailers may be some of the other areas where outsourcing may have scope for standardization, cost-reduction and process improvement. Adequate display of maturity to handle concerns with adequate degree of Sensibility and Sensitivity; delivery of services with Reliability and Responsiveness to issues/concerns (of course taking integrity, commitment and professionalism for granted) will lead to further gains in areas which require high touch i.e. ability to grasp complex and often unstructured needs and retrieve useful information and presenting the same is a structured manner to facilitate decision making : 1. Organization Data/Information/ Knowledge Management arenas. This shall include planning and maintenance of Data structures and maintenance of information/knowledge repositories. Storage, retrieval and dissemination of information/data and associated services. 2. Research for Information from public sources including collation and presentation of

such information to solve problems or to meet internal information requirements of executives. Also, carrying out experiments to validate reject hypothesis (scientific, engineering or management etc.), research new processes and technologies for their potential to improve performance or reduce cost etc. 3. Information services such as Information/New gathering from around the World for Online, print news A/V media, magazines, business news organizations etc. including dissemination of customized information/news basis relevance criteria as well as ondemand retrieval etc. Of course this will require much greater cultural understanding appreciation for aesthetic sense of the customers i.e. the manner in which the gather, collate and interpret information including the manner in which they prefer the required information to be presented. 4. Entertainment services such as Short and Full length movies, Documentaries and professional training related stuff, Animations, educational films and audios, Gaming software etc. which shall also require high degree of appreciation for Culture and Aesthetic sense of the people of host countries. The above assessment is basis understanding that the labour cost arbitrage is likely to be sustained with average Labour cost plus overhead for a developed country worker at USD 80,000 approx. while that of India/developing country worker ruling at a little less than USD 25,000 (basis

A Thought paper for identifying competitiveness and a case to invest in growth of services exports sector in India By: Amit Bhushan Date:November 2011
current exchange rates). Varying estimate suggest that there is potential for migration/transitioning of anywhere between 10,000,000 to 25,000,000 (10-25 mio.) jobs in next 4-8 years. India shall require an investment of close to 75-225 Billion USD to support such transitioning of jobs for which it needs to create the right infrastructure and climate. There is also need to develop orientation, awareness, knowledge and skills to deliver performance for such jobs and sustain interest of customers to carry out such transitioning/migrations as well as attracting investors, domestic and foreign to support the process. There is also need to reach out to potential outsourcers to help them improve understanding of economics, technology, control processes including any associated issues that they may have while addressing their concerns. Also, there is need to constantly highlight the success stories in relevant forums, a process which has now taken back seat due to fear of political retribution in the developed countries.

By: Amit Bhushan Contact: amitbhushan@rediffmail.com Author works with a major International Bank in India. Views expressed are personal