For some parts of the book that I feel the need to reach out to my blog readers. Your feedback will make a better product.
One of the chapters in the book is on Local Hiring – why Indian services companies haven’t hired in greater numbers and why it might become more important to do so in the future.
The percentage of employees in Indian IT Services companies who are Indian (born and brought up in India) is definitely over 95%. If you leave out the employees acquired through acquisitions, local hires (Americans in the US, Germans in Germany) are a rounding off error. Why is this so low?
Over 95% of the revenues of Indian services companies comes from outside India. 20 to 30% of billable employees are onsite. Shouldn’t you expect a higher proportion of employees to be hired locally? After all, IT Services is a high-touch business. If you are onsite, you are constantly working with client personnel. Cultural proximity, common backgrounds, networks from college and prior jobs must be of great value. Yet, local hiring is still very slim.
There are some good reasons why this might be so.
One, Offshore services is a very unstructured business. Every project is different – client needs, business processes, size of project – can all differ greatly from one project to another. The use of templates is limited to a few project processes only. Most of the project requires “new work” every time which in turn requires a fair bit of collaboration among the project team members – both offshore and onsite. This need for intense collaboration makes it much easier if the onsite team members are actually offshore team members who have moved onsite temporarily.
Then there are cost reasons as well. Not so much compensation which for most companies is within range of what it would cost them to hire locally. But there are other reasons why the costs are higher to hire locally. Like the fact that a local employee would likely need travel and living since the project can’t always be in the metro area in which she lives. Also, for local hires, bench costs are at onsite wages.
Outside of Delivery – in Sales and Consulting – the cost reasons above don’t apply. At one time, there was a salary difference. But now, Enterprise IT Sales and Consulting are both in decline and Indian Services companies have upped compensation substantially. So that isn’t a reason either.
But even here, I feel that companies feel torn between the need to hire folks who could be more effective in forming relationships with clients and the need for them to work effectively with offshore teams. Anyone who has worked in the industry knows that a salesperson’s effectiveness can often depend upon how good his access is to expertise and resources in the company.
The only place where there really are no barriers to hire are in senior positions in Sales and Consulting. Where you get the value of their experience in a certain industry and their networks but on the ground the proposals and staffing of projects is handled by other people. But here too there is a mismatch in expectations.
While Indian companies haven’t shown much urgency in hiring locally, it’s not as if potential employees are trying to break down the door either. Perceptions in the marketplace about Indian services companies are that you are generally “thrown into the pool to sink or swim” with very little support. Also, that policies aren’t as employee friendly as their current employers. You don’t have a life any more and work takes up every waking hour. Although, I think this is the nature of the offshore business, and if they are still working regular hours, it will change soon.
Going forward, local hiring will become more important. Winning business is now less about technical expertise, which is assumed. It is about domain expertise – do you understand my business process well enough? It is going to be pretty tough to build domain expertise organically – through the work the company does for clients. Hiring industry expertise into the company either from industry or from other consulting companies will become necessary to compete.
Also, there is the issue of optics. Can you do X billion dollars of business in a country, with tens of thousands of employees in the country and hire just a handful from the local market? The law may allow it, but you have to do much more in the court of public opinion.
Take Toyota for example. When they started putting up manufacturing plants in the US in the 80s, it was probably much easier to just expand in Japan. But they knew that if they were going to be a significant player in the huge US market, they had to do some local manufacturing. Today, Toyota has manufacturing facilities in many states in the US. When they ran into trouble earlier this year because of their quality problems, their American employees and politicians from the states that have the factories, supported them.
In a few years US or Europe based competitors who are rapidly adopting the offshore model will have a truly global workforce with a (largely) India delivery model. If nothing changes, Indian companies will be almost entirely Indian. The lack of diversity will lead to a lack of diversity of thinking. And exposed to political games.