Sunday, May 20, 2007

Pathetic Times of India

In private conversations about the future of India I often wonder what will happen to the quality of work done in non-IT industries as the inflow of natural talent in those sectors has been drying up so fast. Most engineering graduates in India, irrespective of what they majored in, choose the very safe and higher earning career paths offered by Indian "IT Majors".

Per an independent study done by BusinessWeek, India produces about 215,000 Engineering graduates per year (contrary to popular perceptions - US produces 222,335). Demand in the off-shored IT industry is way much higher -- just the "Big 5" would apparently hire 100,000 in this year. Thus, it is safe to say, most good engineers -- including Civil, Mechanical, Chemical ones -- are sucked into the monolithic IT services drudgery with a scary regularity, leaving very little for the faster growing demands in the real infrastructure components.

In other words, despite the record volume growth in construction -- chances are your home site was designed by an engineer who still probably pines for an entry level position in Infosys; or a big part in the "Golden Quadrilateral" project was in hands of bitter "IT rejects". Not to undermine the passionate ones, but most entering the non-IT segments of workforce today would happily change position with someone sitting in one of the famed IT "parks". Only if they can.

Non-engineering graduates are doing no better -- the larger part takes the escapist route to become "John" or "Jill" to answer calls from irate customers off far far away in Fargo, ND; the slightly more ambitious ones try pushing the "MBA" wheels to end up - may be - just a notch higher than the former group - managing them!

One of the biggest deteriorating effects has already started seeping not-so-furtively into print media. Rapid increase in viewer ship of electronic media does not help the newspapers either. One often wonders what type of "journalists" report for the most circulating English newspaper in India today. The following report -- ironically on IT industry -- is one example of crap churned out regularly --

"US techies 10-times more productive than Indians"

Why this article is a meaningless blabber of some not-yet-ready-for-even-internship idiot who needs lessons on both his/her basic math and logic?

Comparing Infosys, TCS etc with HP, DELL etc is a worse travesty of truth than the President of Iran can ever dream of. The comparison is as valid as comparing Construction Workers and Doctors -- or in the so-called "call center" lingo one between the Medical Transciptionist and the Doctor whose scanned or recorded voice she enters into the "system"!

Indian IT companies (mostly) do stuff that is repeatable, non-core and is significantly cheaper to do in India (off-shoring), rather than executing the core stuff better in a streamlined budget (outsourcing). HP, for example, makes real products, has real factories and at least 80% of its business requires serious supply-chain management. To HP, trying to keep a tab on whether the computer servers on which this supply-chain calculations run is a huge waste of its competency. Say, Infosys or TCS gets a contract to keep an eye on the panel and contact someone in HP if there is an issue. These diverse businesses in US and Indian high-tech sectors thus can not be compared on either their profitability or even, as this article suggests, their revenue per employee.

Out of the companies suggested, EDS -- and a part of IBM -- probably comes somewhat closer to the Indian IT business model. Unlike the other US companies mentioned, their significant revenue comes from services, not from product.

Typically, hardware companies have higher revenues (also, higher cost of production) than software producers. A typical software company, like Oracle, has much lower revenue, but due to strong annuity registers a much higher percentage profit.

The following table was constructed from publicly available data on major 10 US tech companies -

The article notes - " The market observers believe that factors like high attrition rates of over 12 per cent and under-utilisation of resources are acting as a major hurdle to achieve high employee productivity for Indian firms." Really? The per employee revenue ratio - mathematically depends on just two factors - namely, (a) number of employees - the lesser the better and (b) the revenue - the higher the better. With Indian firms -- following footsteps of Xerxes of Persia, and his million-man army -- bragging about number of annual recruits -- and not their quality -- as the measure of growth, and a huge potential loss of business if the consulting rate per employee grows up -- one does not see the ratio moving any higher with the Indian "Big 5". Statistically, "ratios" hide the scale of the issue while volume does not usually scale well.

One way to achieve a higher ratio would probably be to mimic what the top-scorer in the table above did. Sergey Brin and Larry Page did not bother about fixing other people's old predictable businesses. They - while doing their Ph.D. - found out a cracking solution to a real future need and started out commercializing it in a garage without bothering about how big -- employee wise -- they should grow next year. As a result, today an average employee in their organization can go to sleep with a calm assurance that his or her work brings over a million dollar of cash a year to the company (and that he/she gets to bring a sizable part of that back home!).

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