Competing with India

Today Indian's outsourcing sector is the world largest and fastest growing area and accounts for about 15% of India's Gross Domestic Product (GDP). However, its fast success is beginning to show some signs of problems. First, inflation and currency appreciation have impacted the Indian market, with the Rupee reaching a ten year high against the dollar. Second, high demand for skilled workers meant that there was a significant increase in developers' salaries. Therefore the cost of doing business in India is rising fast, making other lower cost areas such as China, Malaysia and Vietnam more desirable to customers.

My friend Chandra told me: “It is not just financial reasons that customers are moving to other countries, India's software workers are no longer want to work for outsourcing companies, they are looking to work directly at companies like Google, Microsoft, Oracle etc. They know about the critical shortage of skilled people in developed countries and the ease of working visas for skilled workers so they want to have better opportunities there.”

Today, it is not just China is trying to compete with India but there are so many countries who want to capture this lucrative outsourcing business. The strongest contender could be the Philippines where its people speak English very well and very much familiar with Western culture. However, the surprise newcomer is Egypt that has been moving fast in the outsourcing business and was voted 'The Outsourcing Destination of the Year' award at last years National Outsourcing Association's industry awards. Egypt has a large skill base, good language capabilities, strong government support, and very low costs. Together with several African countries, they are heavily investing in software education in past several years and have very effective promotion campaigns that start to gain momentum in this highly profitable market. Today, most outsourcing deals in Africa come from the Middle East but many European companies are beginning to look at Africa for “Near-shore” advantages. With a lot of skilled developers, lower costs, good command of English languages, and strong government supports, they could change the balance of outsourcing business in the next few years.

Chandra told me: “India will have to shift its business strategy, as customers beginning to look for countries with lower costs and better skills. This rise in global competition will push all involved in the industry to improve their services as well as create additional values to not only win new business, but retain existing ones. We are so successful in the past ten years, we forget how to compete and allow others to have a chance. As many African nations are improving their educations, we are still debating on how to change our archaic education system. As China puts on impressive infrastructure for future business, we are still arguing about which state should build the next “Cyber city”. Success breeds complacency and today beside the shortage of skilled people, we are also experiencing high number of software project failures. By failure, I mean the project does NOT meet costs, schedule and functional expectation”.

I told him: “We all know that software projects always have risks and project failures is common in many countries. What surprise me is why now and not few years ago?”

Chandra explained: “We know how to manage projects but as we grow so fast, we can NOT develop ENOUGH project managers. In the past ten years, so many people are entering into the software field much faster than we can train them. We are doing fine at training developers to use current technologies, we are doing fine at training them in programming languages but we are doing poorly at training project managers. There are many ways to manage projects but all require several years of experiences. As developers change jobs often, they do NOT develop enough “deep experience” to manage projects. We are dealing with an industry that has much higher demand than supply. Our shortage estimates range from 400,000 to 600,000 developers right now. We are creating new software jobs at a rate of about 800,000 a year in this country and we are granting about 450,000 computer and software engineer degrees a year. However only a small portion of them are qualified to work in the industry because the archaic education systems. Most graduates coming into the industry are not getting good training so they need several months in additional training and slowdown our growth. Developers also change jobs often so everybody is rushing to make money rather than acquiring knowledge. The fast growth allows many to get promoted to project managers with minimum qualification and experiences. Basically, our industry is like a pyramid with few people who have experienced on the top and the rest of people is at the bottom. That whole situation is compounded by the fact that we are still growing as demands are still flowing in. Even we do have good project management practices but the knowledge is not very widespread. So as the industry is getting bigger and it appears maybe the problem is getting worse.

I asked him: “Where are things most likely to go wrong? What are the solution?”

He explained: “There is a difference between where things go wrong and where the symptoms appear. I believe things go wrong during requirements and design phases. The reason is managers are hurrying to get the business so they do not do a good job early. What makes this difficult for developers to see is that the symptoms of poorly done work do not show up until late in the project. Many projects require additional code, debug and tests time so managers put more programmers into late projects. They do not understand that the issue is not coding problem but design problem. Changing databases at the end of the project because performance is too slow is a requirements and architecture problems. Most problems are happening in early phases because managers are hurrying to get to code without understand that quality starts with quality works at early phases. Today our education system is still focusing on programming rather than designing. University professors always argue that we are so successful and we are number one, so why change? For years, we are debating about improving our education but there is no real action yet. As long as students are still pouring into state universities, as long as the number of graduates in computer and engineering is still meeting government's goals then nothing will change”.

Chandra concluded: “Unfortunately, the world is changing fast as other countries understand that education is the best investment, the best way to grow the economies and the fastest way to create jobs and they all take actions. Few years ago, nobody would think African countries could compete with India in outsourcing business. Most Indian would think China could compete with India but Chinese do not speak English well and it would take many years for them to improve their language skills. Who would think that African countries like Egypt, Morocco, Tunisia, Ghana could even compete in the software business? Who would think that within few years of focusing on improving their software education, they could be strong contenders for our software business. When the announcement that Egypt is voted as “Outsourcing destination of 2009” many were shocked then they found out that several of their customers are changing their minds and begin to look at Africa for future business. Many executives were asking “Who are these new competitors? How could I did not see them coming?” I guess globalization is changing everything.

Sources

  • Blogs of Prof. John Vu, Carnegie Mellon University

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