Re: Reply to Dr. Roy

["Raju Agarwal" <krantikari@hotmail.com>]

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Dr. Roy,

Your point with regard to "people export" is well taken.
Note that a certain amount of "people export" is necessary in order to
perform front end work at the client site, while the India based
developers
perform the back-end coding.  However, I agree that it is not in the
Interest of the country if software companies engage in "body-shopping"
to a
great extent.

Fortunately, as this article point out, the "people export" aspect is
declining while the India based work is increasing.
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Offshore shores up bottomline of IT cos

Rishi Chopra & Sangeeta Kulkarni
MUMBAI
IN AN attempt to counter competition and exercise cost-cutting measures,

several top-rung Indian software companies are increasingly shifting
software development work back to India.

The trend, which began a year ago, is gaining momentum as revenue
contribution from offshore services is increasing for most software
companies.

Offshore services is industry jargon for work done by a software company
in
its own offices in India. Onsite work prefers to work carried out on the

client’s premises.

Statistics reveal that offshore software development’s contribution to
total
revenues for most companies has been on the rise, as opposed to that a
year
ago. A break-up of the results declared by companies for the year ended
December 2000 dictates that barring few exceptional cases, almost all
the
big companies have shown a steady rise in revenues offshore software
development on compared to onsite.

The move back to India is being driven by costs. This is because
offshore
billing rates are less than half of onsite rates.

For instance, the onsite billing rates for Infosys stand at $68.7 per
hour
while off-shore rates are just half at $32.3 per hour. Similarly, for
HCL
Technologies, onsite billing rates of $67.3 per hour compare with
offshore
rates of $36 per hour.

For penny pinching American clients facing a recession it makes sense to
get
work done in India rather than abroad. The offshore revenue component
for
Infosys increased from 2 per cent in December 1999 to 67 per cent during

December 2000, while Wipro’s offshore business contributed to 52 per
cent of
the company’s total revenues as of December 2000 compared to 45 per cent
in
December last year.

Satyam’s offshore revenues grew from 48 per cent last December to 58 per

cent during December 2000.

The immediate impact of shifting onsite work offshore may result in a
short-term impact on revenue growth because onsite billing rates are
higher.
However, this impact is compensated by higher net profits as offshore
projects have high margins.

Take the example of HCL Technologies. Although the company had earlier
showed more inclination towards onsite software development, it has
enhanced
its offshore presence considerably over the past few quarters. In
December
2000, 63 per cent of HCL’s revenues came from offshore-related work, up
from
just 59 per cent during 1999.

This has seen the operating margins improving from 12 per cent during
FY’99
to 27 per cent in December 2000. Sonata software showed a rise in
offshore
revenues from 40 per cent in December 1999 to 47 per cent during
December
2000.

According to B Ramaswamy, managing director and president, Sonata
Software,
"We find the offshore business model effective as it helps us create a
global delivery model for our customers."

An offshore based business enables customer involvement and helps in
adapting to changing technology requirements, he said.

Ramaswamy expects the trend to be continuous as it brings a cost benefit
of
about 30-50 per cent to customers. However, this trend is not uniform.
Hughes Software Systems, for instance, reflected no change in the
proportion
of its offshore revenues as against that last year.

Companies like NIIT and BFL have also not seen a steep rise in their
offshore business component but are planning for it nevertheless. The
high
85 per cent onsite mix of Mphasis has driven up Mphasis BFL’s
consolidated
onsite percentages.

© The Economic Times Online. All rights reserved.


>From: "Dr. Subroto Roy" <sroy@vgsom.iitkgp.ernet.in>
>Reply-To: debate@indiapolicy.org
>To: <debate@indiapolicy.org>
>Subject: Reply to Mr. Aggarwal
>Date: Tue, 6 Feb 2001 14:02:27 -0800 (PST)
>
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>Please help make the Manifesto better, or accept it, and propagate it!
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> > Dr. Roy,
> >
> > Let's start with a few basic questions.
> >
> > If an Indian software company, announces that its revenues for a
given
> > period were, for example, $100 million, 98% of which were exports.
And
> > that
> > these figures have been "independently verified" by the company's
> > financial
> > auditors.  Would you accept the $98 million figure as a valid basis
of
> > measurement for that company's exports for the given period?
>
>--- Prima facie, of course, but we would not be concerned with the
absolute
>figure of revenues so much as the profitability of the company, which
>implies looking at its cost-side as well, i.e. the balance sheet,
>income/expenditure, cash-flows and financial ratios.
>
> > Likewise, when Reliance announces that its chemical exports are X,
or
> > when > Ford (India) announces it exported Y worth of vehicles, would
you
>accept  those figures?
>
>
>-- yes, similarly, though the Ford example or e.g. Maruti-Suzuki is
>excellent, as the point regarding value-addition within Indian shores
>becomes obvious too.
> >
> > The empirical evidence, such as:
> > - construction of IT parks in software cities such as Bangalore,
> > Hyderabad,
> > etc,
>
>-- I was happy to be a guest there recently, and made my point there
too...
>
> > - the high visibility of Indian programmers working in US companies
> > - high profile US companies announcing major investments and/or
> > expansion of
> > their India software development centers.
>
>--- certainly, absolutely, no question about it.... our people are I am

>sure
>good and relatively inexpensive.... e.g. I recall a Silicon Valley
Indian
>entrepreneur telling me as of 19991 that he was paying $20,000 per
Indian
>engineer for work sourced out to Bangalore which would have cost him
>$70,000
>at the time if he paid an American engineer (especially given the
latter's
>health benefits) to do the same....
>
>But if the same Indian engineer leaves the shores of India and does the

>work
>at the client's site, it may accrue to India's GNP but will not accrue
to
>India's GDP.
>
>
> > suggest that the software export phenomenon is for real
>
>-- the "people export" phenomena has been real from India for
generations;
>e.g. in the late 1960s/early 1970s  it was Indian doctors who got green

>cards freely in the States for a while; then there was a similar boom
in
>export of "human capital" to the Gulf; and now of software folks to the

>West....
>
>and will have a
> > major impact on the Indian economy, if it can be sustained.
>
>-- what impact has there been on India's economy by exporting as many
>medical doctors as we did to the American or British economies thirty
years
>ago?



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