IT Outsourcing in Rumania


This is really a little off-subject for India Economy, but it does indicate how general the services outsourcing phenomenon is becoming. The language and cultural element is probably important in continental Europe. Not good news for the high wage economies:

For European businesses, Romanian IT workers are cheaper and have fewer cultural differences than in India--making the country the first choice for outsourcing, a report says. The rising costs for U.K. companies that provide and use Indian offshore information technology services could drive businesses to cheaper locations, such as Eastern Europe, according to a new report.

A report by Pierre Audoin Consultants (PAC) says that Romania and other Eastern European countries are virtually ignored by U.K. companies but are predominantly the first outsourcing choice for the rest of Western Europe. The report, Offshore Romania 2003, claims that not only is the cost of using and providing IT services in Romania much cheaper than in India, but the country is also home to an abundance of well-educated and highly skilled workers who have a better understanding of Western European culture than their Asian counterparts.

Companies in the United States have also recently started considering Eastern Europe as a resource for outsourcing, which is the sending of tasks such as such as data center or payroll operations to other companies. Hector Ruiz, chief executive of chipmaker Advanced Micro Devices, said earlier this year that he has his eye on Eastern Europe, citing the availability of engineering talent in Hungary, Poland, the Czech Republic and Russia. Complex math "is one area that Russia really put a lot of effort into, and it is paying off," he said. The Sunnyvale, Calif.-based chipmaker has built a factory in Dresden, formerly part of East Germany.

Pete Foster, a research director at PAC, said the United Kingdom's use of India is largely driven by historical and cultural links to the country, but companies may be forced to look elsewhere, as skills and resources become scarcer and costs start to rise. "There is great competition for cost, and there is a view that India is getting more expensive. Europe represents a good opportunity and a new area to find resources--but it is virtually ignored by the U.K.," he said.

There is the opportunity both for service providers to improve their competitive edge--by acquiring resources and companies in Romania more cheaply than in India--and for users to buy comparable levels of IT service at a much lower cost. "(Romania) is the area of choice for everyone else in Europe," Foster said. "From the business point of view, it is quite backward compared to Western Europe and probably no better than the Indian and Asian alternatives. But it is arguably closer in cultural affinity. The language and education are good enough."
Source: Business Week
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Another Routine Day on the Services Front


Just another routine day, with Reuters and Fidelity adding their names to the list of those who 'may' set up shop in India. Meantime back in the US new unemployment signings take another surprise jump this week.

Outsourcing of back-office financial work to India is to get another boost with two major international names, Reuters and Fidelity, deciding to start operations in Bangalore. Reuters have made no formal announcement in this regard but have reportedly started making real estate enquiries in the city. Fidelity has already begun recruitments and has located its CEO.

The British news agency turned financial information services company, going by its conservative nature, appears to be initially planning to recruit around 200 people. Indications are that this will be scaled up to 1,000 in two years’ time. Sources say the initial outsourced work will not be “core” operations which would have implied news and advanced analytics but corporate information work, something of a little higher order than data entry. However, an expert who has been closely observing the ramp up pattern of BPO operations is Bangalore feels confident that both the scale and nature of work handled will undergo a rapid change as the company finds how well the work is going.

He feels that the pattern of recruitment will quickly shift, after the initial stage, to financial journalists, CAs and MBAs. Fidelity is coming in with not one but two operations: 1) software services and 2) back office work for Fidelity Employee Services Co (FESCo), US, which currently provides a range of HR services to 11 million employees through administration of 11,000 programms for retirement, pension, health and payroll services. It is expected that the latter part of the work will ramp up quickly with financial and risk analysis service being offered to clients out of Bangalore.

Reuters and Fidelity will be strengthening a trend which has already begun. Earlier in the year, investment bank JP Morgan Chase announced plans to set up an offshore equities research unit in Mumbai. Its initial hiring target for the current year was 40 junior analysts and support staff. Capital One, a leading US credit card issuer, is in the process of setting up a risk management center after earlier shifting back office work to one third party service provider and entrusting work to another on a BOT basis. Eventually Capital One will take over the latter operation. There are several established captive BPO operations of financial services firms in Bangalore, most prominently led by HSBC which does support, call center and back office work. Indigo, a subsidiary of Unilever, does high end processing work out of the city. PWC, now part of IBM, falls in another category. It has set up third party operations for back office processing of financial work in the city.
Source: Business Standard India

Welcome To India Economy Watch

Welcome to India Economy Watch. This is an economics blog, and not a systematic source of information on the Indian economy. The objective is not to replace the existing sources of information, but to complement them. To complement them in that unique and highly personal fashion which characterises weblogging. My aim here is to provide some kind of focus, and hopefully forum, for refections on the evolution of the Indian Economy (and of course on Indian society and culture). I do not claim any special expertise on any of these topics. Just enthusiasm and a willingness to learn. In part that is what blogging is, a learning experience. But blogging is also about sharing. As you learn you share with others (including, sometimes, your mistakes!!).

I have had a lifelong interest in India, and Indians. (This interest also seems to be a family affair, since my son, who studies in the UK, once brought five 'friends' here (to Barcelona that is) to stay. I don't think it was any coincidence that three of them were Indian). My 'excuse' for starting this page now: really the latest round of employment data from the US, which shows the pace at which 'services outsourcing' is gathering momentum. But if I hadn't started this now, I would have done so later anyway. India is important. The sheer numerical impact on the planet guarantees that. But India is important culturally. To me it is no accident that several of my favourite contemporary English language authors have Indian origins (I would say several of the best, even if my choice would not always meet with universal approval). I think I am also starting this page to ask myself the question: what can we in the west learn from India? I don't pretend to know the answer. At least not yet.

So don't look here for know-it-all-ism. And don't look here for an uncritical eye. Sometimes what we all need to do most is look at ourselves full-face in the mirror. But if you want up to date info, critical reflection, humour, and a bit of personal chit chat, then this is the place to come.

BTW, even as I was playing around setting up this page, fellow blogger and Random Notes editor, Kaushik Banerjee contacted me with some very kind comments.

Thank you for creating this weblog. I was fretting about the lack of a central source of information on Indian economy only recently. I linked to it from my weblog. I would also forward the link to my friends interested in Indian economy. I don't know how you managed to absorb and process so much information every day!

Incidentally, the CMIE website (that Rediff quoted) is here. the site is not all that hot. It doesn't seem to care all that much about their web presence yet. But it is well respected in India ...

My Indian bloggers section isn't up to much yet, but I will be adding links over the next few days. If you have an Indian weblog, and you want me to link, please get in touch. The same goes for comments and collaboration, anything you would like to send me is more than welcome.

Stephen Roach on Services Outsourcing


Those of you who are familiar with my posting over at Bonobo Land will be well aware of the fact that, in the services outsourcing debate, I am an unqualified admirer of the arguments Morgan Stanley's Stephen Roach has been advancing:

There can be no mistaking the extraordinary external leakages now evident in the US economy. Even in the face of rebounding domestic consumption, incremental product is being sourced offshore at the cost of disenfranchising domestic supply -- both labor and capital -- from the US macro equation.

The role of the Internet is particularly critical in reshaping the service sector dynamic in this cycle. It gives a critical new twist to the outsourcing story. Services have long been dubbed non-tradables because of a high profusion of knowledge-based content that can only be delivered on site. Now, however, courtesy of real-time e-based connectivity, a multitude of increasingly high-value added services can be transferred anywhere around the world instantaneously. That’s increasingly true of the output of software programmers, design and engineering teams, accountants, back-office processing functions, data centers, network infrastructure and management services, and a broad array of business consulting functions. Reflecting this trend, India’s IT-enabled services sector has become one of the fastest growing major industries in the world. One study estimates this segment of the Indian economy will increase by ten-fold between now and 2007 -- rising from US$1.5 billion in 2001-02 to $17 billion by 2008 (see NASSCOM’s The IT Industry in India: Strategic Review 2002).

Manufacturing leakages are one thing, but if they also hit services, it’s a different matter altogether for the US economy. Currently, the services sector accounts for fully 80% of total private employment in the US -- about six times the 13.5% share in manufacturing. To the extent that outsourcing options are now shifting increasingly into services, the jobless bias of the US economy can only increase. Moreover, this development could well be exacerbated by businesses’ persistent lack of pricing leverage in this post-bubble era. That puts unrelenting pressure on continued cost-cutting as the principal means to boost margins and deliver earnings. And that puts a premium on the outsourcing-driven efficiency solutions that lie at the heart of America’s jobless recovery.

All this underscores one of the great ironies of the current cyclical recovery in the US economy. Notwithstanding the temporary impacts of powerful stimuli from tax cuts and home mortgage refinancing activity, America is lacking in sustenance from the job creation and income generation that typically drive the internal dynamics of its business cycle.
Source: Morgan Stanley Global Economic Forum
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