Now India’s turn for skills shortage pain

FOR years Indian IT services companies have attracted customers to the sub-continent by undercutting global rivals because of their access to a seemingly limitless supply of high-skilled tech workers.

Now Indian firms are facing some of the skill shortage pain their developed economy customers have suffered for years.

Financial services firm Dun & Bradstreet has issued a report profiling 184 of India’s top technology companies, finding their biggest challenge to continued growth will be the availability of skilled human resources.

Wages growth is expected to become a major challenge for the industry in India, just as it is already a challenge in developed economies.

The Indian IT industry last year generated about US$47.8 billion (A$58.6 billion) in revenue and is expected to grow to US$90 billion (A$110.5 billion) by 2010.

The D&B report, titled “India’s Top IT Companies 2007” found most Indian tech firms reported employee costs of between 35 per cent and 45 per cent of revenues.

Because employee costs represented such a large portion of revenue, any significant rise in those costs would put strong pressure on margins, the report found.

A growing gap between skills supply and demand, high attrition and turnover rates and the fast increasing participation of global companies in the Indian domestic market were all factors affecting IT skills costs.

“Under these circumstances, managing the employee cost will remain a key challenge for Indian IT industry. It is believed that Indian IT firms will continue to face an average wage inflation of 10-20 per cent annually at various levels,” the report says.

The Indian tech industry’s contribution to the country’s GDP had grown from 1.2 per cent in 1999-2000 to 4.8 per cent in the 2006 financial year, and would break through five per cent this year, Dun & Bradstreet India chief executive Manoj Vaish said.

“The Indian IT Industry has emerged as the flagship of Brand India across the world, and continues to grow at a rapid pace,” Mr Vaish said.

For more IT Service news, click here.

Innovation costs push R&D offshore

THE cost and complexity of the innovation process is forcing some large organisations to outsource and offshore parts of their research and development functions, new research shows.

The Economist Intelligence Unit says that rather than maintaining R&D as a central function, companies are adopting a “global innovation network” model and sending aspects of their work overseas.

The “Sharing the Idea: The Emergence of Global Innovation Networks” report found that 65 per cent of companies current perform at least some parts of their R&D tasks overseas, a figure expected to grow to 84 per cent in three years.

Similarly, 65 per cent of organisations say they currently outsource part of their innovation process, which is likely to grow to 75 per cent in three years. Though the report focuses on UK companies, the trends it identifies are thought to be common across companies in developed economies.

Companies found that disaggregating R&D globally had advantages in greater efficiency, speed to market and access to talent. But the respondents said there were also challenges related to the global innovation network model – most notably the concerns about loss of control.

Some 44 per cent of companies surveyed were also concerned about theft of intellectual property as a key concern in using the global innovation model.

“Increased competition, the cost and complexity of innovation and a surplus of ideas are encouraging many companies to restructure their approach to research and development,” the report’s editor Rob Mitchell said.

“Our survey shows a considerable shift towards greater outsourcing and offshoring of R&D in what we term a global innovation network model, despite concerns about loss of control over a function that is often considered core to a company’s identity,” Mr Mitchell said.

Cost was a primary driver for companies using the model. While 70 per cent said their management viewed investment in R&D as vital to the company’s success, the R&D function was increasingly under pressure to curb costs nonetheless.

The other key driver to using the global innovation network model was that shortages of specialist talent in home countries meant that companies looked further afield to destinations where skills were in greater supply and more affordable.

For more IT Service news, click below.