Strengthening the human resource foundation of the Indian IT enabled services/ IT industry

Report by KPMG Advisory Services Private Limited in association with NASSCOM under the aegis of the Department of IT, Ministry of Information Technology and Communications, Government of India

National Association of Software and Service Companies

India

Preface
Developing India's human resource is key to our progress. The most visible and successful demonstration of this is our IT industry. In this sector, human resources comprise both the raw material and the 'technology', and is therefore of prime importance. Availability of a sufficient number of high quality manpower is a key requirement to ensure the on-going and sustainable growth of India's IT industry. It is in this context that NASSCOM was particularly delighted when the Department of IT initiated a Task Force on 'strengthening the human resource foundation of the Indian ITeS / IT industry. We at NASSCOM felt that this was not to be just one more of those reports, particularly as the Task Force comprised representatives of some of the leading ITeS and IT companies in India, in addition to representatives from various government bodies and educational institutions. NASSCOM, as the overall representative of the Indian ITeS / IT industry, decided that the best way to support the Task Force was by providing industry inputs and past research, while leveraging its relationship with KPMG to look at present and future needs. The study aims at covering a vast and seemingly unconnected range of areas including humanpower requirements for R&D, IT services and IT-enabled Service. NASSCOM, with able support from the team at KPMG as well as the co-operation shown by various industry players, managed this within a short time. The report has been prepared under grant-in-aid received from the department of IT, Ministry of Communications & IT and is aimed at supporting the Task Force's deliberations on recommendations. The level of detail adopted for this study is exemplary and indicates the focus on implementation as maintained by the Task Force and the project team throughout its deliberations. Implementing these will however be another challenge, considering the nature of change required and the multiplicity of stakeholders involved. NASSCOM, however, is committed to supporting the implementation of these recommendations. The first step in this context is to establish this report as a common source of reference and mobilization amongst policy-makers, industry players and potential employees. The next step is to concretize specific, actionoriented pans with definite responsibilities and timeframes. These need to be implemented and monitored with appropriate correctives based on feedback.

Kiran Karnik President, NASSCOM

National Association of Software and Service Companies

This document, prepared by KPMG Advisory Services Private Limited in association with NASSCOM, focuses on strengthening the human resource foundation of the Indian ITeS/ IT industry. A special thanks goes to the Department of IT, Ministry of Communications and Information Technology (Government of India), who have supported the production of the publication under a special grant.

Contents
Global IT sector growth trends during 2002-12 Gap between demand and supply of manpower for IT / ITeS industry and share of the market for India Strategy to enhance institutional capacity (formal and non-formal) to generate requisite manpower Emerging areas in the knowledge domain for India to pursue and strategy to reinforce status as ITeS / R&D hub Design of standards and common test for ITeS skills based on industry requirements Measures for optimizing deployment of non-IT personnel in ITeS and R&D Fiscal policy measures to maximize private sector participation in HRD for IT / ITeS Comprehensive action plan for HRD in IT / IteS 1 12

32

43

58

67

75

81

Global IT sector growth trends during 2002-2012
This chapter provides an overview of the off-shore IT / IT business and the potential eS benefits and impact of these services on performance. It also provides estimates of market size and growth for the global ITeS / IT industry by geography, client-industry and solution form.

Companies world-wide are faced with increasing pressures to improve business performance . . .

Business performance

n

Index returns over the last three years for major US stock marke t indices have been – 10 per cent to – 40 per cent Number of corporate bankruptcies (for companies with assets greater than USD 100 million) during 1998 – 2002 increased by 150 per cent compared to those in 1993 –1997 Even European countries like Germany are facing slowdown in growth to 0.4 –1.4 per cent accompanied by stock market index fall of 60 per cent from approx.8,065 (March, 2000) to approx.3,170 (Sept, 2002)

Pressures to improve business performance

n

n

Skills shortage

Rapidly ageing population (e.g. increase in median age in OECD countries from 29.6 in 1970 to 36.5 in 2000) leading to lower labor participation n Even countries like China, with a large population today, could face a shortage of up to 10 million workers by 2020
n n

Companies will be unable to make-up for labor shortage through automation (only 13.5 per cent of all service jobs are amenable to automation)

Productivity drivers

n

Business productivity in form output production efficiency (through automation, IT, supply-chain reconfigurations etc.) may be plateau-ing Business productivity growth in the future is expected to be driven more by cost efficiency of inputs (e.g. down-sizing, off-shoring, economies of scale / scope etc.)
Source: Press reports. BCG. NASSCOM. KPMG. 2003 -2004.

n

. . . even as overall budgets get reduced

Companies world-wide are faced with increasing pressures to improve business performance, even as they face a looming skills shortage and an exhaustion of standard options to drive productivity. Skills shortage, as reflected by an ageing population in Western countries, would increase pressure on availability of labour force. Automation is also not expected to entirely compensate for the shortage of labour supply.

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Off-shoring offers an option to reduce expenditure while maintaining or even improving performance . . .
Illustrative Technical services (IT) cost improvement for a global financial services company
Per cent of cost base

5 5 10

Labor cost differentials

Incr telecom costs

Incr Control / Consolidation Co-ordination and scale costs economies

Process reengineering

Off-shoring benefits

35
45

35

100
5 5 10 10 20

45

Original cost base

Budget reduction

Support functions restructuring

Process reengineering

Off-shoring benefits

Reduced cost base

Benefits from off-shoring to the extent of 35 – 55 per cent of original cost base depending on client and process specific characteristics
Source: J P Morgan. NASSCOM. KPMG. 2003-2004.

Note: Numbers for off-shoring benefits are based on experience of companies off-shoring IT services and back-office processing functions to India

. . . and can lead to savings of 35–55 per cent on current cost structures depending on specific business process and scale being considered

Off-shoring of business processes and functional activities is one of the options available to a global business to improve business performance. The benefit from off-shoring is through the ability to access relevant skills at appropriate costs such that the savings are much higher than the incremental cost of telecom connectivity and control / co-ordination activity involved. Additional benefits could arise from economies of scale and re-engineering benefits at the off-shore location. Some global companies have seen business benefits to the extent of 35–55 per cent savings in relevant costs through off-shoring.

2

Off-shore IT and IT -enabled services include specific services leveraging the potential of Information and Communications Technology . . .
The phenomenon of locating IT-services and other business processes. . .
-

-

Excludes outsourced manufacturing, product assembly etc. Excludes hardware technology products

. . . into optimal off-shore locations . . .

-

Excludes on-site / in-country support (i.e. primarily directed at exports)

. . . largely enabled through advances in IT and telecommunications . . .

-

Excludes body-shopping services or those requiring physical interactions

. . . to access relevant skills / resources for business performance improvement.

-

Expands role of ITeS / IT beyond mere cost reduction to overall business improvement
Source: KPMG. 2003-2004.

Off-shore IT and IT-enabled services include: “IT services and other business processes located in optimal off-shore locations, largely enabled through advances in information and telecommunications technology, to access relevant skills and resources for business performance improvement.”

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These could include a wide-range depending on the nature of expertise involved . . .
Illustrative Back-office data entry / processing Customer contact Corporate support functions Knowledge services and decision-support Research/ Design and development

Increasing complexity of task and skill requirements
Nature of work
n

Data entry (form filling) Data conversion (translation, transcription) Basic processing (checking / updating) Document management (storage, retrieval)

n

n

Customer services (complaints, inquiries) Tele-marketing (presales, order-taking, catalog sales) Collections support (reminders, payment support)

n

n

Shared corporate function support (HR, Finance / Accounts, HR, procurement) IT support (development, integration, maintenance, helpdesk)

n

Analyst services (legal, financial) Customer analytics (segment profits) Application processing (claims) Risk management (underwriting, structuring) Advisory services (tele-medicine, consultancy)

n

Engineering and design (CAD/ CAM) Content development (animation, web site, graphics) New product design (specifications, pilot testing)

n

n

n

n

n

n

n

n

n

n

Note: List of activities and examples above is illustrative only and not exhaustive

Source: Press reports. 2003.

Off-shore ITeS / IT include a wide range of services with increasing complexity of work from back-office data entry and processing to customer contact services to corporate support functions to knowledge / decision support services to R&D / Development services. As a result, the qualifications and nature of skills required could vary accordingly.

4

Illustrative
Before off-shoring Different forms of global expansion by companies
Wave 3: Global business re-alignment Wave 2: Global production Wave 1: Global export - Spreading-out of product manufacturing - Leveraging global presence to access lowcost skills and spread establishment risks - Spreading-out of business processes and functions

Business processes managed within client country
1 2 3 4 5

After off-shoring Business processes conducted only partly within client country . . .
2 3 4

Nature of global expansion

- Spreading-out of sales efforts

- Leverage pockets of capital / labor efficiency due to lower costs, economies of scale etc.

Key drivers to expansion

- Attracted by latent / growing demand for products and services in - Produce in specialized new markets pockets to then ship globally / re-assemble - Offer existing goods under existing brand names in new markets

- Run business processes across locations over telecom networks

. . . and partially through remote facilities
Off-shoring 1 4 5

Business implications

Source: KPMG. 2003.

The first wave of global expansion began with companies reaching out to new markets with existing products and brands – the key driver being the increasing demand for new products in growing markets. In the second wave of global expansion, companies actually began shifting entire production activities in order to take advantage of lower cost labour and capital. Off-shoring represents the third-wave of establishing global presence, with the segregation of business processes and functions and their outsourcing to different parts of the world or remote locations.

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Companies are considering off-shoring business processes from across the entire business value chain . . .
Illustrative
Human resources
n n

Finance and Accounts Product Development Human Resource Management Technology Services

Finance and Accounting
n n n

Payroll processing Recruitment and selection support HRIS

Back-office Accounts payable Accounts payable / receivable, fin. reporting Finance accounting Revenue accounting

n

n n

IT services and support

Outbound Logistics

Inbound Logistics

n n n

Systems integration Hosting / maintenance Customer help-desk / support

Customer Service

n

Manufacturing/ Operations

Custom development

Marketing and Sales

Research / Design and Development
n n n n

Clinical Research VLSI design DSP chip design Avionics research Clinical Research Engineering design services Legal research

Operations / Logistics
n n

Order tracking Order / claims / application processing Payments processing

Sales / Marketing and Customer services
n n n

n n

Tele-sales Order processing Customer services and complaints Help-desk
n

n

n

Source: Press reports. KPMG. 2003.

Off-shoring is no longer restricted to specific primary or secondary activities of a business. All the key business processes across the entire business value chain, as exhibited in the figure above, can potentially be off-shored. A number of companies world-wide have already off-shored business support activities to in-house or third-party service providers.

6

This trend towards off-shoring is being driven by some key developments on the demand and supply side . . .
Demand-side characteristics Scope of economic benefits possible - Companies stand to gain 30 – 50 per cent in cost savings with additional revenue enhancement / service improvement possibilities Comfort with and trust in off-shoring - Companies with established sourcing relationships grow trust in suppliers for BPO - Other companies are getting attracted by others’ success Access to global resources - Companies with global presence can leverage local resource access to support off-shoring

Key developments driving off-shoring

Supply-side characteristics

Access to trained, cost effective skills - Companies have access to certified / experienced skills at 1/5 –1/10 of costs in other locations

Telecom connectivity options - Global telecom connectivity options have increased and costs have fallen under competition and technology

Regulatory support and incentives - No restrictions/ barriers on service trade (duties etc.) have been placed - Host countries even support services export through incentives

Source: Press reports. Merrill Lynch. KPMG. 2003.

The trend towards off-shoring is being driven by specific dynamics on the supply and demand side. Companies are becoming increasingly comfortable with the idea of offshore service provider relationships. With the continuing support from regulatory agencies, availability of low cost infrastructure and the right skills mix, off-shoring could continue to be a large business opportunity over the longer term.

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The American and Europe-Mid East-Africa (EMEA) regions are expected to continue to be the major markets for ITeS / IT although the growth could be faster in the Asia-Pacific regions . . .
USD billion
2,000 IT ITeS

CAGR (2003-2012) 1,795 1,366 1,040
1,218 941 726 313 2006 425 2009 577 2012
CAGR (20032012) 11.0 per cent 10 per cent 9.3 per cent

Americas

1,000

697
496 201 2002

771
546 225 2003

Global ITeS / IT market
USD billion
ITeS
3,000

0

4,000

CAGR (2003-2012) 3,391 11 per
cent

USD billion
1,000 IT ITeS

917 667 484 306 343
194 149 2003 272 212 2006 295 2009 408 2012 372 173 133 2002 509

IT

12 per cent 11.3 per cent 11.8 per cent

2,497
2,000

1,838 1,184 1,322
881 441 2003 625 2006 864 2009 1,633 1,213

2,198

11 per cent

EMEA

1,000

792 392 2002

0

1,193

12 per cent

0

2012

USD billion
1,000 IT ITeS

CAGR (20032012) 14 per cent 14.3 per cent 13.5 per cent

Note: Industry estimates upto 2012 are based on available short-term estimates and would need to be revised periodically based on actual performance

Source: IDC. NASSCOM. KPMG. 2002-03.

AsiaPacific
181
0 123 58 2002

679 461 208
141 66 2003

314
215 99 2006

471 208 2012

318 143 2009

Note: Industry estimates upto 2012 are based on available short-term estimates and would need to be revised periodically based on actual performance

Source: IDC. NASSCOM. KPMG. 2002-03

As per estimates by IDC and NASSCOM (2003), the global ITeS / IT market (off-shored as well as domestic) was USD 1,184 billion in 2002 (USD 392 billion for IT services and USD 792 billion for ITeS). This market is expected to grow by a CAGR (2003 – 2012) of 11 per cent, driven by strong growth across the Americas, Europe-Middle East-Africa (EMEA) and the AsiaPacific market. The American and EMEA markets are expected to continue to be the major markets for ITeS / IT, contributing 80 per cent of the market in 2012 as compared to 85 per cent in 2002.

8

This growth is expected to be driven by the characteristics and needs of specific industries . . . Global IT services requirement projections by industry (does not include IT eS)
USD billion
354 Banking, Finance and Insurance Services Manufacturing 140 126 262 121 109 136 57 51 109 Telecom equipment 47 42 107 Retail / wholesale trade 47 43 69 19 16 52 Utilities 20 18 45 Transportation 19 17 35 15 13 30 12 11

CAGR (2003 – 2012) 10.9 per cent 9.0 per cent 10.2 per cent 9.8 per cent 9.6 per cent 15.5 per cent 11.2 per cent 10.2 per cent
2012 2009 2006 2003 2002

Offshore-ability (preference and ability)

Government

Telecom services

High growth potential due to underpenetration

Healthcare

10.2 per cent 10.2 per cent
Source: IDC. Gartner Dataquest. NASSCOM - McKinsey. KPMG. 2002–2003.

Education

Note:

indicates high degree of offshore -ability (preference and ability) indicates low degree of offshore -ability (preference and ability)

The demand for IT and IT-enabled services across industries would vary by the specific characteristics and needs of those industries. The Banking, Finance and Insurance services industry and the Manufacturing industry have been the largest user of global IT services (2002). They are expected to continue being the largest users even by 2012 due to high offshore-ability (i.e. ability to off-shore and preference to off-shore). However, going forward, other industries like telecom, utilities, healthcare and retail trade are expected to drive growth with a CAGR (2003 – 2012) of 10–15 per cent due to under-penetration despite high offshore-ability.

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. . . within specific functional / solution areas in IT and IT-enabled services . . .
Global IT services market
USD billion
1,500 IT education / training Appln Dev and Support* SI and IS consulting 1,000

Global IT-enabled Services (ITeS) market
CAGR (2003-2012) USD billion
2,500 Content Development* Administration

CAGR (2003-2012) 2,198
219 337
11 per cent 10.7 per cent 7.1 per cent 7.0 per cent 9.4 per cent

1,193
12 per cent

Customer care 2,000 Finance Payment services 1,500 HR

1,633
165 398

864
830 580 405 278 182 2006 235 303
9.4 per cent 12.9 per cent 9.0 per cent

1,213
124 1,000

276 330 306 747 491 400

626
500

881 792
78 169 88 182 216 178 201 2003

226 274 235 323 31 2006

392
245 122

441

500

199 162 171

15.7 per cent 25.0 per cent

135 2003

0 2002 2009 2012
Source: IDC. NASSCOM. KPMG. 2002 - 03.

0 2002

55 2009

97 2012

* Support IT services are those that require on -site presence of support staff and are not delivered from off-shore location like ITeS

* Content development services include remote design services for VLSI / embedded systems, security / control systems etc.

Source: IDC. NASSCOM. KPMG. 2002 - 03.

Note: Industry estimates upto 2012 are based on available short-term estimates and would need to be revised periodically based on actual perfor mance

Note: Industry estimates upto 2012 are based on available short-term estimates and would need to be revised periodically based on actual perfor mance

The global IT services market in 2002 was driven by Application Development and support services (on-site and off-shore). The preference of clients to use off-shore facilities for business continuity and cost saving requirements is going to drive the global IT services market. The market is expected to grow at a CAGR (2003 – 2012) of 12 per cent. The global ITeS market in 2002 was driven equally by administration support services, customer care, finance and payment processing services. Increasing sophistication of the off-shore ITeS delivery model is leading to new business processes being considered for off-shoring by new clients. The ITeS market is expected to grow at a CAGR (2003 – 2012) of 11 per cent, driven by an increasing demand for finance support, payment processing and HR services.

10

This growth in ITeS and IT industry is expected to usher in a new way of working . . .

n

Means of service delivery

Remote services delivery imply a greater emphasis on agent voice modulation / accent and ability to understand client accents and lower emphasis on grooming Remote services also imply lesser need for agglomeration into urban offices and the move towards SOHO / tele-working ‘Follow-the-sun’ service expectations imply need to support night shift operations including support for banking, healthcare, food and entertainment, transportation for agents

Impact of ITeS / IT working

n

Night-shifts

n

n

Flexi-time
n

In order to manage higher returns from resources, capacity utilization through scheduling becomes critical, leading to flexible working hours Agent preferences for IT / BPO work suggest the need for flexi-time options eS

Average age of employee

n

The average age of the workforce would be around 27 – 30 as compared to 35 – 40 in other industries, requiring a different organizational structure and culture as well as facility design

. . . creating pressures on the economic and social systems of various countries to adapt to these changes

This increasing trend towards off-shore ITeS / IT is going to change not only the way business is organized but also the social and economic aspects of employees and potential employees – – – – Tele-working and remote support is going to be increasingly common. Night operations, tuned to end-customer service timings are going to increase in demand. Employees on the other hand will be faced with a flexible work-time depending on business cycles as well as peak demands for their respective services. Average age of employees could be much lower as the education – employment cycle gets transformed into an education – employment – reskilling – employment cycle.

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Gap between demand and supply of manpower for ITeS / IT industry and share of the market for India
This chapter provides an understanding of India’s key strengths related to the off-shore ITeS / IT industry and target market share. It also provides an estimate of the potential manpower requirement in India upto 2012 to meet the off-shore ITeS / IT market requirements and the potential gap based on numbers expected to be available.

India is emerging as ‘the services-hub of the world’ with a 24 per cent share (2002) of the off-shored IT / IT -enabled services market . .
Global IT / IT-enabled services market (2002)

USD billion
8.3
24.4
3.7

Domestic
0.8 1.7 0.4 0.2

Off-shored

1.9

Russia Ireland
1.1

E. Europe
3 8.4 1.1

Canada N/A

0.5

Israel China
2.4 77 .

N/A

0.3

Mexico India

Philippines

0.02

0.04

2.1

0.4

South Africa

Australia
Source: McKinsey Global Institute. 2003.

Note: Numbers above indicate total market for off-shored and domestic IT / IT for eS year-ended December 2001 or March 2002. Eastern Europe includes Poland, Hungary, Romania and the Czech R epublic

. . . however India’s share of the global ITeS / IT spend was still low at 0.8 per cent (2002), suggesting significant growth potential

India’s revenues of USD 7 billion in 2002 correspond to 24 per cent of the off-shored .7 ITeS / IT market, establishing India as ‘the services-hub of the world’. Some of the world's leading organizations have chosen to have their business operations supported from India through third-party or in-house facilities. This includes a wide range of services from back-office data entry and processing to customer contact services, corporate support functions, knowledge support functions and research and design activities.

12

However, India’s current share of the total global ITeS / IT spend (off-shore and domestic) was still low at 0.6 per cent, suggesting significant future growth potential related to off-shoring.

India’s proposition in this area is based primarily on the availability of a significant pool of appropriately skilled and trained resources at a competitive price . . .

Illustrative

§ Highest base of employees currently
within ITeS
India
106,000 18,000 15,000

§ Increased customer satisfaction at a
U.S-based financial services company
U.S. facility

85 per cent 92 per cent

Skills availability

Ireland Philippines

Quality of work

India facility

§ Increased accuracy of transaction entry
at a U.K.-based retail bank
U.K. facility India facility

§ A graduate base of over 14 million
people with over 1 million IT-trained users

95 per cent 98 per cent

§ Salary levels at 1/5th to 1/10th of that
of equivalent jobs in the U.S.
Teacher
1/10 1/4 1/5

§ Reduced trade response time for an
European airline services company
Europe facility

18 hrs. 4 hrs.

Cost of manpower

Fin/Acctg Exec Dbase Admin.

Work efficiency

India facility

§ Increase in transaction processing
speed at a U.K.-based retail bank
U.K. facility India facility

100 120
Source: NASSCOM. KPMG. 2002-2003.

Note: Indexed to U.S. salary level for equivalent post

India’s proposition for off-shore ITeS / IT support is driven by: – availability of appropriately skilled resources; – lower costs of manpower (1/5th to 1/10th); and – ability to generate better quality of work, more efficiently. There are examples of companies with off-shored services being provided from India which have improved service levels by 5–10 per cent across different parameters such as customer satisfaction, response time, accuracy, speed etc.

Strengthening the human resource foundation of the Indian IT enabled services/ IT industry
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Based on its initial successes, India is expected to achieve revenues of USD 148 billion in the ITeS / IT area by 2012 . . .
Indian IT export services market projections (2002–2012)
USD billion
Training and Education 60

CAGR (2003 – 2012) 55
18
24.8 per cent 86.6 per cent 26.4 per cent 8.6 per cent 50.7 per cent

Indian ITeS / IT market projections (2002 –2012)
USD billion CAGR (2003 – 2012)
160

Outsourced support IT Development

40

Consulting, integration, installation

28
20

10 24

Domestic IT services ITeS exports

148
0
35.0 per cent

14 6
2002

7
2003 2006 2009

120

IT exports

2012

80

64

62
21 55 28
2009 2012

31.0 per cent 44.2 per cent 24.8 per cent

Indian ITeS market projections (2002–2012)
USD billion
Content Development 60 Administration Payment services 40 HR Finance Customer care 20

40

27 10
28

64

CAGR (2003 – 2012)
44.2 per cent 23.4 per cent 24.9 per cent

12

0 2002

7 15
2006

2003

Note: Market share estimates assume the same concessions and efforts in place as currently. Industry estimates upto 2012 are based on available short-term estimates and would need to be revised periodically based on actual performance.

Source: NASSCOM-McKinsey. BCG. 2003.

21 2 7
2006 2009 2012

54.8 per cent 101 per cent 33.7 per cent 47.0 per cent

1
0 2002

2003

Note: Market share estimates assume the same concessions and efforts in place as currently.

Source: NASSCOM-McKinsey. BCG. 2003.

India’s revenues in the IT / IT market grew by more than 25 per cent in 2002–2003 to eS USD 12 billion by 2003. Going forward, India’s value proposition and an overall shift towards off-shore ITeS / IT are likely to help India’s revenues to grow at a CAGR (2003–2012) of 35 per cent, reaching USD 148 billion by 2012. The key contributors to this would continue to be IT export services (with revenues estimated to be USD 55 billion by 2012, at a CAGR (2003–2012) of 25 per cent) and ITenabled services (revenues estimated to be USD 64 billion by 2012, at a CAGR (2003– 2012) of 44 per cent).

14

This suggests a significant increase in India’s share of the global IT-enabled services and IT spending to 4.4 per cent by 2012 . . .
India’s share of global IT services market
USD billion 100 percent: 392
100% 2.2%

441
2.3% 3.2% 4.7%

1,194

India’s share of global IT / IT market eS
USD billion 100 percent: 1,184
100% 0.8% 0.9% 1.5%

7 .0%

80%

1,322
2.5%

3,391

60% 2002 2003 2006 2009 2012

4.4%

India’s share of global IT market eS
USD billion 100 percent: 792
100% 0.2%

80%

881
0.3% 0.6% 1.3%

2,198
2.9%

Increase in overall market share (IT and ITeS) to 4.4 per cent by 2012

60%
80%

2002

2003

2006

2009

2012

60% 2002 2003 2006 2009 2012

Source: NASSCOM-McKinsey. KPMG. 2003 -2004.

Note: Industry estimates up to 2012 are based on available short-term estimates and would need to be revised periodically based on actual performance

. . . India’s share of off-shored services (i.e. not located within the same country) is expected to be even higher

The increase in revenues would correspond to an increase in India’s share of the global ITeS and IT market from 0.8 per cent in 2002 to 1.5 per cent by 2006 and 4.4 per cent by 2012. This is largely driven by an increasing share of the ITeS market as well as the IT market, a lot of which could be in the form of off-shore services based on current trends.

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This translates into a direct employed manpower requirement of 3.7 million personnel for off-shore IT / IT by 2012 . . . eS
India IT export services (USD billion)
Consulting, integration, installation IT Development Outsourced support Training and Education 24 0.5 10 3.9 18 1.8 3
2012 2002

IT export services employment (000s)
274 111

529 58 972

India ITeS export services (USD billion)
Customer care Finance HR Payment services Administration Content Development 22.4 0.4 6.2 0.3 18.8 0 9.7 0.1 2.6 0.2 4.3 0.5
2012 2002

ITeS export services employment (000s)
1,030

Total IT and ITeS employment (2012) of 3.7 million

206 690

447 147

197

2,717 Note: Billing rates and productivity assumptions have been based on nature of work and competition for services expected.

Source: Press reports. NASSCOM-McKinsey. Manpower profile of India. BCG. KPMG. 2003.

. . . this is in addition to manpower requirements for domestic and captive ITeS / IT support requirements within India

Based on assumptions of utilization adjusted charge rate of USD 41.5 / Full Time Equivalent / hour for export IT services and USD 17 / Full Time Equivalent / hour for IT.3 enabled services, this market size translates to an estimated manpower requirement of over 3.7 million for export IT and IT -enabled services, compared to 0.4 million in 2003. Additionally, another 1–1.5 million could be employed in the domestic / captive IT services area (based on current ratios of roughly 1:1), leading to a total manpower requirement of approx. 4–6 million.

16

The IT export services industry could employ approximately 0.97 million people by 2012 as compared to 0.2 million in 2003 . . .
Illustrative
2002 Consulting, Integration, Installation Revenues (USD billion) Utilization adjusted charge rates (USD / FTE / hour) Manpower requirement (FTE 000s) Revenues (USD billion) IT development Utilization adjusted charge rates (USD / FTE / hour) Manpower requirement (FTE 000s) Revenues (USD billion) Outsourced support Utilization adjusted charge rates (USD / FTE / hour) Manpower requirement (FTE 000s) Revenues (USD billion) Training & Education Utilization adjusted charge rates (USD / FTE / hour) Manpower requirement (FTE 000s) Total IT export services Revenues (USD billion) Utilization adj. charge rates (USD / FTE / hour) Manpower requirement (FTE 000s) 0.5 30 12 3.9 43 66 1.8 14.5 91 0 20 0 6.2 26.7 170 2003 0.6 30 15 4.7 43 81 2.2 14.7 109 0.0 20 0.4 7.5 26.9 205 2006 2.3 50 34 6.0 55 81 4.8 21 167 0.1 27 3 13.2 34.2 285 2009 8.9 70 93 7 .8 70 82 10.4 27 283 1.0 35 21 28.1 43.0 479 2012 24.3 65 274 9.8 65 111 18.0 25 529 2.7 35 58 54.8 41.5 972 19 per cent 75 per cent 25 per cent 19 per cent 87 per cent 4 per cent 26 per cent 38 per cent 9 per cent
(2003–2012)

CAGR

51 per cent

Note: Billing rates and productivity assumptions have been based on nature of work and competition for services expected. FTE = Full Time Equivalent

Source: Press reports. NASSCOM-McKinsey. Manpower profile of India. BCG. KPMG. 2003.

Assumptions related to manpower requirements for the IT export services industry are provided here: Number of working hours per FTE p.a. assumed as follows: Total hours available Less holidays (35 days) Less training time Less admin. time 280 200 240 720 Utilized hours 1360 (76 per cent) 2080

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The ITeS industry could employ approximately 2.7 million by 2012 as compared to 0.17 million in 2003 . . .
2002 Revenues (USD billion) Customer care Utilization adjusted charge rates (USD / FTE / hour) Manpower requirement (FTE 000s) Revenues (USD billion) Finance Utilization adjusted charge rates (USD / FTE / hour) Manpower requirement (FTE 000s) Revenues (USD billion) HR Utilization adjusted charge rates (USD / FTE / hour) Manpower requirement (FTE 000s) Revenues (USD billion) Payment services Utilization adjusted charge rates (USD / FTE / hour) Manpower requirement (FTE 000s) Revenues (USD billion) Admin. Utilization adjusted charge rates (USD / FTE / hour) Manpower requirement (FTE 000s) Revenues (USD billion) Content Dev. Utilization adjusted charge rates (USD / FTE / hour) Manpower requirement (FTE 000s) Revenues (USD billion) Total IT eS Utilization adj. charge rates (USD / FTE / hour) Manpower requirement (FTE 000s)
Note: Billing rates and productivity assumptions have been based on nature of work and competition for services expected. FTE = Full Time Equivalent

Illustrative
2012 22.4 16 1,031 6.2 22 206 18.8 20 690 9.7 16 447 2.6 13 147 4.3 16.1 197 64.0 17.3 2,717 37 per cent 19 per cent 44 per cent 20 per cent 23 per cent 47 per cent 25 per cent 90 per cent 55 per cent 26 per cent 101 per cent 40 per cent 34 per cent
(2003–2012)

2003 0.7 10.5 49 0.5 13 25 0.0 12 2 0.2 10 14 0.4 9.2 28 0.7 11.5 42 2.4 10.9 160

2006 2.4 12 145 1.1 16 49 0.4 14 18 0.8 12 46 0.7 11 48 1.3 13 72 6.5 12.7 379

2009 8.0 14 420 2.5 21 88 3.5 18 148 3.0 15 143 1.5 13 147 2.5 15.2 85 21.0 15.4 1,004

CAGR

0.4 10 29 0.3 11 20 0.0 9 2 0.1 9.7 8 0.2 8 17 0.5 11.5 29 1.5 10.2 106

47 per cent

Source: Press reports. NASSCOM-McKinsey. Manpower profile of India. BCG. KPMG. 2003.

Assumptions related to manpower requirements for the IT-enabled services industry are provided here: Number of working hours per FTE p.a. assumed as follows: Total hours available Less holidays (35 days) Less training time Less admin. time 280 200 240 720 Utilized hours 1360 (76 per cent) 2080

18

Current manpower resources will not be sufficient to meet the aggressive growth targets even in the medium term (2009) . . .
IT manpower gap (2009)
Number (000s)
IT services exports 460

ITeS manpower gap (2009)
Number (000s)
ITeS market demand (current productivity) 1,416

Domestic IT services Products and T echnology services Total demand (2009)

520

Industry productivity enhancement (product mix, structural changes)

413

140
Total demand (2009) 1,003

Reduction in manpower requirements depending on mix of services offered

1,120
Current pool 160

and delivery efficiencies Shortfall: 235 Shortfall: 262
581

Current pool Supply expected based on current trends Total supply (2009)

360

525

Supply expected (net of attrition at current levels)

885

Total supply (2009)

741

Total graduate / engineer pool addition of 51 million, discounted for labor force participation (65 per cent) and ITeS employment preference / suitability (1 - 3 per cent)

Note: Manpower supply numbers are based on extrapolation of curr ent trends related to growth in educational institutions, attendance rates, out-turns and labor participation as well employment preferences.

Source: Institute of Applied Manpower Research. NSSO. NASSCOM. KPMG. 2003.

. . . with a shortfall of over 0.5 million by 2009 for IT and IT eS, based on current human resource supply trends

Current graduate output and employment preference trends suggest that in the absence of any corrective interventions, there could be a significant shortfall of manpower required for ITeS / IT, even in the medium term. High-level estimates suggest that this shortfall could be to the tune of 0.5 million people by 2009 , roughly 23 per cent of the industry’s requirements of 2.1 million people for IT services and IT-enabled services. The key assumptions used for calculations include: – Manpower requirements get reduced due to productivity adjustments brought about by internal changes as well as nature of services provided. This is reflected in the increase in charge rate per FTE per hour. Current pool numbers are based on NASSCOM’s estimates of approx. 160,000 employed in ITeS as at end of March 2003. Supply estimates are based on 13 per cent increase in annual graduate supply (as per current trends), 65 per cent workforce participation and 1-2 per cent of these preferring and capable of employment in the IT-enabled services sector, with adjustment for attrition as currently observed (approx. 30–40 per cent).

– –

Strengthening the human resource foundation of the Indian IT enabled services/ IT industry
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Not addressing this gap means that India’s target share of the export IT and ITeS market would fall short accordingly.

India will be one amongst other countries with surplus manpower that could possibly be trained and deployed for ITeS / IT requirements . . .
Potential labor surplus / shortage in working age group across the world (2020)
Million
2 X -3 -X -6 2

Surplus Shortfall

Ireland
-2 -17

Germany
-3

UK
-3

Russia
-10 19

US
5

France
4

Turkey

China

Spain Egypt

-9

Mexico

Pakistan
47 1

Japan
5

India
3

Philippines
5

Malaysia

Brazil

Indonesia

-0.5

Australia

Note: Working population is defined at the 15–59 years age group. Ratio of working population to total population is assumed to be constant. Labor numbers are based on assumptions of no interventions by respective governments.

Source: US Census Bureau. BCG. 2002-2003.

. . . China, Philippines, Ireland and Mexico are some countries that could pose a competitive threat to India’s market share aspirations

High-level estimates, based on population and economic growth, suggest that India will be one among many surplus countries across the world that will have a labor surplus and would be able to meet off-shoring requirements of the world. The issue, however, will be of being able to skill this surplus to be able to meet the ITeS / IT requirements. A number of other countries with marginal surplus (like China, Philippines, Ireland and Mexico) are already making strong efforts to establish the necessary policies, institutions and infrastructure to meet these skilling objectives.

20

Although these countries are currently not as favorably positioned as India in terms of availability of low-cost skills . . .
Manpower comparison across countries
Average salary for graduates (USD per annum, 2001) Total number of graduates per annum (2001)
2,100,000
India 2,400

India

China

2,000

China

950,000

Philippines

2,900

Philippines

380,000

Mexico

1,400

Mexico

137 ,600

Ireland

19,500

Ireland

43,200

Note: Numbers are for year-ended December 2001 or March 2002.

Source: NASSCOM-McKinsey. 2002 -2003.

. . . they are making significant efforts in improving the quality and quantity of manpower to meet global IT / IT requirements in the future eS

Comparing India to some of the emerging ITeS /IT destinations, one observes the availability of a significantly large human resource pool that can be utilized. India currently has some advantages as compared to these countries in terms of the availability of skilled manpower at competitive costs. However, the efforts by these countries to develop human resources pose a significant competitive threat to India in the long-run.

Strengthening the human resource foundation of the Indian IT enabled services/ IT industry
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Ireland began with an overarching vision to become a knowledge-based economy driven by off-shoring . . .
Case study
n Ireland

is one country that has strategically pursued the development of an outsourcing services market. It has developed a business environment that promises upto 44 per cent of savings for companies worldwide and over 1,200 companies have already chosen Ireland as a base. Ireland’s focus has been on becoming the foremost outlocation service centre.

n Ireland

began with a vision of becoming a ‘knowledge-based economy with a world class infrastructure’ to promote foreign investment, export earnings and growth in employment. It invested heavily in telecom infrastructure (USD 5 billion over 10 years; IRP 250 million in aTechnology Investment Fund for infrastructure modernisation) and education and training (IRP 75 million to develop technology skills; introduction of tele-service courses; focus on multi-lingual skills) to be able to compete as an outsourcing service provider country. It formulated tax incentives to attract foreign investment and instituted the Investment and Development Agency (‘IDA Ireland, to promote Ireland as a global ’), location for back- end processing services.

n The

success of initial ventures attracted new players leading to intense competition for skilled labour. As a result, wages rose and Ireland lost its low-cost advantage.To boost supply of skills, it invested in its educational system that produces 60,000 English-speaking graduates each year. In order to arrest attrition, the government made efforts to spread development of outsourcing service centres beyond big centers like Dublin. It then leveraged the sophistication in its workforce and technology infrastructure to offer value added services. Outsourcing service providers were encouraged to upgrade their services portfolio. According to the IDA, “We don’t position Ireland as a low-cost environment. . .[but a place where companies] get quality people with high skills and high productivity. ” strategy today is to continue to promote inward investment but focus more on development of strategic business areas, clusters of excellence through the converged efforts of academia, business and venture capitalists. Amidst increasing price-based competition from other countries, it has identified its niche of value-added services where ‘ideas are created and used’. service centers in Ireland.
Source: Press reports. CII–KPMG study on ITeS. 2002.

n Ireland’s

n Today at least 60 companies have established call centres and at least 30 companies (2001) have established shared ,

Ireland’s vision to become a knowledge-based economy has evolved based on industry and competitive developments. Once Ireland had established itself as the preferred manufacturing / services destination for a number of European and some American businesses, it decided to focus on highend services to avoid competing head-on with other countries that could boast of better cost structures due to labor cost differences.

22

. . . and is striving to migrate to high-end off-shore support and management through a mix of investments and incentives . . .
Case study
Create right environment Ranked second most-global economy n Initiated Partnership 2000 program to manage wage inflation in off-shoring n Corporate tax rates down from 24 per cent (2000) to 12.5 per cent (2003) n Revamping of copyright and related intellectual property rights law for the comfort of potential investors
n

Co-operation between stakeholders Push towards higher quality education (already ranked #1by IMD, 2001) with multi-lingual skills, teleservice courses n Supporting upgrade plans for current outsourcing centers into high-end offshore support facilities
n

Commercialize new concepts Investment in off-shored centers started with Whirlpool Europe’s SSC in Ireland in 1995 n With unemployment rates at 17 per cent, company’s were able to attract suitable graduates at lower wages to achieve savings of 10 – 15 per cent as compared to operating in the UK
n

Encourage support industries IRP 250 million invested in telecom infrastructure modernization n IRP 75 million to be invested in upgrading technology skills over four years n Upto 400 per cent deduction on taxable profits for R&D expenditure
n n

Growth through sharing Use of the Investment and Development Agency (IDA) as a common platform for FDI and offshore attractiveness promotion n Change of focus in 2001, towards setting-up of ‘Clusters of Excellence’ for specialized off-shoring
Source: Press reports. CII–KPMG study on ITeS. 2002.

Ireland focused efforts on creating a world-class education system that attracted and generated skills ‘employable’ for high-end knowledge support services and then conducted reforms in the enabling infrastructure (e.g. telecom, VC-funding etc.). At the same time, various national agencies coordinated efforts at marketing and positioning through industry interactions and specifically directed policies.

Strengthening the human resource foundation of the Indian IT enabled services/ IT industry
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All the key stakeholders have been involved in efforts to promote Ireland as a ‘cluster for business excellence’ . . .

Initiatives to promote Ireland as a center for business

Involving government agencies

Clarification on specific enabling regulations related to Copyrights, telecommunications and e-Commerce Identified Foras as a national-level policy body to support and co-ordinate efforts across multiple agencies and geographic regions n Launch of National Spatial Strategy (involving hub-spoke approach) to co-ordinate efforts by various regions to attract investments as per vision and to avoid unnecessary competition n Identification of expert group on future skills needs n IRP 2.5 billion under the National Development Plan (2000 -2006) for R&D including a seven year fund of IRP 635 million under the Science Foundation Ireland for ICT / biotech R&D funding
n n

Involving the industry

Special body under ICT Ireland to promote the development of indigenous ICT companies targeting domestic as well as exports businesses n Strategic Competitiveness program as a forum for local set-ups of 1,100 global businesses already in Ireland to assist with competitiveness and sustainability n Targeting of ambitious clients like Intel Fab 24, Google who were willing to experiment with new forms of organizing business n Prominent business leaders invited to join policy makers in a series of studies addressed to meet quantity and quality of future skill requirements in the IT and other industries
n

Involving the educational institutions

Using feedback from international review committees (e.g. IMD World Competitiveness Report) to ensure ‘fit’ between educational system and desired output characteristics n Working with local educational institutions to retrain staff in order to meet market requirements (e.g. Prudential Inc. in Letterkenny) n Locating universities based on market demands (e.g. three universities offering courses specific to the requirements of International Financial Service Center in Dublin, within a four-mile radius)
n

Source: Press reports. KPMG. 2003.

Ireland’s stakeholders have worked together across defined boundaries to formulate a national strategy towards establishing Ireland as the preferred choice for knowledge services. This includes efforts at the policy level, efforts at working with the industry to identify opportunities as well as efforts related to guiding the development of human resources for future requirements.

24

China is investing in improvement of existing infrastructure and resources . . .
n

Case study

China has already had experience of outsourcing services for the domestic market and has built relations with global clients through outsourced manufacturing. The focus now is to develop the capabilities, institutions and incentives that would propel China into grabbing a large share of the global services market. Comprehensive efforts are already visible across areas of telecom infrastructure, education and global marketing. In order to bridge its capability gaps in the area of English language and technical skills, China has initiated a massive investment programme. USD 5.4 billion were invested in nine universities to revive the domestic IT resource pool. In order to spur English skills, the government plans to start English classes from the third grade and about 60,000 English teachers were invited from other countries to teach English. Success at the Olympic Games 2008 bid and the recent accession to the WTO are other drivers behind the enthusiasm for developing skills in English. Reforms in the telecom industry were seen as critical to the success of this industry and were initiated in phases in 1999. The first phase involved separation of government ownership and operations.The second phase involved attracting new domestic players through active privatization and the third phase is about attracting global players and at the same time enabling domestic players to compete with them. Promoting China’s advantage in providing outsourcing services has been handled at multiple levels, from repositioning China as an investment location, to projecting China’s low-cost advantage and the bundling of permissions to access the domestic market with a commitment to invest in China-based outsourcing services.
Source: Press reports. CII–KPMG study on ITeS. 2002.

n

n

n

China is leveraging its excellent reputation in the manufacturing sector to attract global ITeS and IT companies. It has developed partnerships with large global giants in the area of manufacturing and is now developing the requisite infrastructure for the ITeS and IT industries. There has been increased focus on imparting English language education to enhance the skills of the potential working population.

Strengthening the human resource foundation of the Indian IT enabled services/ IT industry
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. . . with a structured approach to capture a larger share of the global off-shoring market . . .

Case study

Create right environment Policy geared towards globalization and accession to the WTO n FDI approval for almost all projects at provincial level n Preferential tax rates of 15 per cent (normal 33 per cent) under EPZs and other zones. T refund on capex ax over five years
n

Co-operation between stakeholders Attract investments from high-tech majors in the form of technology parks n Labor law reform through a single comprehensive framework n Promoting economic co-operation for industrial development in mainland China
n

Commercialize new concepts Leveraging experience of off-shored manufacturing and outsourced services to offer off-shore services to the global market n Exploiting low cost structure supported by government subsidies, low software / labor costs etc.
n

Encourage support industries Phase approach to telecom reforms including divestment, privatization and competition n Import of over 60,000 English teachers to build language capability n New legal framework for lending by Chinese banks to JVs
n n

Growth through sharing Use of international fairs and special business promotion events to promote China as an overall destination for investments n Permissions for MNCs to leverage Chinese markets bundled with responsibility for off-shoring
Source: Press reports. CII–KPMG study on ITeS. 2002.

The focused approach, as illustrated above, involves a right balance of creating the right business environment and increasing stakeholder co-operation. At the policy level, the government is playing a key role by introducing reforms in telecom policy as well introducing initiatives to encourage new investments. Increasing promotional activities such as international fairs and business promotion events are helping to promote China as an investment location of choice.

26

Philippines is leveraging its economic and geographic proximity to the US to grow its share of the ITeS / IT industry . . .
Case study
n

The Philippines government has recognized IT as a key driver to the country’s economy and has identified focus eS areas related to call center services, medical transcription, animation, shared back-office functions, software development and engineering and design. The government aims to achieve revenues of USD 1.65 billion by 2004, largely from call centers services, with medical transcription being the second highest segment. The government has established the Information Technology and e-Commerce Council (ITECC) through private – government partnerships to oversee and review the national promotion strategy for e-commerce The ITECC works with the Department of Trade and Industry (DTI) to promote technology-related investment opportunities in Philippines The country has launched the ‘IT 21’ plan to transform Philippines into a ‘Knowledge Center for Asia’ over the next 10–25 years Private sector involvement has been sought to devise skill upgradation programs to meet the needs of the contact center industry and the ITECC is working with the T echnical Education and Skill Development Authority to promote employment in call centers Attractive infrastructure development incentives have been planned and the two ex-US air bases at Clark Bay and Subic Bay have been transformed into world-class, ready-to-use facilities for ITeS / IT industry
Source: Press reports KPMG. 2002 -2003.

n

n

n

n

n

n

Philippines has had the advantage of significant cultural influence of America on its society, and is using this proposition to a large extent to promote its ITeS / IT industries. The ITECC, a government arm, is carrying out pioneering work to promote the industry by developing public-private partnerships to upgrade the skills of the workforce and cater to the specific needs of the ITeS / IT industries. There is also greater emphasis on developing the infrastructure and help set up world class facilities with all necessary telecom and IT support.

Strengthening the human resource foundation of the Indian IT enabled services/ IT industry
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. . . and is targeting to become the Asia-Pacific region’s ‘e-service’s hub’ with revenues of USD 1.65 billion by 2004 . . .

Case study

Create right environment ITeS identified as the key economic driver for the country by leading authorities within the country n Income tax holiday for 4 – 6 years with permanent resident status for medium / large investors
n

Co-operation between stakeholders Collaborating with private sector companies (e.g. TIM, CRC etc.) for skills upgradation through formal and non-formal sectors n Conversion of ex-US air bases into ready-to-move ITeS / IT facilities
n

Commercialize new concepts
n

Leveraging proximity to the US and low connectivity costs for ITeS, Philippines aims to grow into the EServices Hub for Asia with a focus on call center, animation / design, transcription and back-office operations

Encourage support industries Launch of ‘IT 21’ plan to transform Philippines into knowledge center for Asia with HR development n Plans to address telecom sector investments through competition n Incentives for IT infrastructure developers with up to 15 projects being supported
n

Growth through sharing

n

Use of DTI and ITECC to promote ITrelated investments as well as to support skill enhancement

Source: Press reports. CII–KPMG study on ITeS. 2002.

The Philippines government has identified ITeS as a priority sector to drive economic growth. Towards this end, it has formulated a number of incentives and encouraging investment policies. The ‘IT 21’ plan has been launched to help Philippines develop into a hub for ITeS / IT in Asia by bringing about rapid human resource development. The focus areas decided by the ITECC include call center operations, animation/design, transcription and back-office operations. Philippines aims to leverage its strengths in these areas and develop long-term competitive advantage.

28

The manpower shortage is already impacting the performance of the Indian ITeS / IT industry today . . .

2000 – 01

2002 – 03
n n

ITeS / IT health-check indicators

Service billing rates

n n

n n

IT: USD 30 – 40 per hour ITeS: USD 1 – 12 per hour 0

IT: USD 15 – 25 per hour ITeS: USD 4 – 11 per hour

Competition from captives turning third-party Ease of entry into ITeS / IT

Employee attrition levels

2000 – 01
n

2002 – 03
n

n

ITeS: 1 – 15 per cent per 0 annum

ITeS: 30 – 40 per cent per annum
n

Competition for talent with MNCs able to afford poaching with salary hikes of 15 – 20 per cent Over-qualification of labor pool attracted has led to higher wage rate Wage rates increasing with competition Overall margins under pressure with domestic and international competition, regulatory restrictions and large capital requirements

2000 – 01 Salary costs
n

2002 - 03
n

ITeS: USD 200 per month (cost to company)

ITeS: USD 330 per month (cost to company)

n

Company profit margins

2000 – 01
n

2002 – 03
n

n

ITeS: 30 – 40 per cent operating profit margins

ITeS: 1 – 25 per cent 7 operating profit margins

Source: Press reports. KPMG. 2003-2004.

. . . making the industry as a whole in India less competitive on a global scale and less attractive for potential entrants

The imminent manpower shortage in the IT and ITeS industry in India is already affecting various operational and financial parameters. This makes the industry less competitive in the global market and less attractive to potential entrants. Considering that the next few years will be critical to the overall ramp-up of India’s IT eS / IT revenues, some actions are required to address this issue at the earliest.

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29

The ITeS / IT industry has indicated concern and the need for an immediate action plan . . .
“There is a need for a common agency to certify and counsel resources. ” “Efforts at improving resources required being done in pockets . . . in Kerala, AP Karnataka.” ,

“ITeS / BPO is not seen as a career . . . there is a need to bring respectability to the work”
n Rising

“It is expensive to attract skills above the age of 35 into ITeS. ”

“Functional education to be strengthened to support high-end services.”

“Career paths are often not made clear to staff . . . leading to attrition issues. ”

“Low hit rates of 1- 5 per cent lead to significant costs related to recruitment and selection of resources”

“University education needs to be re-oriented to support vocational training for ITeS . ”

“Shifting the BPO employment opportunity to second-tier cities would reduce resource pressures. ”

“Emotional maturity and physical stamina requires at least graduate level of education”

attrition, both in industry and out of the industry n Rising wage costs due to scarcity of resources n Impediments to growth plans for various service providers n Lower staff productivity

“Even high literacy states like Kerala may have lower awareness of ITeS career options. “

Source: Department of IT interactions with IT / BPO industry service providers. Industry interactions. Press reports, KPMG. 2003–2004.

A number of interactions were held with key stakeholders such as the Department of Information Technology and BPO industry service providers to get a clear understanding of the current issues faced and ways to resolve them. Some of the key concerns raised were related to high attrition, increasing salary costs and low productivity of employees. These concerns are deep-rooted and it is imperative to address them with immediate / concerted action.

30

IT-enabled services and IT services are expected to become significant contributors to the growth of the Indian economy . . .
Domestic / Captive IT services
Direct ITeS/IT employment (million)

5.0

ITeS IT export services

2.2 0.5 0.7
2003

1.1

Contribution to direct employment
2012

Percentage of total employment

2002

2006

2009

0.1 per cent

0.1 per cent

0.2 per cent

0.4 per cent

0.9 per cent

Off-shoring as per cent of GDP Contribution to GDP growth

1.9 per cent
2002

2.2 per cent
2003

3.4 per cent
2006

6.6 per cent

12.3 per cent

2009

2012

Contribution to GDP growth
Note: GDP growth assumed as 9 per cent per annum upto 2012

8 per cent

17 per cent

31 per cent 2009 - 2012

2003 - 2006 2006 - 2009

Source: NASSCOM. Institute of Applied Manpower Research. Statistical Outline of India. KPMG. 2003.

. . . actions must be initiated now in order to address manpower requirements for the ITeS / IT industry in the longer term

The ITeS / IT industry could be a significant contributor to the economic growth of the country, considering its long-term growth potential of 25 per cent per annum (compared to overall GDP growth expectations of 8 – 10 per cent). Benefits from ITeS / IT include a direct employment opportunity of approx. 5.1 billion by 2012, of which approx. 3.7 billion would be for export IT services and IT -enabled services. Comparative numbers for 2002, according to NASSCOM, were 0.5 million. Estimates by NASSCOM-McKinsey and BCG have suggested that the ITeS / IT industry could generate another equal number of employment opportunities in support industries (e.g. transportation, catering, office administration and services etc.). The share of off-shore revenues to total GDP is also expected to grow significantly, with a potential contribution of 12 per cent of GDP by 2012, as compared to 1.9 per cent in 2002. High growth of ITeS / IT revenues implies that it could grow to become a significant contributor to overall GDP growth as well.

Strengthening the human resource foundation of the Indian IT enabled services/ IT industry
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31

Strategy to enhance institutional capacity (formal and non-formal) to generate requisite manpower
This chapter provides an understanding of the need to enhance institutional capacity in the formal and non-formal sector. It also suggests other approaches to generate requisite manpower for the ITeS / IT industry.

There is going to be a significant demand for manpower related to the Indian IT export and ITeS industry by 2012 . . .
Manpower demand for IT* services (2012)
(000s)
1000 58 750 500 275 250 0 Consulting, integration, installation IT Development Outsourced support Training and Education Total 111 529 972

83 per cent of requirements in systems integration and support

Manpower demand for ITeS (2012)
(000s)
2800 2,717 147 447 1400 700 0 Customer Care Finance HR Payment Services Administration Content Development Total 1,031 206 690 197

* Manpower requirements for IT services under domestic / captive operations are in addition to requirements for IT export services shown above.

80 per cent of requirements in HR, payment services and customer care

2100

Source: IDC. NASSCOM. KPMG. 2003–2004.

. . . requiring upto approx. 3.7 million people for export IT services and ITeS by 2012, up from 0.4 million people in 2003

The demand for IT and ITeS manpower is going to be driven by their requirements in specific solution areas for IT and ITeS. Out of the total requirements for IT export services, as much as 83 per cent could be for systems integration and outsourced support (facilities management) services. Similarly, for ITeS, 80 per cent of the manpower requirements could be in the areas of Human Resources, Payment processing and Customer Care services.

32

Manpower will be required across all levels of the organization in the IT export services and ITeS business . . .
Manpower (000s) IT requirements* Senior Manager: 2003 2012 Qualifications Work experience Skill-sets

7

36

n

Graduation / Postgraduation Graduation (+Diploma)

n

6+ years

-

Managerial skills / Crises management Analytical reasoning Client interface and selling skills Domain expertise Supervisory skills / Domain expertise Resource management and utilization Planning and reporting skills Computer proficiency and IT programming Problem solving and analytical skills Team-working

Project Manager / Leader:

26

141

n

n

3 – 6 years

-

Programmers / Executives:

179

831

n

Graduation / Diploma

n

0 – 3 years

-

Total: ITeS requirements Manager / supervisor:

212

1,008

-

3

51

n

Graduation / Postgraduation Graduation (+Diploma)

n

5+ years

-

Managerial skills / Crises management Analytical reasoning Client interface and selling skills Domain expertise Supervisory skills / Domain expertise Planning and reporting skills Meeting process targets Language / communication skills Analytical skills Computer proficiency Team-working Customer service orientation

Team leaders:

20

277

n

n

3 – 4 years

-

Agents / Executives:

140

2,439

n

Graduation

n

0 – 3 years

-

Total:

163

2,767

* Manpower requirements for IT services under domestic / captive operations are in addition to and roughly equal to requirements for IT export services shown above.

Source: IDC. NASSCOM. KPMG. 2003 –2004.

Manpower estimates based on current staffing patterns for the export IT services and ITeS requirements suggest that there could be a significant requirement in terms of experienced personnel at the manager / team leader level. This requires the ability to generate people with relevant skills at least 2–4 years prior to the actual demand, reinforcing the criticality of requirement for action. For example, by 2012, compared to a workforce of 3.7 million for export IT services and ITeS, there could be a requirement for approx. 0.85 million managerial staff with over 5–6 years of relevant experience i.e. participating in the workforce since 2006 / 2007. Although the educational capacity in existing / planned institutions to meet these requirements may not be an issue, the specific skills provided as part of the education system may need to be reconsidered.

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Different categories of work at the agent level itself will require specific qualifications . . .
Back-office data entry / processing Corporate support functions Knowledge services and decision- support

Illustrative
Research/ Design and development

Customer contact

Increasing complexity of task and skill requirements Data entry (form filling) n Data conversion (translation, transcription) n Basic processing (checking / updating) n Document management (storage, retrieval)
n

Nature of work

Customer services (complaints, inquiries) n Tele-marketing (presales, order-taking, catalog sales) n Collections support (reminders, payment support)
n

Shared corporate function support (HR, Finance / Accounts, HR, procurement) n IT support (development, integration, maintenance, helpdesk)
n

Analyst services (legal, financial) n Customer analytics (segment profits) n Application processing (claims) n Risk management (underwriting, structuring) n Advisory services (tele-medicine, consultancy)
n

Engineering and design (CAD/ CAM) n Content development (animation, web site, graphics) n New product design (specifications, pilot testing)
n

Typical qualification for work

n

Graduates

n

Graduates with excellent communication skills

n

Graduates with specialization, diploma/certificate holders

Graduates / PostGraduates in related areas (e.g. Law, Economics, Accounting) n ICWA / CA
n

Graduates / Postgraduates in related areas n Design engineers with some work experience n For website / DTP design, diplomas in related areas
n Source: Press reports. KPMG. 2003-2004.

Note : List of activities and examples above is illustrative only and not exhaustive. Activities within a category are not necessarily in order of skill levels required

The more complex tasks under ITeS / IT are expected to require post-graduate qualifications or other certification in addition to standard graduate degrees. For example, while a typical back-office data entry/processing employee would need to be a graduate in any stream, an employee in the area of research/design and development would need to be at least a graduate / post-graduate in a specialized area.

34

Even within a function, different levels of work may require specific qualifications . . .
Illustrative
Back-office processing
-

Corporate functions Customer contact HR Finance IT / T ech Support Knowledge support Research and Design

-

Loan Admin. Card / clainms processing Account reconciliation Data entry, transcription, mining Records management

B.A. B.Pharm. B.Com. B. Sc. - Maths - Statistics - Econ.
-

B.A. Inbound customer services B.Sc.

-

-

B.Com.

Payroll / Benefits processing Employee benefits

B.A. B.Sc. B.Com.

Basic

-

Outbound collections Outbound sales / marketing Inbound customer service Loans / processing service

B.A. B.Sc. B.Com. + Vocational Diploma (e.g. Hotel, Tourism)

B.Com. B.A.
-

BCA Hardware B.Sc. - Equity research help-desk and - IT (industry / CA / CFA / troublesector / ICWA shooting ITI (Dip.) markets) Software and MBA technical IT course - IPR filings query support (e.g. DoEACC) Network configuration / hardware support and maintenance Software design / programming BCA B.Sc. - IT MCA B.E. Certificate (CCNE, MCSE)
-

+
-

401 K Pensions Admin. Training

Tax services (planning, preparation, payroll, bookkeeping)

Medium

B. Sc. +
-

Diploma in Acctg, Tax laws CA / CFA / ICWA Diploma in Fund Mgmt Stock exchange certificate
-

Content development (web-site design, DTP , animation)

Courses in Animation / Fine Art Dip. in Multimedia

-

B.A. B.Sc. B.Com. Query + resolution Vocational Problem solving Diploma (e.g. Hotel, Tourism)

High-end

-

Training & Development Performance Management

Post Grad. In HR / Behav. Science Diploma in Labor Law, HR / IR, Staff welfare

-

-

Acctg services Shareholder services Equity research (industry / sector / markets) Portfolio mgmt Credit rating

-

-

Tele-medicine and advisory services

MBBS

-

Distance B.E. learning Engineering Dip. in design / testing CAD / Product design/ CAM testing Biotech Ph.D. research

Source: Industry interactions. KPMG. 2003 - 2004.

However, people with specific graduate degree qualifications may be better suited for specific functions. For example, a Chartered Accountant / Chartered Financial Analyst maybe better qualified to support remote accounting services or equity research support for a client. The person may also be required to undergo additional certification if required by the regulations of the client country (e.g. FSA in the UK). However, for the data entry support work of maintaining shareholder database or attending queries, a normal B.A. / B.Com. / B.Sc. may be sufficient.

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These must be supported by some necessary delivery-related skills . . .
Data entry / processing Language Skills Spoken English Written English Foreign Languages Accent Understanding Analytical Skills Logical reasoning Problem Solving / Num. ability Comprehension / Creativity Computer proficiency Keyboard skills / Browsing etc. Technical / Programming skills Customer Service Orientation Listening / empathy Initiative/Enthusiasm Team working Multitasking / Time management Behavioral traits Assertiveness and Confidence Integrity / values and discipline Motivation / Drive Sociability / Dependability / Reliability
Note: ü ü: Necessary skills ü: Desired skills

Illustrative
Knowledge service / DSS R&D and Content Dev.

Customer contact

Human Resources

Finance & Admin.

Tech. Support / IT

ü üü

üü üü ü üü

ü üü

ü üü

ü üü ü ü ü

ü üü

üü üü ü

ü ü üü

üü ü ü

üü üü ü

üü üü ü

üü ü üü

üü üü üü

üü ü

üü

üü

üü

üü üü

üü ü

üü ü

üü ü ü ü üü üü üü ü ü ü ü ü ü

üü ü ü ü ü ü ü ü ü ü

ü üü ü üü üü ü üü üü ü üü

ü üü ü üü

üü üü ü üü

ü üü ü üü

ü üü ü üü

Source: Industry interactions. KPMG. 2003-2004.

In addition to standard qualifications, different functions under ITeS / IT often require certain specific skills related to language (comprehension, fluency), analytical (problem solving, reasoning), computer proficiency (keyboard), customer service orientation (team-working, listening) and behavior (confidence, integrity, drive). However, the importance of these could vary depending on the specific function. For example, ‘Listening skills’ are inherently more important to a customer contact function as compared to knowledge services support, where ‘Reasoning skills’ may be much more important.

36

In order to meet the ITeS / IT skill requirements, the entire education lifecycle must be considered . . .

Attract

Educate

Certify

Deploy

Re-train

n

Creating awareness about and preference for ITeS / IT as a lifelong opportunity, thereby creating a pull in the market

n

Development of formal and nonformal mechanisms to equip students with requisite skills for ITeS / IT

n

Pre-certification of potential employees through a standard / industry accepted testing body

Counseling and deploying manpower into ITeS/ IT industry n Using industry feedback to drive curricular changes and highlight employment opportunities
n

n

Re-training ITeS / IT professionals to upgrade skills to meet changing industry requirements

Source : KPMG. 2003–2004.

One of the key success factors for meeting the manpower requirements of the ITeS / IT industry is to lay emphasis on each aspect of the education lifecycle. While it is important for institutions to provide students with relevant knowledge and skills, it is equally important for students to gain recognition in the industry. Skill recognition can only come about by developing a standard system of testing and certification that is accepted by a formal authority. Students will only be attracted to the ITeS / IT industry by getting good employment opportunities and remuneration. Thus, a virtuous cycle is established between attraction and deployment. It is also necessary to keep track of changes in the industry and specific requirements or opportunities. These should be incorporated into the curriculum as well as used as inputs for re-training employees to face new challenges.

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A World Bank study (2001) highlighted generic shortcomings in India’s education system to generate quality manpower. . .
Weaknesses in infrastructure / institutional set-up
-

Policy
-

Weaknesses in course curriculum and delivery

Expense allocation is often based on political pressures as against market conditions Lack of adequate quality control in implementation of policy No incentives for financial prudence and efficiency in R&D Excessive controls over finance allocation leads to costly delays

-

Faculty
-

Low compensation and lack of clarity on career progression attracts fewer teachers Teachers lack industry rigor, R&D background and exposure to tools Lack opportunity / encouragement for creative thinking Lack of counseling for higher education choices and career decisions Inflexible and rigid curriculum, not exposed to innovation / industry Teaching is exam-oriented without focus on communication skills, problem solving Continuous evaluation is often not systemized Exams are often memory-based and encourage partial studying through ample choice

-

-

Finance
-

Students
-

-

Administration
-

Inefficiencies due to limited mechanization / automation within R&D set-ups Lack of appropriate incentive / reward systems Facilities are poorly maintained, leading to shorter utilized life cycle Little sharing of expensive infrastructure and equipment

-

Curriculum
-

-

Infrastructure
-

Evaluation system

-

Source: World Bank Study on Science &Technology Manpower in India (2001). Industry / Academia interactions. KPMG. 2003.

A World Bank study highlighted generic shortcomings in the Indian education system, especially in its ability to generate highly-skilled manpower with the inclination and capability of creative thinking in-line with global industry developments. Some of the observations pointed out the inability to maintain and share common infrastructure facilities across institutions, shortage of skilled faculty with industry exposure and rigidities in the curriculum and evaluation system. A study by the Ministry of HRD, Govt of India titled ‘Technical Education Quality Improvement Project’, in Oct 2001, also highlighted potential action points (e.g. networking, curriculum changes, faculty development etc.) required to improve the quality of technical education in the country.

38

In addition, the current system has gaps across the entire education life cycle related to skilling for ITeS. . .
Attract
n

Educate
n

Certify
Lack of national-level mechanism for precertified pool of resources Lack of understanding of specific parameters to test and certify upon

Deploy
Lack of feedback loop on resource deployment and skills provided Lack of direct placement links between institutions and ITeS industry, especially in Tier-II and smaller cities

People are not aware about employment options, including flexibility offered ITeS perceived as largely requiring IT skills Jobs in the ITeS industry lack esteem Employment not seen as a long-term career option

Key skills required by the industry are not developed through current educational system Lack of a standardized, modular curriculum for ITeS

n

n

n n

n

n

n

n

Source: Industry / Academia interactions. Department of IT. KPMG. 2003-2004.

The current education system lacks specific policy initiatives to help it align to the specific requirements of the ITeS / IT industry. There are also issues related to funding as well as development of institutional and infrastructure facilities. Moreover, there is a strong need for monitoring agencies to assess and correct gaps related to developing and directing skills towards ITeS / IT employment opportunities.

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Specific changes across the current system of education in India related to skills required for ITeS could be initiated . . .
Existing manpower for ITeS / IT are graduates/post-graduates with strong conceptual / theoretical knowledge but lacking in communication and vocational skills

Illustrative

Additional inputs required to make ‘employable’ for ITeS / IT

PostGraduation

n

Theoretical specialization in subject of choice; gradual shift to applied studies

n

Graduation

n

Student’s select subjects of their choice and specialize in a particular stream; cross-stream courses rarely available
n

Domain specific training linked to international developments - Insurance certification - Healthcare regulatory standard (HIPAA) - Accounting standards (US GAAP) - Banking standards (Basel II) - Labor / T axation laws (France, Germany) - HR practices (e.g. 401 K) - Alternative languages (e.g. Japanese) Customer service orientation - Listening skills - Time / stress management - Leadership - Team working

Higher secondary

n

Students acquire basic mathematics, language and general awareness skills

Primary / Secondary

Mathematics and English skills are refined. Student’s get introduced to science and social science subjects n Students acquire basic mathematics, language and general awareness skills
n

Language skills - Written English (Grammar, Comprehension) - Spoken English (Fluency) n Computer literacy - Key board - Internet searching
n

Source: Department of IT. Industry interactions. KPMG. 2003-2004.

The current system of education does not provide some of the necessary skills for ITeS / IT, even at the graduate / post-graduate level. Resources produced may have a strong conceptual / theoretical background but often lack communication and vocation-specific skills and the creative drive or specific regulatory certifications required by clients in foreign countries. This could be addressed through specific modules integrated into the current system of education, right from the primary / secondary education level. For example, a strong focus on Computer literacy could be established at the primary / secondary level, followed by a focus on customer service related skills (team-work, time management) at the higher secondary levels.

40

China has made some significant efforts to develop language and culture skills relevant to global ITeS support . . .
Case study: China
Attract
n

Educate
n

Certify
n

Deploy
n

The government is encouraging overseas and domestic experts to play a major role in strategy formulation for ITeS/IT The government is focusing on increasing urbanization of its premier cities like Shanghai and Beijing (by 2005, over 50 per cent of the Shanghai population would have internet access)

The government is encouraging English language learning in schools and colleges (over 60,000 English teachers brought in) Alliances with prestigious foreign institutions like Yale to set up technology centers and enable student exchange programs English teaching combined with IT training under computer classes

n

The Chinese ministry of science and technology had established the ‘863’ program to develop a highly qualified scientific and technical staff

Upto 53 high quality technology parks have been set up by the government to encourage MNCs to establish offshore R&D and IT centers

n

n

‘China education and research grid’ to share IT research efforts across 100 universities n ‘Radio and TV’ universities have been created to facilitate learning
n

Source: Press reports, UN / World Bank report. KPMG. 2003–2004.

China has taken significant steps across the education lifecycle in order to ensure that its human resources are geared up to tap the opportunities presented by the ITeS / IT industry. A key step has been the promotion of English language in schools, colleges and universities. The government has been quick to realize that learning the language can lead to significantly large business opportunities in the future. Long-term plans are also in place to develop knowledge in core areas of R&D. The ‘863’ program is focused on developing a highly qualified and competent scientific and technical staff. At the same time, a number of infrastructure building activities, such as setting up of IT parks, is underway to ensure effective deployment of trained students in the ITeS / IT industry.

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Philippines too has made efforts to revamp its core curriculum approach to develop resources more suitable for IT / IT . . . eS
Case study: Philippines
Attract
n

Educate Established ‘TESDA as ’ the driving force for changes in curriculum and implementation of better training programs n Greater focus on Maths, Science and English at the primary and higher secondary education level n Training courses for graduates and postgraduates focused on key ITeS areas for Philippines n Use of best of breed methodologies, tools and practices to train students n Training and re-training teachers in formal institutions to develop IT skills

Certify

Deploy

n

Balik IT professionals’ program to attract overseas Filipino IT professionals and inject actual experience and fresh insights into knowledge workers

Established a unified ‘TVET’ program registration and accreditation system in consonance with a quality technical and vocational education n Identification of specific certification requirements and dedicated government programs to carry them out in areas like Windows, Unix, Java, SQL, XML, Linux and C++
n

n

Development of alliances between educational institutions for students to get onthe-job training and companies to identify untapped manpower pools

Note: TESDA – Technical Education & Skills Dev elopment Authority TVET – Technical & Vocational Education Training

Source: Press reports, UN / World Bank report. KPMG. 2003– 2004.

Philippines too has undertaken a number of initiatives to enhance the present educational system and develop manpower for the new ITeS / IT economy. At the school-level, there is an increased emphasis on basic subjects like Maths and English that are imperative for language and communication as well as analytical skills. The government has also begun taking steps towards increasing accreditation of technical and vocational education. This accreditation would lend recognition to students when they seek jobs in the ITeS / IT industry. Universities and colleges are also developing partnerships with companies in order to help students gain exposure to the working environment in the ITeS / IT industry. This would help them appreciate the challenges posed by the industry and obtain necessary skills.

42

Emerging areas in the knowledge domain for India to pursue and strategy to reinforce status as ITeS / R&D hub
This chapter discusses the potential opportunities in off-shored R&D support services that India could aim for based on current strengths in terms of people, infrastructure and industry. It also looks at some of the best practices followed in other countries and highlights the issues that India currently faces in the R&D services sector.

We define research and development in the broad sense as a quest for knowledge . . .
“Creative work, undertaken on a systematic basis, in order to increase the stock of knowledge (including knowledge of man, culture, society) and the use of this stock of knowledge to devise new applications

I. Basic research “experimental / theoretical work to acquire new knowledge of the underlying bases of phenomena, without any particular application”

II. Applied research “original investigation to acquire new knowledge, directed primarily towards a specific practical aim or objective”

III. Experimental Development “systematic work, drawing on existing knowledge stock to produce / install / improve materials, products and services”
Source: Frascati Manual (OECD). 1993.

. . . the focus is on the provision of R&D work in the form of support services for development rather than actual product development

The entire R&D value chain can be split across the areas of Basic Research, Applied Research and Experimental Development. Each of the areas has its own characteristics in terms of nature of activities, capital intensity, labor intensity, commercial viability etc. There are different players that occupy significant positions in the different parts of the value chain based on their strengths, priorities and constraints.

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Investments in technology related to R&D has been shown to have direct / indirect contribution to GDP growth . . .
Direct and indirect correlation between R&D investments and economic / social benefits

Inward FDI Employment generation Appropriated research Productivity enhancement License revenues Enhanced competitiveness Innovation Spillover research Productivity enhancement Trade benefits Multiple direct and indirect benefits from R&D

Investment in R&D

Knowledge stock addition

Social / Environ benefit
Source: OECD Working Papers (Endogenous growth theory). KPMG. 2003–2004.

Research suggests that R&D investments have a positive impact on the development of a country due to the benefits encompassing most developmental aspects of any nation. In addition, from the perspective of a developing country such as India, foreign direct investment in R&D facilities by MNCs is even more attractive. This is because MNCs’ subsidiaries with strong R&D mandates as well as strategic geographical or product range responsibilities tend to be stickier to the host economy and hence are considered to be highly desirable in terms of their effects on local wealth generation.

44

Governments and educational institutions try to balance R&D efforts across different areas of potential benefits . . .
Economic benefits Balancing benefits from R&D IT and electronics
n

Illustrative

Social benefits
n

Environmental benefits
n

Access to low-cost skills as well as proximity to a cluster from where IT support work is being carried out

Application of IT for agricultural monitoring, educational delivery and medical automation

Use of IT / electronics for control systems related to effluent / waste disposal systems

Pharma. and Biotech

Reducing the cost of new drug development and clinical testing n Round-the-clock research on genetic sequencing to reduce time
n

Crop productivity through genetic engineering and research n Increased immunity / better medication through bio-informatics
n

n

Use of biotechnology in hazardous waste treatment and pollution control (e.g. bio-remediation for oil spills)

Engineering and Design services

n

Access to low-cost skilled resources for materials and component design / testing

Safer and better designed housing facilities with cheaper, stronger materials n Increased productivity and efficiency in industry processes
n

n

Fuel research to reduce pollution related to automobile exhausts

Source: Press reports. Ministry of Research, Science and Technology (New Zealand). KPMG. 2003-2004.

R&D activities conducted by government and institutions concentrates on research areas which may not be remunerative or lead to commercially feasible/attractive value propositions. The R&D activities undertaken by the government/institutions have a different objective function. While economic benefits are important, the benefits of such R&D activities are not limited to economic areas but also encompass areas such as benefits to the society and environment that are not directly quantifiable.

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The focus of R&D efforts by the private industry, on the other hand, has evolved from resource driven to customer / business driven . . .
First-generation R&D
R&D philosophy
n

Second-generation R&D
n

Third-generation R&D
n

Resource-driven

Project-driven

Business-driven

Evolution of approach to R&D

Link between R&D and business

n

R&D seen as a separate unit from business operations

n

R&D as a supplier to overall business operations

n

R&D efforts as partners adding to effective business delivery

Link between R&D and end-customer

n

No link between R&D and endcustomer

n

Remote link

n

Use of consumer groups / endcustomers to guide R&D efforts

Funding approach

n

R&D as an overhead costs under annual budget exercises

n

Funds based on needs and risksharing

n

Based on technology maturity and competitive impact

Knowledge management

n

Management of tacit knowledge in compartments

n

Integrated use of tacit and explicit knowledge

n

Synergy through conversion of knowledge to explicit form

Source: Nolan Norton & Co. KPMG. 2003.

. . . and are driven by economic considerations

The overriding objectives of R&D activities in the private sector remains economic benefits such as revenues from new products, reduced time/cost of manufacture etc. In this sector, R&D function has evolved from being a isolated activity that is loosely connected to the overall business to being a core part and driver of the overall business strategy. As a result, R&D activities in the private sector are now guided by consumer groups and end customers so that the research yields products/services that are readily acceptable to the end customers.

46

As a result, the R&D focus areas for government, institutions and industry, across the world have become divergent . . .
Institutional expenditure on R&D
R&D expenditure distribution (2000)
Australia Denmark France Iceland Japan Spain US 0%
Basic research Applied research Experimental Development

Government expenditure on R&D
R&D expenditure distribution (2000)
Australia Denmark France Iceland Japan Spain US

Industry expenditure on R&D
R&D expenditure distribution (2000)
Australia Denmark France Iceland Japan Spain US

25%

50%

75%

100%

0%

25%

50%

75%

100%

0%

25%

50%

75%

100%

Source: OECD R&D database (May 2002-2003). KPMG. 2003-2004.

Primary focus on basic research

Balanced approach, more on applied R&D

Primary focus on experimental development

. . . requiring a different R&D focus in terms of approach, time lines and funding

A review of R&D spend across countries suggests that while educational and specialized research institutions focus more on basic research, government agencies tend to focus more on basic and applied research. As a result, the approach to R&D is often that of a process of discovery without strict time-bound funding plans. R&D spend by the industry is focused on developing solutions to specific business problems. The approach to R&D is hence more often project-based with specific investment budgets and return expectations. This is because private sector companies have to address the requirements of its shareholders who have invested in their company. The divergent nature of activities undertaken by the various players in the R&D area requires them to coordinate their efforts so that they can leverage each other’s capabilities and knowledge capital.

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Across the globe, – – There is an increasing trend of reduction in the government’s contribution to R&D activities. Greater reliance is being placed on the educational institutions, and all sectors have expanded their participation in a variety of domestic and – international partnerships both within and across sectors in order to pool resources and leverage capabilities. The share of R&D activities by the private sector is witnessing a significant rise. World-wide the funding for R&D is increasingly being driven by the industry and this is most likely to be off-shored due to its specific nature . . .
Ratio of R&D spend by industry to government
2.0

1.0

0.0 US UK Turkey Singapore Israel India Germany China Canada Brazil

Source: UNDP –Development Indicators (2002). KPMG 2003 - 2004.

. . . off-shoring service provider countries like India should focus on aspects of R&D which support experimental development Globally, the R&D spend is increasingly being driven by industry / business houses (upto the extent of 50–60 per cent). This suggests that the nature of R&D spend would be more directed towards specific product / service related attributes in the form of experimental development work, could be affected by industry life-cycles and may be subject to specific performance / productivity targets.

48

A review of historical patent filings suggests that India’s R&D efforts have been prolific in some key areas . . .
Technology Class
Class 514 Class 435 Class 424 Class 549 Class 540 Class 502 Class 568 Class 326 Class 528 Class 585 Class 264 Class 510 Class 536 Class 246 Class 623
n

Technology description
Drug, Bio-affecting and Bodytreating compositions n Chemistry: Molecular Biology and Microbiology n Drug, Bio-affecting and Bodytreating compositions n Organic compounds: part of the Class 532 – 570 series n Organic compounds: part of the Class 532 – 570 series n Catalyst, Solid Sorbent, or Support: Product / Process n Organic Compounds – Part of the Class 532-570 series
n n

Cumulative patents (1995 –1999)
31 26 25 20 14 10 8 7 7 7 6 6 5 5 5 182 134 316
Source: US PTO (2000) KPMG. 2003.

IT and Electronics
For example: - VLSI design - Photonics - Robotics and AI

Electronic digital logic circuitry

Pharma & Biotech
For example: - Clinical research - Bio informatics - Gene sequencing

Synthetic Resins or Natural Rubbers –Class 520 series n Chemistry of Hydrocarbon compounds n Plastic and Non-metallic Article Shaping and T reating: Process n Cleaning compositions for solid surfaces and process to make n Organic Compounds – Part of the Class 532-570 series n Organic Compounds – Part of the Class 532-570 series n Prosthesis, parts or Aids and Accessories

Engineering and Design
For example, - Materials research - Stress testing methodologies - Transportation systems

Total patents across above 15 classes Others Total patents across technology classes

The past few years has witnessed an increase in R&D sourcing from India in the areas of IT, Pharmaceuticals/Biotechnology and Engineering and Design Services. In all, a total of 316 patents were filed from India in the period 1995-99 with a 132 of them being in the 15 classes mentioned in the table above. Over 50 patents were filed in the areas of molecular biology, micro-biology and drug, bio-affecting and body-treating compositions.

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. . . and India could leverage these strengths into specific opportunities that promise growth . . .
Market potential Biotechnology /Bioinformatics
Indian bio-informatics market expected to exceed USD 2 bn by 2008 n Market for Indian biotech R&D products and services expected to be USD 3 bn by 2010
n

Key skills required

Illustrative

Molecular biology, DNA sequencing and RNA transcription Molecular biology software packages and molecular modeling n Java, Unix, C, C++ and RDBMS like Oracle or Sybase
n n

Embedded systems

n

R&D activity in India expected to go upto USD 1.5 bn by 2004-05

Embedded system tools such as Micro-controllers, DSPs, FPGAs Design of embedded hardware and software n Real-time programming skills
n n

VLSI/chip design

n

Expected to be a USD 808 mn industry in India by 2005

Basic electronics,digital electronics, micro-processor and micro-computer knowledge VLSI design, circuit layout/design, verification and logic design n Supporting tools such as V erilog,HDL,VHDL and FPGA
n n

Information security

Worldwide demand for information security services expected to reach USD 23.6 bn by 2006. n India market growing at CAGR of 27-30 per cent
n

Cryptography, AAA framework, software security and reliability, network security, secure operating systems, application security, design if security policies, disaster recovery, biometrics and security auditing n Certified Information Systems Auditor (CISA) and Certified Information Systems Security Professional (CISSP)
n

Source: Press reports. IDC. NASSCOM. KPMG. 2003- 2004.

India’s strengths in the areas of IT Pharmaceuticals/Biotechnology and Engineering and , Design Services can be leveraged to a large extent. There are significant market opportunities in specific knowledge domains like embedded systems and VLSI/chip design. For example, if India taps into the growing demand for embedded software, R&D activity in India can go upto USD 1.5 bn by 200405. Similarly, Information Security is another area where companies require significant R&D services in network security, cryptography etc.The Indian market is growing at a rate of almost 30 per cent and is expected to develop even further.

50

(continued) . . . and India could leverage these strengths into specific opportunities that promise growth . . .
Market potential Highperformance computing
n n

Key skills required
PC hardware and software knowledge and troubleshooting Linux operating systems and administration, routing and network analysis n C++, development tools and parallel programming n Security administration and computer security forensics
n

Illustrative

Expected to be a USD 1.6 bn market in India by 2005

Wireless applications

n

Worldwide demand for wireless and mobile applications expected to be USD 37 bn by 2006 .4

J2ME, wireless messaging API, Micro Java and MIME C++ on pocket PC, Brew, Symbian n TCP/IP HTTP POP3, XML protocols , , n Knowledge of various industry standards
n n

Nanotechnology

n

Global market expected to touch USD 1 trillion over next 10 years

Chemistry, electrical engineering, materials, biophysics, physics and maths Molecular electronics, nano-particle manufacture, quantum computers and scanning probe microscopy n Knowledge of semiconductor technologies, magnetic materials, nano-structured materials, electronic and photonic devices
n n

Digital signal processing

n

Global market expected to touch USD 19 bn by 2004

Fundamentals like convolution, DFT FFT, Spectrum analysis etc. , ‘C’ , C++ programming n MATLAB and other tools for design and analysis of DSP algorithms
n n

Source: Press reports. IDC. NASSCOM. KPMG. 2003.

India has also made significant progress in the areas of high-performance computing and wireless applications. These are expected to propel further growth in the IT economy. Nano-technology is an area that is increasingly receiving emphasis in the scientific efforts of many countries.The reason being that it finds use in a number of products and applications (consumer durables, medicine, semiconductors etc). However, the key to converting the advantage to significant revenue potential in these areas is to develop the requisite skilled manpower. Some of these specific skills required in each area have been mentioned.

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Going forward, R&D focus should be on those opportunities that leverage India’s strengths to meet market requirements . . .
Illustrative
High
n n n n

Water resource management Energy efficiency and management GIS applications Dairy products research Industrial applications such as robotics,AI and mechatronics Disaster forecasting and management

n n n

Nano-technology Micro-electronics and photonics Bio-technology and crop / seed development

n n n

Bio-informatics Embedded systems and software VLSI and chip design

Benefits expected from R&D - Economic benefit - Social benefit - Environmental benefit

n

n n n

n

High performance and advanced computing Multilingual technologies Digital signal processing

n n n

Network communicationwireline and wireless Information security Consumer electronics and capital equipment

n n

Low Low

n

Strategic and professional electronics Transportation technology Materials and components

n n

Clinical drug trials Auto component design

India’s key strengths - Human resources - Infrastructure - Industry interface / exposure

High

Potential areas for Indian R&D focus

Source: Industry interactions. Department of IT. KPMG. 2003-2004.

. . . these could be reviewed over specific intervals ( 2-3 years) in order to revise and refine

Given India’s strengths in the form of availability of human resources, training infrastructure and past experience / background as well as the potential for direct benefit (economic as well as other) to India, we have identified an illustrative list of opportunities towards which Indian R&D efforts could be directed. Certain areas like bio-informatics, embedded systems and VLSI/chip design should be immediately focused upon since they pose long-term benefits (to the economy,society and environment). Moreover, India also has inherent strengths in terms of human resources, infrastructure and industry exposure to realize these benefits. Policy makers should also review these focus areas every 2-3 years in order to take stock of the benefits accrued and progress made. New areas of development should be studied and made part of the long-term agenda.

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The current approach to attracting and deploying manpower for high-end R&D has had some shortcomings . . .
Current low attraction of highly-qualified personnel towards R&D . . .
n

Low base of PhDs in R&D - Total Ph.D.s (1996):

16,839

n

Low enthusiasm of higher educated staff into R&D activities - Sci. / T ech. graduate base (1996) in PhD: 8.2 per 10000 - Approximate Ph.D. candidates p.a. (2003): 5,000 - Share going into teaching / research: approx. 37 - 40 per cent Low growth in R&D staff - CAGR (1988 – 98) for total R&D staff: - CAGR (1988 – 98) for core R&D staff:

n

0.7 per cent - 0.1 per cent

. . . with little improvement in staffing mix for productivity in the last decade
Total R&D personnel 1992: 0.29 million 32 per cent 1998: 0.31 million 31 per cent

Core R&D staff

Aux. support

Admin. support

Source: Press reports. Institute of Applied Manpower Research. KPMG. 2003.

. . . increased presence of the private sector in R&D could drive more effective manpower development and deployment

A review indicates that R&D activities in India did not attract the highly skilled personnel. In comparison to the figure of 8.2 per 10,000 skilled personnel involved in R&D activities in India, Singapore has a ratio of 56 per 10,000 skilled personnel in 1996. A large proportion of R&D staff are not involved in R&D activities and instead end-up supporting administrative functions. While R&D activities in India in the past were primarily driven by government and educational institutions, there is increasing participation of the private sector (Indian companies and MNCs) in R&D activities. For example, out of the 50 research scientists deployed by one of the leading multinational pharmaceutical companies at its R&D center in Bangalore, 45 are Indian scientists who have returned back to the country leaving similar overseas employment. Many MNCs have started leveraging capabilities and competencies offered by Indian educational institutions. The effect of such sourcing on the educational institutions has been manifold - increased enthusiasm in conducting research in cutting edge areas, renewed interest in R&D activities due to the economic benefits etc. Going forward, the government could play the role of a facilitator as against the principal initiator of R&D activities, to foster strength and interest of highly skilled personnel in the R&D sector in India.

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The new Science & Technology Policy (2003) has indicated some potential steps towards meeting manpower requirements for R&D . . .
Raising R&D interest
n

Suggested actions for HRD for R&D

Providing curriculum changes, career progression options, fiscal incentives to enhance R&D aptitude and raise conversion factor from current 8 per cent (60 per cent in Singapore,16 per cent in South Africa)

Attracting R&D staff of Indian origin

n

Providing lifestyle incentives to attract Science and Engineering graduates from other countries (approx. 12.5 per cent of those in the US in 2000 were people of Indian origin)

Attracting resources from industry / academia

n

Staff from industry and academia need to be rotated to support resource requirements as well as benefit R&D productivity through increased exposure and part-time involvement

Attracting women into R&D

n

Need for special incentives / work culture to attract more women into R&D (only 11 per cent of R&D staff are women although 20 – 25 per cent of Science & Engineering graduates are women)
Source: Ministry of HRD. Science & T echnology Policy (2003). KPMG. 2003.

. . . but these need to be elaborated upon and implemented through a comprehensive action plan

The government as identified policy initiatives related to improving interest in the R&D area but these need to be supported by specific actions related to funding, infrastructure / institutional support and monitoring mechanisms. For example, the current process of plan / non-plan funding may not be relevant in the context of R&D investments and could be changed based on practices in other countries. Finland uses the concept of Centers of Excellence, where funding for research as well as research related training is provided as a unit for a period of six years. In Germany, the 16 public, non-university labs were re-organized under the common Helmholtz Association and funding was provided based on ex-ante review on a program / project basis. Recommendations on specific actions required are provided separately in detail (ToR VIII).

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The US provides a good case study of successfully promoting R&D through a mix of policy, investments and infrastructure initiatives . . .
Case study: R&D in US
The US’ success in R&D . . .
298 patents per million residents (1999) 2.7 per cent of GDP spent on R&D (1996 – 2000) n 4,099 scientists and engineers in R&D per million people (1996 – 2000)
n n

. . . is based on an overall strategy encompassing HRD and other initiatives . . .
Policy initiatives
-

Note: Corresponding figures for India were: 1 patent per million residents 1.2 per cent of GDP on R&D 157 scientists / engineers in R&D per million people

Use of federal body to co-ordinate and balance R&D efforts, funding Balancing market forces against social considerations (i.e. reliance on research institution rankings) for R&D resource allocation Streamlining of funding administration through co-operation and simplification (Federal Demonstration Partnership) Investments in ‘education centers’, ‘centers of excellence’ and ‘quality of life’ related facilities to attract R&D resources from across the world Support and encouragement to corporate philanthropy to fund research (e.g. Carnegie, Hewlett and Gates Foundations) Invested in intermediate research funding level (funding to fund R&D) Attracting greater proportion of graduates to R&D by marking grant / scholarship levels against alternative employment prospects Use of professional networks to increase awareness and guide enrolment across the K-12 level based on future R&D requirements No mandatory age for retirement of academics (and hence R&D staff) Industry role in R&D much greater than government involvement Most of government investment in R&D channeled through Universitybased R&D Rotation of staff to ensure strong relevance of R&D on industry and global economic requirements and constraints
Source: UNDP-HRD. OECD Case Studies. KPMG. 2003.

Infrastructure initiatives

-

HRD initiatives

-

Industry / Academia involvement

-

The US has been extremely successful in its approach to R&D, driven by a mix of policy, infrastructure and development initiatives. It is a benchmark model that India should follow in order to develop a successful R&D programme. The entire system is well organized to promote regular interaction between the government bodies, industry as well as universities. As a matter of fact, some of the best research endeavours in the US take place in the universities through privately funded programmes. Scientists and faculty get tremendous exposure to the latest technologies and initiatives by interacting with peers from other universities as well as countries. Students get good scholarships to pursue research activities. At the same time, private firms take them in on projects and provide the necessary exposure and training.

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The PITAC* chartered by the U.S Congress is one of the many initiatives in place to drive future R&D activities in the US . . .
Case study: R&D in US
Objectives of PITAC
Setting up an Expert Committee
– A Committee represented by eminent scientists, academicians and industry professionals – The objectives of the Committee are to recommend key focus areas and funding necessities and to provide an external perspective rather than an internal resource based perspective

Defining National Challenges and Transform ations required
– R&D activity to be based upon top issues faced by the country and people – Identification of needs, the challenges faced, and the benefits to the society will determine the key focus areas of technology

Defining the Government’s role in R&D

Recommendations of Committee to the Government

n

To provide the President and the Federal agencies involved in information technology research and development (IT R&D) with expert, independent advice on maintaining America's preeminence in advanced information technologies To focus on critical elements of the national infrastructure as high performance computing, large-scale networking, and high assurance software and systems design To review the Federal Networking and IT R&D program To help guide the administration's efforts to accelerate the development and adoption of information technologies vital for American prosperity in the 21st century

– Defining the areas where the – The recommendations were government will provide related to: support to IT R&D activity – Amount of government based on Phase 2 results funding required for – Defining the areas that the focus areas of R&D Government will not – Channelization of undertake and leave to funding-based on Phase industry players 2 and Phase 3 results – Completeness of R&D portfolio

n

Areas of Focus recommended by PITAC
Scalable Information Structure § Network Research § Large Scale systems and applications High-end Computing § High-end software § Architectures § High-end acquisitions Socio-economic research § Transformation of social institutions § Governance § E-commerce research § Social and economic simulation and modeling

n

Software § Software engineering § Component Technologies § Humancomputer interaction § Information Management

n

* President’s Information Technolo Advisory Committee gy

The PITAC is the advisory committee that guides state funding for new R&D opportunities in the US. Its role is to guide the R&D activities of the various support agencies in the area of IT R&D and provide the White House with strategic inputs on focus areas for the future. The committee on the PITAC is represented by a right balance of industry experts, scientists and government officials. The role of the committee is to identify the needs and challenges faced by the American society, define the government’s role in solving these issues (while also identifying the role of the private sector) and make recommendations on funding requirements for the R&D areas that will resolve these challenges.

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Other countries have taken specific, structured steps to promote HRD for their planned R&D requirements . . .
HRD strategy for R&D Feeding the supply pipeline
n n

Illustrative
Case examples

Overall agenda for R&D
n

Increasing / encouraging overall funding (public + private) for R&D Putting available research funds to optimal use Directing research efforts into priority areas Improving research capabilities of institutions / industry Developing evaluation structures and processes for institutions, related to R&D Making best provisions for future supply of quality researchers Strengthening the international R&D links Adapting to meet resource requirements
n n

Improve interest in R&D related courses through: - Curriculum improvements - Increasing supply of teachers - Increased funding for PhDs

Finland’s LUMA program (since 1996) has helped improve science / mathematical knowledge within teaching fraternity at a national level by adding to teaching tools, materials and through free training Sweden, despite huge base of R&D staff has set aside EUR 12 million to attract young researchers The ATHENA project (UK) is addressing women’s under-representation in higher edu. employment The US and Australia have systematically grown the share of non-tenured, temporary staff in R&D In 2001. Swede passed a law to alleviate tax n burden on highly-skilled foreign workers upto 5 yrs. Australia is extending immigration opportunities to 2,500 Australia-educated overseas students The US national academy has recommended changes to PhD curriculum to facilitate employment The NSERC in Canada encourages industry involvement through co-funding of fellowships Since 1990, Netherlands has supported special ‘graduate schools’ focused on high-quality research

n

n

n

n

Attracting women and underrepresented minorities through: - Incentives - Part-time options Attracting talent from abroad through: - Educational centers of excellence - Administrative / Fiscal incentives

n

n

n

n

n

n

n

n

n

Increasing industry involvement in Ph.D. training through: - Curriculum changes - Co-funding - Industry / academia involvement

n

n

Source: UNDP-HRD. OECD Best Practices. KPMG. 2003.

Efficiency in public sector R&D

n

Improving public sector R&D efficiency through: - Private sector partnerships - Process / systems revamp

n

Most other countries have managed significant private sector involvement and process automation to ensure reduced administration costs

A review of specific efforts being made in other countries to develop and encourage human resources in the knowledge space shows a structured approach involving attracting more talent, driving curricular changes to meet employment requirements and managing R&D activity more efficiently. Some of the Scandinavian countries especially Sweden and Finland are forerunners in R&D initiatives. Australia and Canada are also carrying out significant work in science and technology. Most of the efforts are directed towards curriculum improvements, better supply of competent teachers, incentives to industry involvement and improving public sector R&D efficiency.

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Design of standards and common test for ITeS skills based on industry requirements
This chapter discusses potential options to design and use a common test for ITeS skills. It also provides a case example of attempts at common tests for ITeS being tried out in various states. A centralized common test and certification for IT skills offers eS a number of benefits for the ITeS industry . . .

Benefits of certification test for ITeS

n

More effective hit ratios for recruitment and selection as compared to 2–5 : 100 as currently

Reduced recruitment costs
n

Lower time for recruitment screening with standard certification

Reduced training costs

n

Lower training time required for certified skill-sets at a common level, leading to reduced trainer and other overhead costs

n

Certified skills could be deployed faster into client service operations Attrition rates could be higher given that agents would have invested in training for ITeS as at least a mid -term career option

Higher agent productivity

n

. . . however a completely common testing model may not be possible given the diversity of skills required for the IT / IT sectors eS

Having a common test could benefit the ITeS / IT industry in terms of reduced recruitment costs, reduced training costs and higher productivity brought about by the process of specialized certification. However, as discussed, different functions within ITeS / IT may lay greater stress on specific skills and qualifications, thereby making a common test difficult to develop and administer. In this context, it is better to consider a common test for necessary skills as a precertification for employment. The test could also be used to identify specific training requirements or even counseling against entry into ITeS / IT.

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High-level estimates suggest that a pre-certification of core skills could save as much as 19-23 per cent of relevant costs . . .
Illustrative
Savings in agent recruitment costs for ITeS company INR / agent
Current estimates

Savings in agent training costs for ITeS company INR / agent

11,250

Current estimates

6,400

Revised estimates

8,700 23 per cent reduction

Revised estimates

5,200

19 per cent reduction

Key assumptions: 1. Costs shown as loaded cost for an ITeS company for a 500 agent call center company in Delhi / Gurgaon with growth estimates of 30 per cent and targeted attrition of 30 per cent 2. Recruitment channel costs assumed to be INR7 ,000 (1 month salary at agent level) 3. Recruitment executive and trainer costs assumed as INR 17 ,000 – 20,000 per month 4. Overhead costs associated with executives assumed as 2 – 3 x salary costs 5. Standard training time assumed as 40 hours for voice/accent, 40 hours for soft skills under a class size of 10 - 15
Source: Industry interactions. KPMG. 2003-2004.

. . . this is in addition to benefits associated with higher employee productivity as mentioned

High-level estimates suggest that an ITeS / IT could save as much as 19–23 per cent of relevant costs associated with recruitment and training through the use of a common, certification test that could be used as a pre-screening tool for potential applicants. While training costs for an ITeS company could come down from INR 6400 to INR 5200, recruitment costs could come down from an average of INR 11250 to INR 8700. The assumptions for these calculations have been stated in the exhibit above.

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The ITeS industry has already identified alternative certification for domain-specific skills . . .
Examples: Resourcing for high-end IT in India eS
-

‘Proxy’ filters used for high-end work

MCSE / CCNE certified IT staff

Use of Microsoft Certified Software Engineers and Cisco Certified Network Engineers for IT help-desk requirements

E.g.: - IT help-desk - Network equipment support - Application support

Doctors / Genetic Engineers

-

Use of qualified doctors / pharmacists for transcription Use of genetic engineers / PhDs for research support

E.g.: - Special coding for claims adjudication - Genetic research

Chartered Accountants

-

Use of ICAI certified chartered accountants for back-end accounting and financial statement / tax preparations

E.g.: - Finance processing and Accounting - Tax preparation and Accounting

Masters in Business Administration

-

Use of second-tier MBA graduates for back-end research, economic research, presentation preparation and special filings

E.g.: - IPR filings - Macro-economic research - Equity research
Source: Press reports. Industry interactions. KPMG. 2003-2004.

. . . but lacks a common certification for the basic skills requirement

Companies in the ITeS industry have been able to use alternative certification from specialized post-graduate courses in lieu of their requirements for domain-specific testing. For example, the ITeS industry is employing qualified chartered accountants for backend accounting operations as well financial statement preparation and analysis. However, the industry lacks a common certification for the basic skills requirement and ends up spending an additional amount related to screening and training.

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Components of the common testing system could be modeled upon some existing standard and proven testing methods . . .
Ease of testing Language Skills Spoken English Written English Foreign Languages Accent Understanding Basic skills Analytical Skills Logical reasoning Problem Solving / Num. ability
n n n n n n

Illustrative
Standard tests on which specific components could be modeled

Nature of testing

Will measure fluency, clarity, quality of speech and intonations Will measure fluency, vocabulary, sentence construction Ability to speak and write foreign languages Ability to comprehend and respond to various accents

n

Tests such as theTOEFL® (Test of English as a Foreign Language), TSE® (Test of Spoken English), IELTS® (International English Language T esting)

Objective reasoning type of items consisting of numerical ability problems, syllogisms, analogies, logic games etc. Assessment of creative pursuits and review of performance under specific problems

n

Aptitude tests such as the DA ® T (Differential Aptitude Test)

n

Comprehension / Creativity Computer proficiency Keyboard skills / Browsing etc. Technical / programming skills Customer Service Orientation Listening / empathy Initiative/Enthusiasm Team Player Candidate profile Multitasking / Time management Behavioral traits Assertiveness and Confidence Integrity / values and discipline Motivation / Drive Sociability / Dependability / Reliability
Note: Easy to test Testing possible under constraints Difficult to test
n n n

Objective tests for these skills such as The Guilford Creativity T est ®

On-line practice test involving speed of response, accuracy and PC applications usage Structured paper tests for problem-solving, syntax/structure etc.

n n

Standard computer typing tests Standard programming problems tests

n

n

Can be measured using situational, simulated exercises

Behavioral skills are best measured using simulation exercises.

n

Standard personality measures such as the 16PF MBTI (Myers -Brigg Type Indicator), , EPQ ® (Eysenck Personality Questionnaire)

Will consist of standard personality measurement type items

Source: Industry / Academia interactions. KPMG. 2003-2004.

Some of the common skills necessary for ITeS could be tested using a mix of questions / situations and these could be modeled upon existing standard / proven testing methods. For example, the TOEFL (Test of English as a Foreign Language) and TSE (Test of Spoken English) have become internationally recognized and accepted as tests for fluency, vocabulary and comprehension in English. The common test for ITeS could be modeled upon the testing philosophy and approach of these examinations. Various existing common entrance tests (Management Entrance, Clerks’ Entrance, IAS, CAT etc.) could also be used to design the test, along with inputs from industry practitioners in the non-formal ITeS / IT training system (e.g. Aptech, NIIT).

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The common test for ITeS should be designed to meet the basic skills requirement of the industry . . .
Indian ITeS Certification Test (IICT)
Objective measure of the candidates aptitude (inherent abilities) and not educational achievement. n Computer adaptive test pattern providing a consolidated score on each section
n n n

ITeS Domain Tests (ITDT)
Objective measure in various key domain areas Paper pencil tests that will be developed into a computer adaptive pattern over the next two years n Students can take as many domain specific test as desired

Overall philosophy for ITeS test design

Nature of test and delivery

Frequency of administration

Will be available for administration at authorized testing centers around the country n Can be accessed and taken during specific periods during a month / quarter
n

n

Paper pencil tests will be available for administration over six months. Testing agency may tie up with educational institutions to use their infrastructure to conduct large scale group testing

Period of validity of scores

Score will be valid for a period of six months as industry standards and requirements are fast changing and the test will be required to be constantly revalidated n Once employed, the test need not be taken again.
n

Score will be valid for a longer period, of 10 - 12 months n Once employed, the test need not be taken again.
n

Standardization and Norming

Standardization and norming processes must be well established n Score reports will provide individuals score along with a comparative percentile rank for the last six months.
n

Standardization and norming processes must be well established n Test content must be created with inputs from the industry in terms of content and proficiency levels
n Source: Industry / Academia interactions. KPMG. 2003 - 2004.

The overall philosophy of designing the common test involves an understanding of how the test would be administered, the frequency of administration, period of validity for the scores and standardization / norming processes to be adopted. The Indian ITeS Certification Test (IICT) would be a computer adaptive pattern test that measures the aptitude of candidates. Details of the employment of the test have been illustrated above. Testing for domain-specific skills would require a separate set-up. These could be called ITeS Domain Tests (ITDT), and could be better managed by individual business-specific tests, depending on their specific function requirements. Details of the employment of the test have been illustrated above.

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A hybrid model with a base-level common testing and certification supported by company-specific requirements is more suitable . . .
Indian ITeS Certification Test (IICT)

Illustrative

Company-specific tests

L1: Basic Skills n Language skills n Analytical skills n Computer proficiency

L2: Candidate Profile n Customer service orientation n Basic personality

ITeS Domain Test (IDT)
n

Certified Employable at L1

Domain specific testing related to, for example: - Finance / Accounting / Insurance - Pharma / Healthcare - Design - HR - Legal

n n

n

Structured interviews Problem-solving (paper-pencil) tests Situational tests / workshops

ITeS training Certified Trainable at L1
n

Certified NonTrainable at L1
Note: IICT and even IDT would be common tests under a body that is recognized by the government and accepted by the industry

Training for ITeS skills under formal or non-formal systems

Denotes required test Denotes optional test

Source: Industry-academia interactions. Department of IT. KPMG. 2003-2004.

A common test in the form of the ‘Indian ITeS Certification Test‘ (IICT) could help certify basic skill levels required for ITeS (L1), related to language capabilities, analytical abilities and computer proficiency as well as candidate profile characteristics (L2) such as orientation for customer service and basic personality traits. The certification mechanism could even classify applicants based on performance on each of the parameters chosen as employable, trainable or non-trainable. Personnel with L1 certification as employable could join the industry directly or after undergoing L2 and IDT certifications if required specifically by employers. Personnel with L1 certification as trainable would undergo training at their own or company-sponsored expense before they are deployed into ITeS. Personnel with L1 certification as non-trainable could be counseled against applying for ITeS jobs and seek alternative opportunities.

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Results of the test could categorize potential applicants into specific categories to also identify training requirements . . .

Illustrative

Employable:

Scoring System (for L1 under IICT)

Those scoring above pre-determined score in L1 test could be certified as employable under the IICT n These personnel can appear for L2 test, if required and could also apply to specific companies with their certificates and may / may not have to undergo the domain-specific test (IDT), depending on employer preferences
n

Trainable:

Non-Trainable
0

Trainable
Score Range

Employable
100

Those scoring above the minimum requirements but less than the pre-determined score could be signaled as ‘trainable’ for ITeS n These personnel may not be eligible for L2 test until they are certified as ‘employable’ under L1 but may be hired by companies willing to invest in their training
n

Non-trainable:

Those scoring below the minimum requirements may be signaled as ‘non -trainable’ for ITeS n These personnel may not appear for L2 certification test and may be counseled against an ITeS career without first improving upon basic skills required
n

Source: Industry / Academia interactions. KPMG. 2003-2004.

Categorization of Employable / Trainable / Non-trainable categories could be based on a normalized score with agreed cut-offs that may be tuned based on industry demands. Those that are ‘Employable’ may not necessarily have to appear for the ITDT. However, that would be determined by the specific requirements of the companies. They can further enhance their employability by taking the L2 test as well. Those in the ‘Trainable’ category would need to clear the L1 test and become ‘Employable’ before they can be considered eligible for the L2 test. However, in some cases, where companies have large training budgets, they may even get hired. ‘Non-trainable’ people would need to review their basic skills before considering ITeS as a feasible career option. A strong counseling system would need to be in place in order to guide such people. Thus, this system would ensure quality control for the industry when it comes to recruitment.

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The state of Andhra Pradesh is experimenting with such centralized testing and certification under its Graduate Employability Test (‘GET’) . . . Case study: Andhra Pradesh
n

Policy and legal framework

n

n

The state government instituted the GET / IITeST as an ‘employability test’ following an 1 -week 1 training program related to voice skills The course content has been designed by various non-formal, private-sector education service providers in association with Linguaphone (UK) and Monster.com (India) The test is not mandatory and the scores are shared with leading ITeS companies in the state

Funding and budgetary allocation

n

The GET / IITeST is subsidized by the state government to the extent of 50 per cent and applicants need to pay a fee of only INR 100 for each administration

Infrastructure and institutional set-up

n

The GET / IITeST is administered on-line, at facilities of various training and testing partners of the state government (e.g. NIIT, Aptech, Hero MindMine)

n

Monitoring systems

The state government has identified the APSCHE (State Council for Higher Education) as responsible for execution of the GET / IITeST and uses its own marketing body (APFIRST) to generate awareness about the test

Source: Press reports. KPMG. 2003.

The Government of Andhra Pradesh has already initiated pilots to review and certify specific skills for the ITeS industry and has reported some success. It has introduced a Graduate Employability Test that specifically caters to certification for the ITeS / IT industry. It is administered online and is offered at various training and testing centers. Learning from the experiment could be used to drive the roll-out of a nation-wide certification test as planned.

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. . as is the Government of Karnataka with its BPO Skills Assessment Test (BSAT) . . .

Case study: Karnataka

Policy and legal framework

n

n

The BSAT measures generic skills related to verbal, numerical and analytical abilities in addition to communication skills (written and oral) as well as key-board skills The test is not mandatory and the scores are shared with ITeS companies, if desired by applicant

Funding and budgetary allocation

n

The total cost for the test is INR 200 and the ‘Board for IT Education Standards’ (BITES) contributes around INR 100 for every eligible candidate, providing a 50 per cent benefit

Infrastructure and institutional set-up

n

The BSAT is administered through an identified third-party service provider (MeriTrac) as an on-line test at facilities of other non-formal, private-sector education service providers

Monitoring systems

n

n

The BSAT is administered by the BITES, registered under the state government as a non-profit society, in co-operation with the local IT industry and other educational institutions MeriTrac, an independent local firm, has been identified as the assessment partner for the BSAT
Source: Press reports. KPMG. 2003.

The Government of Karnataka has introduced an aptitude test called the BPO-SAT or BSAT to measure verbal and analytical skills. A private company has assisted the government in designing the test and is also helping out in the assessment of candidates. However, currently the test is not mandatory and the scores are only revealed to ITeS companies if the candidate desires so at the time of application. While being a good source of revenue to the government, it also provides the necessary confidence to companies at the time of recruitment.

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Measures for optimizing deployment of non-IT personnel in ITeS and R&D
This chapter highlights the potential resource available in the form of non-IT / nonemployed personnel. It also looks at the possible actions required to attract and deploy these personnel into ITeS / IT .

Non-IT personnel represent a significant proportion of India’s resource pool . . .
Manpower profile of graduate employees in India (2001–02)
(000s)
2,500

2,356

2,000

825

Of total annual graduate output 35 per cent is nonemployed

1,500

91

36

32

Of total annual graduate output 58 per cent is in nonIT work and some of these could be attracted based on demands in the other sectors

1,000

1,372
500

0 Annual Graduate output Graduates not participating in the work-force Engineers (Deg./Dip.) in IT Other Engineers entering into IT Other Graduates entering into IT Graduates in the work-force in nonIT areas

Source: Institute of Applied Manpower Research (2002). Press reports. NASSCOM. KPMG. 2003–2004.

. . . these could potentially be trained for and attracted into the IT and R&D eS occupations

As much as 93 per cent of annual graduates in India prefer to join non-IT related work or prefer to be non-employed (i.e. opt out of work-force participation due to social or other factors). For example, in 2002, out of the total 2.4 million graduates, 0.9 million opted out of the work-force (higher share for women as compared to men) while around 1.4 million joined non-IT jobs.

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Personnel entering the work-force have a number of potential employment options based on their qualifications . . .
n

Illustrative

B.A. B.Sc. B.Com. LLB. B.Ed. B.Pharm. B.E. / B.Tech. / B.Arch. B.M.M. (Mass Media) B.C.A. (Comp Appln) Armed Force (Officers) Finance / Banking HR Travel & T ourism Design Hotel Mgmt / Catering Sales & Marketing Secretarial ICWA CA M.A./ M.Sc./ M.Comm. M.B.A. PhD. / Doctorate

n n n n n n n n n n

Journalism, Market Research, Social work, Administration, Sales, Airline Services Market Research, Social work, Administration, Sales, Airline Ser vices, Med. Reps. Sales, Accounting & Book-keeping, Airline Services Legal research, Corporate law, Administration, Practicing law Teaching, Social work Clinical research, Medical Representatives, Chemists IT, Product testing / design, R&D, Sales Journalism, Advertising, Digital Content, Market Research IT Teaching, Social work, Administration / Security services - Function specific role (officer / supervisor / executive) - Function specific role (officer / supervisor / executive) - Function specific role (officer / supervisor / executive) - Function specific role (officer / supervisor / executive) - Function specific role (officer / supervisor / executive) - Function specific role (officer / supervisor / executive) - Function specific role (officer / supervisor / executive) - Function specific role (officer / supervisor / executive) - Function specific role (officer / supervisor / executive)

Graduation

n n n n n n n n n

Post-graduate Diploma / Courses

n n n n n n n n n

Postgraduation / Masters

n n n

n n n

High-end expert role in specific area (e.g. VLSI design, Library services) Managerial / Advisory role (e.g. HR, Operations, Finance. Strategy) Expert role and R&D work in specific area (e.g. Bio-informatics)
Source: Press reports. Interaction with industry and academia. KPMG. 2003-2004.

Graduates preferring to join non-IT work have a number of options available to them, based on their specific background. This has been highlighted in the table above. Specialized post-graduate diploma courses narrow down the employment options to some preferred sectors. For example, a Ph.D. or Doctorate course necessitates employment as an expert in a very specific area. At the same time, a course like B.Com. (graduation in commerce) opens up careers in sales, accounting and book-keeping, equity research and analysis etc.

68

Graduates have specific opportunities in the ITeS/ IT sector . . .
Data entry / Back-office processing Data Data Doc. Proc. entry Mgmt.
B.A. B.Sc. B.Com. LLB. B.Ed. B.Pharm. B.E. / B.T ech. / B.Arch. B.M.M. (Mass Media) B.C.A. (Comp Appln) Armed Force (Officers) Finance / Banking HR Travel & T ourism Design Hotel Mgmt / Catering Sales & Marketing Secretarial ICWA CA M.A. / M.Sc. / M.Comm. M.B.A. Ph.D. / Doctorate Note: üü Direct fit with requirements ü Fit into requirements with some specific training / some stretch Customer contact support Cust. Mktg and services Collectn sales Corporate support functions HR Finance IT Knowledge services and Decision support Search and Decision Consult. analyses support and advise

Illustrative
R&D and Development IT and Electr. BioChem Engg. / Pharma Design

üü

üü üü

üü

üü

üü üü

üü üü ü

üü

üü üü üü

ü ü ü üü

ü ü ü ü

ü ü

üü

üü

üü

ü

ü

üü üü

üü üü

ü ü ü

üü üü üü üü

üü

üü

üü

üü üü üü üü üü üü üü üü ü üü üü üü üü üü üü üü üü üü ü üü ü üü üü üü üü üü

üü

ü

üü ü

ü

üü üü üü üü üü üü üü üü üü üü üü üü üü üü üü üü üü üü üü üü üü üü üü üü üü üü üü üü üü üü üü üü ü ü

Source: Press reports. Interaction with industry and academia. KPMG. 2003 - 2004.

Even within ITeS / IT industry, based on the nature of work required and empirical evidence of current practices, some qualifications may be better suited for specific roles / functions. For example, the nature of training for a graduation in education (Bachelor of Education - B.Ed.) enables the person to be better equipped for customer contact support services as compared to a graduation in Commerce (Bachelor of Commerce - B.Comm.), which may be better suited for data entry and processing work. Also, specific qualifications such as Chartered Accountancy could enable a person to be in a better position to support knowledge services related to data modeling and advisory services.

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In addition, there is a large base of people not participating in the labor force directly (i.e. prefer to be non-employed) . . .
Non-employed segments of educated personnel Higher education aspirants
n

Around 7 – 10 per cent of graduates each year opt out of the labor force and continue to study post-graduate / other doctoral courses (another 0.1 per cent go abroad to study) Only 25 – 30 per cent of women graduates in India (compared to 80 – 85 per cent men) participate in the workforce, very often due to family reasons (marriage / social pressures) Personnel with physical disabilities (60 – 75 million) either rely on government subsidized employment opportunities or drop out of labor force due to lack of industry / social support for pursuit of employment

n

Women

Handicapped people

n

Retirees

n

Retired people and people with short-term employment / short-service commissions often find it difficult to get re-employed in other sectors
Source: IndianNGOs.com. Institute of Applied Manpower Research. KPMG. 2003.

Over the years there has been a large base of ‘non-employed’ people, some of which may be interested in re-entering the work-force but may find it difficult to do so due to lack of awareness of opportunities or the capabilities required. A large portion of this base includes women who complete graduation but opt out of work-force participation. Others include handicapped staff, early retirees (especially given the increasing adoption of Voluntary Retirement Scheme – VRS – in most large businesses) and those who opt to continue education.

70

The choice of ITeS / R&D as a profession by these groups of personnel will be driven by their understanding of specific benefits and issues . . .
Illustrative
Financial benefits
n

Issues related to working in ITeS

ITeS employment offers 20 – 50 per cent more salaries, including other benefits related to transportation / food, as compared to other employment options ITeS employment involves significant domain specific training as well as soft skills and voice training opportunities The workplace in most ITeS businesses is more ergonomically designed as compared to other occupations and offers an environment and culture of fun and youth The prominent ITeS companies in India include MNCs or large Indian set-ups and employment offers a global exposure including internal rotation opportunities

Shift working

n

Personnel have often identified late night and inconsistent shift working as the primary reason for leaving the industry Increasingly, agents are found to be complaining of food / digestion and sleep problems, associated with work-related stress Majority of the work in ITeS involves rigorous and often monotonous work with high repetition, which may lead to loss of interest The nature of the operations and need for high agent base implies that the competition for career advancement within the organization is very intense
Source: KPMG. 2003.

Benefits of working in ITeS

Training and skills development

n

Work -related stress

n

Work environment

n

n

Monotony

Global exposure

n

Career progression challenges

n

. . . however, the issues related to IT employment exist in other occupations eS (like nursing / airline services, sales, secretarial work, production) as well

ITeS/ IT as a profession offers some specific benefits and issues which could drive the choice of employment amongst the potential employee base. While ITeS / IT in general offers greater financial benefits in addition to development and growth opportunities, they may involve shift-working and monotonous work. However, these depend on the specific nature of the service provided and the specific HRD policy of the company related to job rotation / promotions. It must, however, be noted that a number of issues related to ITeS are common to other professions like airline services (monotonous), secretarial work (work-related stress) and nursing (night-shifts) and proper counseling could help attract these segments.

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Attracting personnel from these groups of personnel into ITeS will require a structured approach . . .
Positioning Graduates (employed / nonemployed)
n

Illustrative

Generating awareness as a preferred occupation, through: - Career fair representation - Pointed news articles - Youth oriented advertising Generating awareness about flexibility in ITeS, through: - Social group workshops - Articles in women’s mags. - TV advertising Awareness drives and discussion on skills required for ITeS, through: - Rehabilitation / support center workshops Awareness drives and presentation on skills required, through: - Presentations in schools - Teachers’ fora Positioning based on opportunities for challenging work and recognition with world-class working facilities

n n n

Attracting Better structuring of benefits Specialized and on-the-job training opportunities Possibility of foreign travel related to process migration, training or exchange programs Greater control over work-place and work-timing with additional facilities related to child care Special concessions related to family support Provision of special workplace related facilities (ramps / elevators / medical support ) as well as work operation concessions (frequent breaks) Describing (during interactions), the overall workplace environment (culture, flexi-time, youth) as well as financial benefits (salary, other support) Providing salaries comparable / exceeding those in other domestic professions Defining career growth path options

n

n

Retaining Simultaneous higher education affiliations with partial fee support (upto 50 –70 per cent) Cross functional training (Sales, Operations, HR, Quality) and career progression options Simplicity in exit / re-entry into ITeS occupation through sharing of background records and employment history under a central database Flexibility in minimum working hour requirements Subsidies and support related to extended leave under medical considerations Foreign travel opportunity Career progressions options including foreign placements for teaching

Housewives

n

n

n

n

Handicapped / Disabled

n

n

n n

Teachers

n

n

n n

Professional / Technical personnel

n

n

n n

n

Interactions with global client / peer group Job rotation and content enrichment
Source: KPMG. 2003 - 2004.

Specific actions would be required to position ITeS as a favorable employment option, attract the right kind of talent and retain selected staff from across the different target categories. This may require changes in policy and incentives provided to relevant companies, infrastructure made available and a monitoring mechanism to review success of companies with these categories. For example, to attract housewives into the workforce, especially for ITeS, there needs to be an awareness drive managed through the relevant channels such as social groups and TV advertising, This must be supported by specific incentives related to flexi-time and availability of day-care / creches to meet the specific requirements of this category of potential employees. Similarly, special efforts are required to attract high-end professionals such as actuaries, trained lawyers, management graduates and Ph.D.s for specific high-end support work required.

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Some companies in India that have experimented with such an approach are already realizing its benefits . . .
Case studies: Attracting non-IT personnel into ITeS Typical benefits to organization
Attracting ‘nonemployed’ people into ITeS / R&D III party service provider in NCR n Developed relations with resettlement boards of the Army and Air Force to recruit retiring personnel n Employs retired school teachers and housewives as agents / support staff n Planning to employ handicapped personnel BPO subsidiary of an IT services company n Employs a number of Chartered Accountants / ICWA certified staff for support with tax preparation / filing and account preparation related work VC-funded III party outfit in Mumbai n Action plan to hire handicapped and retired people n Facilities and equipments to meet special requirements of these employee groups n Developing plan to attract housewives for morning / afternoon half-shifts High-end BPO company in NCR n Employs over 180 MBAs from India as well as abroad to support economic / business research services n Also hiring specialized skills to support IPR filing and other legal documentation services One of the largest captive BPOs n Employs scientists and doctoral staff in the John F Welch technology center to focus on R&D support services for group companies world-wide, in the areas of materials, heavy engineering and electronics / medical systems
n

n

Ability to leverage past experience and maturity which reflects in higher productivity and endcustomer empathy Realistic salary and growth expectations for personnel employed Ability to leverage qualifications and certification to meet regulatory as well as work related requirements at lower costs, without additional training

Attracting highly qualified staff into ITeS / R&D

n

Attracting highend PhDs into ITeS / R&D

BPO division of one of the leading IT companies n Employs 10 – 15 Ph.D.s in microbiology / bio-technology to support research requests from clients n Plans to expand this team to build a ‘Knowledge Center’ in India with a database on R&D in biology

n

n

Ability to attract right profile of people at lower costs by offering access to global knowledge base and emerging opportunities Greater loyalty by personnel due to lack of adequate alternative employment options
Source: Press reports. KPMG. 2003-2004.

. . . efforts must be made to broad-base these through government support

Many companies in India have begun utilizing the resource pool mentioned earlier and are slowly bringing about changes in their hiring policies. Some of these companies and their hiring initiatives have been illustrated above. The biggest advantage for companies that have offered employment to some of these categories include higher loyalty of employees at a relatively lower salary cost. Some companies have even been able to leverage past skills and experience to enhance the overall service delivery under ITeS / IT.

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Efforts being considered in other countries suggest action steps for the government and other related bodies in India to attract non-IT personnel into ITeS / R&D . . .
Driving preference to be employed
n

Illustrative

The US and UK have long been practicing employmentconditional benefits under which specific benefits (tax credit, subsidies, access to social support facilities) are made available to individuals / families that are gainfully employed France and Netherlands have encouraged personnel to develop higher skills through reduction in employers’ contribution towards social security (pension) for low-end jobs Austria provides corp. tax deduction for specific training invstmt. Countries like Ireland direct 0.5 per cent of GDP and approx.50 per cent of spending towards labor market development towards targeted employment subsidies (of which 33 per cent is related to employment in the private sector) The US and Canada have combined job-search assistance within training and financial incentives to re-deploy sections of the labor force into specific occupations Significant spending on vocational rehab. for disabled personnel Germany and Netherlands introduced special laws in 2001, to allow greater control over working hours for part-time employment options

n n

Counseling at the graduate level on employment benefits Implementing fiscal incentives / disincentives to drive employment-seeking (esp. women) Highlighting typical skills requirements for various employment options Co-financed educational schemes in association with industry/pvt training centers (upto 70 percent) Mandating special reservations / providing specific subsidies related to employment of under-represented groups

Driving appropriate skill-ing

n

n n

n

Driving employer preferences

n

n

Enabling employment

n

n n

n

Working with industry to redesign labor laws, workplace standards to attract specific groups Co-ordinating efforts by industry to attract nonconventional talent into ITeS through seminars Implementing special requirements in conjunction with the ITeS industry (e.g. flexihours) as well as independently
Source: OECD Employment Outlook. KPMG. 2003.

Special situation support

n

n

Best practice efforts by some OECD countries related to attracting resources to specific employment opportunities suggest that there needs to be a stronger push from the industry side as well as the potential applicant’s side. For example, in the US and Canada job search assistance within training and financial incentives have been combined to re-deploy sections of the labour force into specific occupations. Similarly, in Germany and Netherlands special laws have been introduced to allow greater control over working hours for part-time employment options. Thus, in India, efforts could be made in the areas of policy as well as funding and infrastructure, in order to attract non-IT persons into ITeS / IT employment.

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Fiscal policy measures to maximize private sector participation in HRD for ITeS / IT
This chapter reviews the direct / indirect incentives available within the Indian context. It also looks at possible changes based on practices in other countries to encourage private sector participation and individual preference for higher education related to ITeS / IT.

There are already a number of fiscal incentives in place related to support for HRD in IT / IT . . . eS
n n

Tax rebates for expenses towards children’ education s Shops and Establishment Act has been liberalized to allow for around the clock functioning (subject to certain conditions being met) Commercial training or coaching provided by certain computer coaching / training centers are currently exempt under service tax regulations Certain exemptions from Customs to computers and peripherals donated to educational and research institutions by units under 100 per cent EoUs, STP EPZs , Certain exemptions from Customs for research equipment imported by public-funded and non-commercial research and academic institutions
Source: Government of India. KPMG. 2003-2004.

n

n

n

Note: List of incentives / concessions mentioned is indicative not exhaustive.

A number of fiscal incentives are in place related to labor laws, income tax benefits and location preferences. However, most of these are relevant at the institutional / company level rather than individual. As a result, there is a lack of individual interest and inclination towards spending towards higher education / vocational training. The example of the housing finance industry suggest how tax breaks on housing loan repayments led to massive growth in the housing finance industry – a similar elasticity could be expected if educational expenses including expense on vocational courses were to be given tax breaks.

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A review of OECD countries shows how policy is designed to make investment in tertiary education more attractive . . .
IRR for choice of higher education, per cent Industry appreciation of skills gained Tax on additional income Application lifetime of skills gained Cost of higher education Government / Industry funding support for higher education
Earnings increase Taxes Unemployment risk Tuition fees Funding support Comprehensive benefit 4.7 2.3

United States
18.9

United Kingdom
18.1

Canada
8.4

2.1

0.5

0.9

1.6

1.3

2.7

2.3

2.1

3.6

1.8

14.9

18.5

8.7

Commercial lending rates

1.3

5.1

5.8

Note: Source: OECD Economic Studies (2002). KPMG. 2003-2004. n Methodology Costs involved with higher education include: =T uition fees + Foregone post -tax earnings (adj. for employment prob.) - Resources through grants / loans Benefits from higher education include: = Post-tax earnings (adj. for employment probability) - Repayment associated with public-support grant / loans n Assumptions Full-time employment with no income during study; Course drop -out not considered

. . . different countries have used different mechanisms to ensure that higher education remains an attractive choice for people

If we were to consider countries with a similarity of approach to education as in India (i.e. the US, UK and Canada), analyses by the OECD indicates that higher education leads to cash flows with a positive IRR, greater than the real interest rates (e.g. commercial lending rates) for the respective economies. This suggests that investment in human capital is a more attractive way for an average person to make wealth. Different countries have introduced varied fiscal measures to provide incentives to personal investments in higher education. – For example, in the US, this is driven by the substantial increase in wages possible through higher education – an indirect appreciation of skills gained through education. – In the UK, the high availability of funding support in the form of scholarships / grants etc. makes up for up to 47 per cent of tuition costs involved – an indirect way of the state influencing funding for employment. Funding is available in the form of Career Development Loans for vocational courses. – In Canada, incremental salary from higher education is not substantially high although the risk of unemployment decreases (i.e. term of employment increases) substantially, to provide a net benefit from education.

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Malaysia has made specific efforts at promoting private and personal investments into HRD . . .
Incentives directed at individuals
n

Case study: Malaysia

Incentives directed at institutions / corporates
Double Deduction Incentive for Training (DDIT) - The DDIT scheme (allowing double deduction of training expenditure for tax calculation) between 1988 -1993 was very attractive to MNCs operating in the electronics industry in Malaysia - Since 1993, the scheme has been restricted to small firms (less than 50 employees) and a levy rebate has been offered to larger companies Human Resource Development Fund (HRDF) - HRDF instituted in 1992 as a contribution fund managed by the government and industry, reimbursed against training expenses - Led to increased training expense for almost 50 per cent of those companies registered under the HRDF , especially those in the instrumentation industry
Source: Press reports. KPMG. 2003.

n

Attracting global ICT skills - Income remitted within two years of arrival exempted from tax - Personal effects brought are tax exempt - Owned assets in country of residence (e.g. cars) exempted from import duty and sales tax - Permanent Resident status to close family of applicants within six months from the date of arrival Investing in skills development fund - Skills Development Fund Division to use the fund to provide loans to students in technical / vocational courses - Loans available at nominal administrative charges and long repayment terms

n

n

The Malaysian government believed that the industry in Malaysia spent little on Human Resource Development in the form of education / training. Hence it invested in specific contributory funds as well as instituted specific incentives, at the individual and company level. The table above highlights some of these incentives. The primary objective of these initiatives was to drive greater spend on education and training.

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Philippines have specific fiscal incentives directed towards HRD for the ICT industry . . .
Case study: Philippines Incentives directed at individuals
n

Incentives directed at institutions / corporates
n

ICT scholarship program - Administered by the TESDA for students who pursue careers in ICT sector - Assistance includes tuition fee subsidy for approved courses and up to 50 per cent subsidy for ICT skills certification

Incentives to ICT training institutions - ICT training institutions (formal / non-formal) are eligible for a three-year income tax holiday - Additional incentives are provided in terms of additional deduction of labor expenses (teachers) and unrestricted use of consigned equipment (computers) Private sector involvement - ‘Adopt -a-school’ programs allow generous tax incentives to the private sector in return for technology systems provided to schools
Source: Press reports. KPMG. 2003.

n

The Philippines government has introduced an ICT scholarship scheme for students wanting to pursue a career in information and technology. It has provided incentives in the form of tax holidays to training institutes. There are also additional incentives like unrestricted use of consigned equipment. The private sector has also been provided incentives by taking up socially relevant projects as well as sponsoring the computer classrooms in schools.

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Sweden has been very successful in developing requisite HRD skills for R&D, through special incentives . . .
Incentives directed at individuals
n

Case study: Sweden

Incentives directed at institutions / corporates
n

Financing of competence building - Swedes can open an Individual Learning Account where their investments for training and competence building are matched by state investments and incentives - Adult education under the state schools system is free - Special grants are provided to the unemployed towards higher secondary education

Specialized vocational training - Advanced Vocational Education (AVE) is financed by the Education Administration budget to offer a new form of post-secondary training involving theoretical and practical applications Connectivity support - The state and municipal funds provide limited period support to special computer / education centers to enable connectivity to the Internet
Source: Press reports. KPMG. 2003.

n

Sweden has undertaken initiatives to build the competence of its working population. For example, the state provides support to individuals who are keen on getting trained. It also provides them with incentives to learn. At the institutional level, incentives are provided for specialized vocational training and connectivity support through computers and internet provision. All these initiatives have helped Sweden develop into one of the front-runners in global IT, innovation and R&D.

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There are a number of additional fiscal measures possible to promote personal and private sector involvement in HRD . . .
Illustrative
n n

Tax incentives could be extended to training / coaching activities even under IT related industry. Investments in educational / coaching activities in IT sector could be given incentives by way of tax exemptions / 100 per cent depreciation treatment, etc. Grants/ donations could be made by the government to English speaking colleges / schools to give an impetus to the ITeS industry. Vocational training / coaching in IT related sectors could be made compulsory in colleges with linkages to fiscal directives. Expenses incurred with respect to training and certification for ITeS could be supported through special loans, repayment of which could qualify for individual tax exemption. Allowances received for working late shifts by personnel in the ITES industry could be tax exempt. Special incentives could be provided to women for employment in ITeS / IT sector.
Source: Department of IT. Industry interactions. KPMG. 2003.

n

n

n

n

n

A review of practices in other countries such as Malaysia, Philippines and Sweden, suggests that India could adopt a number of tax-related incentives. The focus should be more so at the individual level, to drive HRD as well as employment preference towards ITeS / IT industry. Detailed recommendations on specific policy initiatives are provided under the Action Plan.

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Comprehensive action plan for HRD in ITeS/IT
This chapter provides suggested recommendations of the Task-force on actions to meet HRD requirements for the ITeS / IT industry. Specific responsibilities have been assigned under each of the recommendations and the overall implementation structure has also been discussed.

Studies in the past have highlighted what drives and inhibits successful implementation . . .
Successful implementation
n

Failure in implementation
n

Agreement on a common agenda and the benefits of achieving it by all the key stakeholders Strong support from influential individuals within the government who can drive the agenda and resolve roadblocks Focused, dedicated leadership and ownership by relevant bureaucrats to drive the process through to conclusion Continuous pressure to achieve planned objectives through reviews and performance criteria

Lack of involvement of all the key stakeholders including ministerial departments, industry and academia Lack of agreement on and acceptance of a common implementation plan and responsibilities Lack of accountability and inability to achieve planned actions by those appointed Lack of continuity and focus / direction by the government

n

n

n

n

n n

Source: BCG-High level Strategic Group. Department of IT 2003. .

. . . actions planned must therefore be supplemented by specific performance monitoring criteria, timeline and responsibilities

Studies in the past have highlighted that implementation of action plans often falls behind targets due to the inability to define a specific group accountable for the implementation. The inability of different groups from across ministry boundaries to work together is another major cause of the failure of such action plans. It is therefore critical to identify the key individuals who would take responsibility for the implementation and be accountable for their actions. Continuous monitoring of progress, supported by strong leadership would be the key to successful implementation.

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Meeting the manpower requirements by 2012 could require a number of actions directed at specific objectives . . .
Illustrative
Number (000s) Estimated gap based on current trends Options to bridge the gap

n n

3,000

Requiring specific fiscal incentives Requiring work environment changes to attract workforce participation

195 605 2,000 549 2,717 1,000 1,367
Requiring greater awareness of ITeS opportunities n Requiring interaction platform between industry and potential employees
n n n

Requiring changes in the curriculum Requiring a pre-certification mechanism for ITeS / IT skills

0
Expected demand (2012) Projected supply at current trends Priority 1: Improving conversion ratio Priority 2: Improving applicants share Priority 3: Increasing workforce participation
Source: Industry interactions. KPMG. 2003.

Note: Calculations are illustrative only and assume that actions are conducted as per priority and the effects are multiplied. Key assumptions include -

1. Increase in pure conversion ration from 25 per cent to appro ximately 35 per cent (adj. for double-counting of repeat applicants) 2. Increase in applicant share from approximately 11 per cent to approximately 1 per cent (adj. for double-counting of repeat applicants) 5 3. Growth in workforce participation from 65 to approximately70 per cent

. . . requiring policy, infrastructure and funding related actions

Bridging the manpower requirement gap for ITeS / IT requires specific actions on a priority basis: – Priority 1: Improve the employment conversion ratio through use of precertification and counseling such that the resources attracted invest in developing / assessing specific skills and are focused on working in ITeS / IT as a career. Priority 2: Use of counseling as well as providing adequate industry awareness building opportunities to attract a greater share of applicants from target employee base. This could be the biggest source of manpower as the ITeS / IT is still concentrated in specific clusters and attracting of talent from other smaller towns has not been utilized to the fullest extent. Priority 3: Expand the workforce pool through specific incentives to drive workforce participation, especially by women and other under-represented groups who otherwise drop-out of the workforce due to social or economic pressures.

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Our framework for overall recommendations for action encompasses the multiple dimensions that can influence manpower development . . .
Attract Educate Certify Deploy

Policy changes / extension required

Policy measures to clarify / guide / enforce

Funding / Fiscal incentives required

Funding allocation and incentives

Infrastructure / institutional support

Infrastructure / facilities and institutional support (formal / nonformal) Monitoring body, frequency and reporting

Monitoring mechanisms required

Generating awareness and preference amongst graduates as well as non-employed

Providing specific skills as part of general / special education

Use of common certification test for basic skills

Involving industry in employing trained and certified resources

We have developed a comprehensive framework to suggest recommendations related to attracting, training, certifying and deploying resources for ITeS / IT industry requirements, on a long-term, sustainable basis. This framework would help define the policy changes, funding requirements, infrastructure /institutional support as well as monitoring mechanism required for the action plan to be successful. Across the education lifecycle, the primary objective would be to generate awareness of ITeS / IT , provide specific skills, certify students through a common test and finally involve the industry to effectively deploy human resources.

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A number of gaps have been identified associated with the entire life- cycle of education in India . . .
Attract
People are not aware about employment options, including flexibility offered ITeS perceived as largely requiring IT skills Jobs in the ITeS industry lack esteem Employment not seen as a long-term career option In-industry attrition remains high
n

Illustrative

Educate
Key skills required by the industry are not developed through current educational system Lack of adequate interaction between formal and non-formal education systems Lack of a standardized, modular curriculum for ITeS

Certify
Lack of national-level mechanism for precertified pool of resources Lack of understanding of specific parameters to test and certify upon

Deploy
Lack of feedback loop on resource deployment and skills provided Lack of direct placement links between institutions and ITeS industry, especially in Tier-II and smaller cities

n

n

n

n

n n

n

n

n

n

n

Source: Industry / Academia interactions. Department of IT. KPMG . 2003.

Currently, the Indian education system is not well geared up to cater to the specific needs of the ITeS / IT industry. One of the main issues related to attraction to the industry is that most employees do not look upon ITeS as serious career option. This results in high rates of attrition. Lack of a proper placement mechanism in most educational institutions is another major hindrance in students getting good jobs. The industry interface is not well established especially in smaller cities and towns.

84

As a result, the recommended solutions must effectively be designed to address these gaps . . .
Attract
n

Illustrative

Educate
n

Certify
Creation of a national testing institution framework and infrastructure Develop and norm a test for basic ITeS skills

Deploy
Encourage placement cells within the education system Establish platforms for industry – academia interface to assess employability of resources, especially in Tier-II and smaller cities

Awareness creation programs Systematic counseling to enhance the perceived image

n

Changes in the educational curriculum from the primary to graduate level as well as new vocational courses Increase co-operation between non-formal and formal systems through sharing for infrastructure, faculty, testing systems etc. Creation of institutional capacity for specialized training

n

n

n n

n n

Define career paths under employment in ITeS / IT industry Provide specific incentives for ‘out-ofindustry’ hiring

n

n

Source: Industry / Academia interactions. Department of IT. KPMG . 2003.

In order to tackle the issues highlighted previously, it is imperative that certain steps are taken in a focused manner across the education lifecycle. One of the main focus areas would be to generate awareness of the various career options that are available to students and professionals. With India being increasingly looked at as a destination of choice, more and more opportunities would be available. Another key area would be the revision of curriculum to create a more IT sensitive workforce with greater domain knowledge. Specialized training courses would need to be developed for enhancing human resource skills. Certification of skills would need to take place by the creation of a standardized test for checking basic IT skills. At the same time a monitoring mechanism with adequate eS control would need to be set up. Finally, the loop would be completed with effective deployment of trained and certified personnel. A greater role would need to be played by placement cells in colleges and universities. The key recommendations and time–frame for implementations have been highlighted further in the report.

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The specific recommendations on actions required include . . .
Attract Educate

Illustrative
Certify Deploy

n Attracting

resources into IT / IT (including R&D) eS
0 – 6th month: Identify potential contributors to the fund, size of the corpus as well as the administration 6 – 9th month: Pilot the use of the fund to check effectiveness in select cities
-

1.

Create an ‘ITeS / IT awareness fund’ with industry support to generate awareness about ITeS / IT employment, especially in Tier II / III cities through advertisements, workshops, seminars and counseling sessions

Ministry of Comm. & IT Ministry of Finance NASSCOM

2.

0 – 3rd month: Prepare relevant Leverage existing infrastructure in the form of universities / colleges and existing vocational counseling centers, especially in information to be disseminated 0 – 6rth month: Identify industry Tier II and smaller towns to provide career counseling on ITeS / involvement opportunities for IT opportunities counseling Provide special incentives (e.g. tax exemption, resettlement allowance, residence status) to attract experienced expatriate talent for high-end ITeS / IT and R&D work 0 – 6th month: Identify and agree on nature of benefits to be provided and the specific eligibility criteria 6 – 9th month: Establish specific monitoring and reporting mechanisms 0 – 6th month: Assess impact on Telecom / Tax and prepare a benefits case for representation 6 – 12th month: Work out specific details and reporting requirements

Ministry of HRD Ministry of Comm. & IT - NASSCOM
-

3.

Ministry of External Affairs Ministry of Finance Ministry of Comm. & IT Dept of Science and T ech. Ministry of Finance Ministry of Labor Ministry of Comm. & IT (DOT)

Introduce changes in the telecom and customs / excise regulations to enable working from home for ITeS / IT industry 4.

-

Note: High priority Medium priority Low priority

Source: Dept of IT. Industry interactions. KPMG. 2003-2004.

Recommendations: 1. Create an ‘ITeS / IT awareness fund’ with industry support to generate awareness about ITeS / IT employment, especially in Tier II / III cities through advertisements, workshops, seminars and counseling sessions. Leverage existing infrastructure in the form of universities / colleges and existing vocational counseling centers, especially in Tier II and smaller towns to provide career counseling on ITeS / IT opportunities. Provide special incentives (e.g. tax exemption, resettlement allowance, residence status) to attract experienced expatriate talent for high-end ITeS / IT and R&D work. Introduce changes in the telecom and customs / excise regulations to enable working from home for ITeS / IT industry.

2.

3. 4.

86

Recommendations (continued) . . .
Attract Educate

Illustrative
Certify Deploy

n Educating

/ providing skills to resources for ITeS / IT (including R&D)
-

5.

0 – 12th month: Encourage industry Bridge gaps in the formal education system to provide specific skills related to ITeS / IT as part of the primary/secondary, higher and academia to review and recommend changes required secondary and tertiary education systems 12 – 24th month: Implement and monitor impact of change Update curriculum under the formal education system more frequently to reflect global industry developments and skill requirements 0 – 6th month: Agree on framework for review and revision of curriculum 6 – 12th month: Appoint a nodal body to monitor need for curricular changes and to recommend changes

Ministry of HRD Ministry of Comm. & IT NASSCOM

-

6.

Ministry of HRD (AICTE, NCERT, CBSE, IGNOU) NASSCOM

-

7 .

Change the evaluation system under the formal education system to encourage creativity and learning through continuous evaluation and learning through experience

0 – 6th month: Assess the nature of change required with respect to evaluation - Ministry of HRD (AICTE, 6 – 12th month: Work with the formal NCERT, CBSE, IGNOU) sector of education to roll-out revised evaluation process 0 – 6th month: Identify specific colleges / universities in select cities to introduce specialized courses 0 – 9th month: Launch ‘train-thetrainer’ programs with industry support 0 – 9th month: Revise and clarify funding norms by the Department of IT with respect to R&D funding Ministry of HRD (UGC, Assoc. of Universities, NIEPA) - Ministry of Comm. & IT - NASSCOM
-

8.

Develop specialized vocational courses for IT / IT under the eS formal and non-formal systems to achieve speed –to-market, lower costs and better penetration of specialized courses with industry support for training and curriculum

9.

Establish and encourage global linkages within the formal education system (e.g. student / faculty exchange, joint R&D, internships) by linking funding to such efforts

Ministry of HRD (UGC, Assoc. of Universities, NIEPA) - Ministry of Comm. & IT - NASSCOM
-

Note: High priority Medium priority Low priority

Source: Dept of IT. Industry interactions. KPMG. 2003-2004.

5.

Bridge gaps in the formal education system to provide specific skills related to ITeS / IT as part of the primary/secondary, higher secondary and tertiary education systems. Update curriculum under the formal education system more frequently to reflect global industry developments and skill requirements. Change the evaluation system under the formal education system to encourage creativity and learning through continuous evaluation and learning through experience. Develop specialized vocational courses for ITeS / IT under the formal and nonformal systems to achieve speed–to-market, lower costs and better penetration of specialized courses with industry support for training and curriculum. Establish and encourage global linkages within the formal education system (e.g. student / faculty exchange, joint R&D, internships) by linking funding to such efforts.

6. 7.

8.

9.

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Recommendations (continued) . . .
Attract Educate

Illustrative
Certify Deploy

n Educating

/ providing skills to resources for ITeS / IT (includi ng R&D)

10.

- Ministry of HRD (UGC. Emphasize and promote the uptake of alternative languages (e.g. 0 – 6th month: Agree on supporting Assoc. of Universities, W. European, Japanese) through courses at the graduation level, agencies and curriculum structure for alternative language courses AICTE) with support from specialized agencies th month: Identify courses / - Ministry of Comm. & IT 6 – 12 institutions where to be introduced - NASSCOM

11.

Revise R&D funding norms for universities / colleges from current plan-based system to a project-based system across universities and monitoring output targets (e.g. publications, patents, consulting revenues etc.)

0 – 9th month: Identify R&D - Ministry of HRD performance monitoring metrics with - Ministry of Comm. & IT norms for awarding project-based - Dept of Science and T ech. funding th month: Roll-out new system 12 – 24

12.

Networking of institutions at the graduate and post-graduate 0 – 12th month: Co-ordinate efforts of levels to promote ‘networks of excellence’ as well as to share the UGC and ERNET to classify major - Ministry of HRD (UGC) knowledge on industry trends, curriculum and teaching practices institutions under clusters and - Ministry of Comm. & IT negotiate bandwidth required with (ERNET) BSNL and other players Provide easy access to the IT systems and Internet facilities within the formal education system for registered students, at minimal fees 0 – 12th month: Work with the ERNET, UGC and industry to find options to reduce costs for IT and Internet usage by students (e.g. bulk discounts, fiscal incentives) 0 – 12th month: Work with the universities and industry to finalize options for faculty development and link to funding
-

13.

-

Ministry of HRD (UGC) Ministry of Comm. & IT (ERNET) NASSCOM Ministry of HRD (UGC) Ministry of Comm. & IT (ERNET) NASSCOM

14.

Allocate specific share (10 - 20 per cent) of funding support towards faculty development and training through workshops, paid sabbaticals into the industry and knowledge-sharing practices across universities

-

Note: High priority Medium priority Low priority

Source: Dept of IT. Industry interactions. KPMG. 2003-2004.

10. Emphasize and promote the uptake of alternative languages (e.g. W. European, Japanese) through courses at the graduation level, with support from specialized agencies. 11. Revise R&D funding norms for universities / colleges from current plan-based system to a project-based system across universities and monitoring output targets (e.g. publications, patents, consulting revenues etc.) . 12. Ensure networking of institutions at the graduate and post-graduate levels to promote ‘networks of excellence’ as well as to share knowledge on industry trends, curriculum and teaching practices. 13. Provide easy access to the IT systems and Internet facilities within the formal education system for registered students, at minimal fees. 14. Allocate specific share (10-20 per cent) of funding support towards faculty development and training through workshops, paid sabbaticals into the industry and knowledge-sharing practices across universities.

88

Illustrative

Recommendations (continued) . . .
Attract Educate Certify Deploy

n Educating

/ providing skills to resources for ITeS / IT (including R&D)
0 – 6th month: Work with the industry and associations to develop specific - Ministry of Comm. & IT regulations based on practices in EU - NASSCOM / OECD / US to develop a framework for India 0 – 6th month: Assess specific issues - Ministry of Comm. & IT related to infrastructure sharing / (DOT) utilization and prepare a benefits case - NASSCOM 6 – 12th month: Launch pilot with volunteer companies in select cities 12 – 18th month: Assess tax implications and monitoring / reporting requirements associated with the same
-

15.

Impose greater discipline associated with information security adherence through propagation of data security policies and related training

16.

Support alternative use of the ITeS / IT facilities and infrastructure of various industry players for training and domestic services

17.

Extend tax incentives under Section 12A to recognized vocational training institutions as well as companies focused on IT / IT-enabled services

Ministry of Finance Ministry of Comm. & IT NASSCOM

Note: High priority Medium priority Low priority

Source: Dept of IT. Industry interactions. KPMG. 2003-2004.

15. Impose greater discipline associated with information security adherence through propagation of data security policies and related training. 16. Support alternative use of the ITeS / IT facilities and infrastructure of various industry players for training and domestic services. 17 Extend tax incentives under Section 12A to recognized vocational training . institutions as well as companies focused on IT / IT-enabled services.

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Illustrative

Recommendations (continued) . . .
n Certifying

Attract

Educate

Certify

Deploy

skill levels of resources for IT / IT (including R& D) eS
0 – 6th month: Agree on on-line testing framework in terms of specific skills to be tested and possible existing tests to be drawn upon 0 – 12th month: Agree with industry and academia the costs for a common test and the alternative options for funding
-

18.

Co-ordinate efforts to develop a common, on-line test for ITeS (IICT) with inputs from the industry and academia to test and certify relevant skills

Ministry of Comm. & IT
NASSCOM

19.

Provide partial funding support for IICT certification in the form of soft-loans / bonds / subsidies by the central / state government and industry players

-

Ministry of Finance Ministry of Comm. & IT NASSCOM

20.

Appoint a non-government, industry-approved national body like 0 – 6th month: Decide on the body for NASSCOM for administration of the IICT and to gather feedback implementation and monitoring of the - Ministry of Comm. & IT from industry on the testing / certification process IICT across the country and define - NASSCOM specific responsibilities Design standards for the IICT (including nature of test, delivery mechanisms, testing benchmarks) based on industry requirements and with inputs academic experts 0 – 12th month: Design, test and rollout of the IICT based on inputs - Ministry of Comm. & IT received from industry, academia and - NASSCOM the learning from various state government efforts
Source: Dept of IT. Industry interactions. KPMG. 2003-2004.

21.

Note: High priority Medium priority Low priority

18. Co-ordinate efforts to develop a common, on-line test for ITeS (IICT) with inputs from the industry and academia to test and certify relevant skills. 19. Provide partial funding support for IICT certification in the form of soft-loans / bonds / subsidies by the central / state government and industry players. 20. Appoint a non-government, industry-approved national body like NASSCOM for administration of the IICT and to gather feedback from industry on the testing / certification process. 21. Design standards for the IICT (including nature of test, delivery mechanisms, testing benchmarks) based on industry requirements and with inputs academic experts.

90

Illustrative

Recommendations (continued) . . .
Attract Educate Certify Deploy

n Deploying

trained / certified resources into ITeS / IT (including R&D)
0 – 12th month: Work with the ITeS / IT industry to assess specific issues and changes required
-

22.

Reform labor laws to support part-time and temporary working with clarifications on benefits, employment policies, rights in case of disputes etc.

Ministry of Labor Ministry of Comm. & IT NASSCOM

23.

Providing exemptions under the Income Tax Actfor expenditure on IT equipment and communication for employees working from home

12 – 18th month: Assess tax impact and monitoring / reporting requirements and responsibilities related to such incentives

-

Ministry of Finance Ministry of Labor Ministry of Comm. & IT NASSCOM

24.

Set-up a database of trained and certified personnel and trainers 0 – 12th month: Define and parameterize the database to be for the ITeS / IT industry under a common, national body, to be shared with industry participants shared with industry players as required for marginal fees On-going: Update database based on regular reports / filings by industry Using industry and institutional inputs to develop ‘National Technology Plans’ on R&D focus area to guide deployment of R&D personnel and drive efforts in specific R&D areas 0 – 12th month: Involve all key stakeholders to assess potential opportunities and specific strengths for India to address those On-going: Monitoring of technology focus plans 6 – 12th month: Identify subcommittee participants and their roles / responsibilities 12 – 18th month: Identify key metrics and reporting systems

-

Ministry of Comm. & IT NASSCOM

25.

-

Ministry of Comm. & IT NASSCOM

26.

Appoint a dedicated committee to undertake periodic reviews and suggest corrective / alternative actions in order to ensure that HR development efforts match industry requirements

-

Ministry of Comm. & IT NASSCOM

Note: High priority Medium priority Low priority

Source: Dept of IT. Industry interactions. KPMG. 2003-2004.

22. Reform labor laws to support part-time and temporary working with clarifications on benefits, employment policies, rights in case of disputes, etc. 23. Provide exemptions under the Income Tax Act for expenditure on IT equipment and communication for employees working from home. 24. Set-up a database of trained and certified personnel and trainers for the ITeS / IT industry under a common, national body, to be shared with industry players as required for marginal fees. 25. Use industry and institutional inputs to develop ‘National Technology Plans’ on R&D focus area to guide deployment of R&D personnel and drive efforts in specific R&D areas. 26. Appoint a dedicated committee to undertake periodic reviews and suggest corrective / alternative actions in order to ensure that HR development efforts match industry requirements.

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The implementation of the recommendations should be coordinated by a dedicated team that is representative and can be held accountable . . .
Illustrative Government Ministry of Comm. & IT Appointment for a term of six years with rotation of members every two years; Accountability for development and performance targets Committee on HRD in IT Ministry of Finance Ministry of External Affairs Sub-committee on awareness efforts monitoring Sub-committee on educational changes monitoring Industry IT/ ITeS industry IT/ ITeS training service providers Industry associations Sub-committee on certification performance monitoring Sub-committee on industry deployment / feedback measurement Sub-committees involving dedicated resources for long-term support
Source: Dept of IT. Industry interactions. KPMG. 2003-2004.

Ministry of HRD

The illustrative identifies the key stakeholders from both government and the industry. A dedicated team would be needed to effectively coordinate activities of both the spheres. The Committee on HRD in IT would be the nodal point for all suggestions and action points. This committee would in turn be organized into four sub-committees looking after various activities related to each aspect of the education lifecycle. This Committee on HRD would be appointed for a term of six years with rotation of members every two years. The sub-committees as well as the Committee on HRD would be accountable for the implementation of programmes and would have key performance indicators to measure success.

92

KPMG
KPMG is the global network of professional services firms whose aim is to turn understanding of information, industries, and business trends into value. With nearly 100,000 people worldwide, KPMG member firms provide audit and risk advisory, tax and legal, and financial advisory services from more than 750 cities in 150 countries. The Indian practice of KPMG was established in 1993, where it operates out of its offices in Mumbai, Delhi, Chennai, Bangalore, Hyderabad and Kolkata. KPMG India gives its clients full access to the resources and infrastructure of KPMG’s global network of professional service firms. KPMG in India offers a range of services that include assurance, risk advisory, tax and regulatory, financial advisory and business advisory services. The firm has access to the resources of Indian and expatriate professionals with diverse educational backgrounds including business administration, economics, accountancy, law, engineering, computer science and other disciplines. Many of its professionals are internationally trained.

NASSCOM
National Association of Software and Service Companies The National Association of Software and Service Companies (NASSCOM) is the apex boy and umbrella organization of IT services and IT-enabled services organizations in India. It was formed in 1988 with the primary objectives of being a catalyst for the growth of the software-driven IT industry in India. NASSCOM is a non-profit organization and is registered under the Societies Act, 1896. It currently has over 850 member companies who collectively contribute to more than 95 per cent of the revenues of the IT services and IT-enabled services industry in India. NASSCOM’s aims and objectives include facilitating trade and business in IT services, IT-enabled services and the e-commerce industry; encouraging the advancement of research, facilitating the education, employment and growth of the Indian economy. NASSCOM works with the Government of India and various state governments to formulate policies and procedures in the IT services and IT-enabled services industry. NASSCOM organizes conferences, seminars, workshops and exhibitions in India and abroad. These events focus on areas such as Internet, e-commerce, e-governance, IT enabled services, ERP networking and banking. It also organizes specialized export , promotion events in various countries of the world where overseas companies are encouraged to interact with Indian companies.

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Key contacts for the report Kiran Karnik kkarnik@nasscom.org Sunil Mehta sunil@nasscom.org NASSCOM International Youth Centre Teen Murti Marg, Chanakyapuri New Delhi - 110 021 http://www.nasscom.org Phone : +91 11 23010199 Fax : +91 11 23793936 Narayan Seshadri nseshadri@kpmg.com Rajesh C Jain rcjain@kpmg.com KPMG KPMG House Kamala Mills Compound 448, Senapati Bapat Marg Lower Parel Mumbai 400 013 http://www.in.kpmg.com Phone: +91 22 2491 3030 Facsimile: +91 22 2491 3132

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity.The content provided here treats the subjects covered here in condensed form. It is intended to provide a general guide to the subject matter and should not be relied on as a basis for business decisions. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. Specialist advice should be sought with respect to any individual circumstances. KPMG International is a Swiss cooperative consisting of separate KPMG member firms in countries throughout the world.

KPMG in India
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