New avenues opening up; better planning will help
Nasscom has forecast a drop in orders and profits over the short term. But many IT majors feel that by early 2009, the uptrend may be discernible.
The last quarter results of most IT majors have come, and on predictable lines. The net profit margins are down, confirming the earlier indications that the slowdown in the U.S. economy and the pressures on the global economy will have its impact on India, especially in its IT-ITeS sector. Leading exporter TCS had its net profit pruned to just 4.15 per cent in 2007-08 as compared to the previous year, while Wipro was even more flat at just 2.8 per cent. In this lot, Satya m reported a 18.6 per cent growth in net profit. Earlier, Infosys almost met its target and expectations with a 20.8 per cent rise in net profit. Impact of results
The immediate impact of the flat results was felt in the stock markets and the IT companies took a beating. But behind these figures hidden is the real story. The National Association of Software and Service Companies (Nasscom), the apex body for software companies, has forecast a drop in orders and profits over the short term. How short will that short term be remains the question. Optimists put it at four to six months, but the more cautious extend it to even two years. The forecast is that things will revive in 2010, not before. But many IT majors feel that even by early 2009, the uptrend may be discernible. Some of them have even gone for acquisition of foreign firms or setting up shop in strategic countries. Good planning, for instance, helped Infosys cut down on expenditure, step up projects and revenues from the European market, and also cover up for the rupee. That only shows that proper planning and a more even spread across the global market can help companies overcome the U.S. slowdown.Outsourcing industry
According to senior industry analysts and consultants, the meltdown in the American banking and financial sector is bound to take its toll in the outsourcing industry — the Indian IT-ITeS sector was expected to feel the impact early on. Not only will there be a drop in outsourcing or front office jobs done through Indian companies, but major projects under discussion are certain to be put off or delayed for better times. “Given the credit crunch in the U.S. economy and layoffs being reported, where is the question of IT maintenance or technology upgradation taking place anytime soon?” asks consultant T. K. Pandian. But others point out that even the recession will open new avenues such as the outsourcing of debt recovery to American financial and banking institutions to Indian BPOs.
Though the IT majors were not saying this in the open, they seem to have done their internal workings on the downtrend in their major main markets. While some of them have turned the focus on Europe and East Asia, others are looking to woo a new clientele of domestic firms which may not be averse to IT applications or outsourcing. “Given today’s competitive world and the recessionary trends, investors or analysts should not expect 30 per cent growth or double digit profits. Like the markets, we too need a cooling period and time to overhaul our operations,” reasons a Chief Operating Officer of a Bangalore-based second-tier IT firm.Attrition
More than the technical, operating or finance chiefs, it is the human resource managers who seem most worried at the moment. Attrition poses a major challenge to them. “The problem is so complicated. We find it difficult to retain good talent, we continue to recruit, and most of the new recruits do not measure up to our standards and get benched,” explains Joseph Staley, a HR manager. It is something of a paradox that Nasscom estimates that the industry will need over one million jobs to be filled up this year, but there appears to be a dearth of qualified hands who can live up to expectations and stay on with the companies.
With fewer new projects and clients coming in for the short term, existing clients have become more demanding — on quality, perfection, communication, and schedules. So known performers end up doing more and the under-performers get benched. Consequently, the more competent staff needs to be “looked after better,” or they move to greener pastures. These are challenging times for the IT sector, which needs a comprehensive management policy in place to take care of clients, personnel, finances, and marketing.
V. JAYANTH
© Copyright 2000 - 2008 The Hindu
Monday, April 28, 2008
Friday, April 25, 2008
Second Master plan: largesse in the offing? - The Hindu
| The new development regulations have raised the anticipation level, writes Suresh Kuppuswami |
For a quality city: Much is expected from the proposed changes in the Development regulations of the Second Master Plan for Chennai.
What created this anticipation is the relaxed development regulations it proposes. What major changes in the Development Regulations are in the offing? How will it help?
As per existing development control rules of CMDA, buildings are classified as ordinary buildings, special buildings and multi-storied buildings based on the intensity of development and the planning norms vary for each category.
What is expected is that set regulations for ordinary buildings, with floor area not exceeding 300 M2 and number of floors not exceeding 2 will be relaxed. The maximum number of dwelling units is restricted to 6 in an ordinary building plot. Now this will be changed.
The number of dwelling units permissible is to be increased to at least 8 and the number of floors permitted may be increased to three (G+2).
Though there is not going to be much change in the front and side setbacks, the rear set back required will be a maximum of 1.5 M and the same will no longer be based on the depth of the plot. The current permissible FSI is 1.5 and the same is likely to be retained. The CMDA has already excluded certain areas from the calculation of FSI and this is likely to fetch a maximum of additional 0.2 FSI.
Demand for concessionsIn the case of Special buildings which are the predominant built form comprising mostly of apartment and commercial buildings in Chennai, the developers have been demanding concessions in FSI, set back spaces, parking standards, number of floors and the minimum road width eligibility.
The revised norms will now allow special buildings in 9M, against the earlier 10M requirement, provided the number of floors is restricted to ground plus 2. The front set back requirement is likely to be retained and the rear set back henceforth will be not dependent on the depth of the plot and will be a maximum of 3.5 M. The side setbacks are likely to be reduced thus allowing more plot coverage.
As per the draft SMP, the maximum permissible FSI for this category of buildings is retained at 1.5 and parking standards have been made more stringent. There has been demand from various quarters for increase in the FSI of special buildings to as high as 2.50 on a par with Multi-storeyed Buildings and less stringent parking norms. It is quite unlikely CMDA will offer any big concession in FSI or parking norms. By excluding certain areas from FSI calculations and increase in size of unsupported balconies to 1.2 M will yield an additional 0.3 FSI.
However it is likely that the expectation of the developers with regard to reduction of road width criterion for special buildings from 10 M to 9M may be met by CMDA. If this comes through taller buildings may start appearing on narrower roads.
Multi-storied buildings by definition are buildings exceeding 15 M in height. As per the present norms they are eligible for FSI ranging from 2.0 to 2.5 depending on the extent to which the plot is covered by the building. The eligibility criteria are the minimum plot extent of 1500 sq.m and road width not less than 18 M. These conditions have excluded many plots in Chennai City under consideration for multi-storeyed buildings.
Much of these norms will remain, but the parking norms will be a little more stringent. One significant change is that multi-storied buildings will now be permitted in the entire Metropolitan area.
Changes unlikelyThere has been a demand from some of the developers for relaxing the eligibility criterion with regard to the plot size and the road width with the hope that if MSBs are permissible on narrower roads and in smaller plots they would qualify for additional FSI.
It appears unlikely that there will be changes in this. Buildings with G+5 or G+6 floors may be permitted on 15 M roads. The setback requirement of 7M may not be altered since it is meant for movement of snorkel around the buildings.
In larger plots meant for housing corporate offices, commercial complexes and high-end apartments, the developers have been expecting a big concession in terms of FSI to the tune of 5.0 citing rules of other metropolitan cities. Since IT buildings have already been considered for a FSI as high as 3.25, there is an expectation that the FSI will be raised for non-IT buildings too.
Prospective effectMuch of the changes are proposed on the premise that it will increase the buildability in a given site and the city at large. The developers argue that enhanced buildability will reduce the price of the apartment and make housing more affordable.
With the phenomenal increase in cost of land in recent years, this argument has gained ground. On the other hand, a section of the professional architects and planners and citizen groups have been challenging this reasoning. Will the master plan improve the quality of the city, bring the cost or will it crowd the city will be shortly known. One really hopes that the changes proposed will have prospective effect only and whether the rules will be strictly followed is a different story.
The author is Professor, School of Architecture and Planning, Anna University.© Copyright 2000 - 2008 The Hindu
Wednesday, April 9, 2008
The New Economics of Outsourcing - Business Week
The New Economics of Outsourcing
Efforts to send IT work anywhere but Bangalore are taking on added urgency as costs of doing work in India rise and the dollar sinks
Softtek, a Monterrey (Mexico) provider of IT services, added 30 new clients last year. Most of them had been using Indian firms for at least part of their outsourced IT. But they came to Softtek because they "were looking for something else," says Beni Lopez, CEO of nearshore services for the company, which has operations around the world.
Companies that traditionally rely on India for offshore IT services have been looking for that something beyond India for years, citing such reasons as high employee turnover and unreliable communications. But the search has taken on added urgency recently, especially for U.S. companies, as a weakening dollar has boosted the cost of IT services priced in India's rupee. Over the past five years the dollar has declined about 16% against the rupee. High real estate costs and expectations for tax increases also have diminished India's allure.
As outsourcing to India becomes more expensive, North American companies are more inclined to "nearsource," keeping work in the Western Hemisphere, where they can operate in a closer time zone. In years past a company could save 40% to 50% by hiring Indian firms to handle IT and other services, says Atul Vashistha, chairman at neoIT, a management consulting firm. Should the U.S. dollar continue its descent, that differential would shrink to 10% to 20%, he estimates. "If you're only going to have a 20% savings, clients start to think about time zone," Vashistha says.
Argentina's Time Zone Advantage
Kimberly-Clark (KMB) had time zone in mind when it hired Cognizant Technology Solutions in Buenos Aires to handle tech support for its SAP (SAP) software applications.
Kimberly-Clark was drawn by the available talent and the fact that the company has Argentine operations but also because geographical proximity and similar time zones make collaboration easier. "We picked Buenos Aires for a number of reasons, but we really felt from supporting SAP, it was the right place to be," says Kimberly-Clark Chief Information Officer Ramon Baez. The company also outsources application development and maintenance to Cognizant in Chennai, India.
How much longer the world's companies will have financial incentive to outsource to India is a matter of lively debate. India's "advantage as an offshore location is fast eroding—its attractiveness takes a hit with each passing day," analysts at Forrester Research (FORR) wrote in a January, 2008, report. Forrester catalogued some of the well-known challenges, such as increasing staffing costs, turnover and strained infrastructure (BusinessWeek.com, 12/11/06). Yet, there are newer challenges as well, including the falling dollar and expected tax revisions that may increase the cost of relying on outsourcing providers.
India's Cost Differential Fast Eroding
Contracts are written in dollars, and as much as 60% to 80% of Indian service providers' revenue is in U.S. dollars, but more than half of their costs are incurred in rupees, according to an October report from Forrester. Indian outsourcing powerhouses like Wipro are feeling the squeeze. They've strived to cut costs, and now they're raising prices to keep margins from narrowing further. "We are relentlessly driving for higher pricing for our services and have seen price increases from our customers in the range of 3% to 6%, and our new customers are coming in at around 5% higher than our average," Wipro Chairman Azim Premji said on a conference call with investors on Jan. 18.
Duke University professor Arie Lewin estimates that the benefit of doing business, from a labor-cost point of view, in such locales as Bangalore, India, will disappear for some companies in three to four years. That's due to a combination of dollar depreciation, wage inflation, and other costs. Others say it will take longer. "Costs are escalating, so the level of labor arbitrage isn't as great as it used to be, but that's not to say labor arbitrage is disappearing, nor will it disappear in the next 10 years or so," says Sid Pai, partner and managing director of TPI India, a sourcing advisory firm.
Indeed, while costs are increasing in India, the country is generally less expensive than Latin America and most other locations, especially for companies that don't require high-end software developers. The average annual salary for an IT worker in the U.S. is about $75,000, according to a late 2007 report by Alsbridge, an outsourcing consulting firm. In India it's about $7,779 and in Argentina, it's slightly higher at $9,478. In Brazil, the annual wage jumps to $13,163, and in Mexico it climbs to $17,899. "The bottom line is that there aren't great alternatives with the scale, quality, price structure, and the lack of risk of India," says Stephanie Moore, vice-president at Forrester.
Spreading Out Work In Several Nations
Even Lopez acknowledges that Latin America can't approximate India's scale. Mexico, for instance, has about 500,000 IT workers and graduates an additional 65,000 each year. Last year in India there were more than 1.6 million IT workers employed; an additional 495,000 graduate each year, according to NASSCOM, an IT trade group in India. Instead, Lopez envisions Mexico and the rest of Latin America acting as a complement to India and other offshore locations.
Recognizing that it may not be a good idea to locate all outsourcing in one country, or even a single region, many companies spread work among several sites. On Mar. 31, Royal Dutch Shell announced a $4 billion outsourcing arrangement. The oil company awarded about one-fourth of the total to Electronic Data Systems (EDS), which over five years will handle computing services for 150,000 users in more than 100 countries. The bulk of the work will be done in 4 places, the Netherlands, Britain, Malaysia, and the U.S. While EDS has thousands of workers in India and some of the work could possibly be done there, the company is actually hiring 1,000 workers in Malaysia for this project, an EDS spokesperson says.
Increasingly, companies want a provider that can nimbly shift tasks and labor among its own global network of work centers. "The real question, if you're going to sign onto somebody for five to seven years, is do they have a vision for how they're going to move work around the network," says Kevin Campbell, group chief executive for outsourcing at Accenture (ACN). With more than 40 centers, Accenture has the ability to shift work as market demands change (BusinessWeek, 4/23/07).
Brazil is a Beneficiary
Indian providers, including Tata Consultancy Services (TCS), Wipro, and Infosys Technologies are trying to build similar global networks as well. TCS made the decision to move into Latin America about six years ago and now has 5,571 workers in Mexico, Argentina, Brazil, Chile, Colombia, Ecuador, and Uruguay. TCS serves customers such as General Motors (GM), Goodyear (GT), and Motorola (MOT) from the region.
"Two-thirds of our customers use more than one location," says Gabriel Rozman, executive vice-president for emerging markets at TCS, adding that after the terror attacks of September 11, many U.S. companies realized the risk of outsourcing to only one location. Still, while the U.S. dollar has held fairly steady against the Mexican peso and Argentine peso in the past five years, it's dropped nearly 49% against the Brazilian real and nearly 39% against the Colombian peso. "We're not in great shape with [some] currencies in Latin America either," says Rozman.
The dollar's decline aside, even Brazilian firms are benefiting as companies spread their outsourcing around. "We're seeing increased demand, and it has been accelerating in the past three months," says Alvi Abuaf, president of North America for CPM Braxis. He says that the labor pool of IT workers is about 1 million in Brazil and growing at about 100,000 per year. Like Softtek, CPM Braxis positions itself as a complementary service to India. Adds Abuaf: "Latin America has been overlooked over the past two decades, but companies are realizing there is a viable alternative, and it's more viable today than it was before."
Already, Softtek is moving global delivery centers into smaller Mexican cities in an effort to avoid the competition for talent happening in places like Monterrey and Guadalajara. "The demand for talent is going to get bigger and bigger in the next five to eight years," says Lopez.
For more, see BusinessWeek's slide show.
King is a writer for BusinessWeek.com in San Francisco .
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