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The Capitalist | IT services and the threat from China

The Capitalist | IT services and the threat from China
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First Published: Thu, Jan 22 2009. 01 15 AM IST

Updated: Thu, Jan 22 2009. 10 27 AM IST
The scam centred on Satyam Computer Services Ltd could be just the beginning of the information technology (IT) industry’s woes. First, it will compel the industry body National Association of Software and Service Companies, or Nasscom, to restate India’s IT export figures (see last week’s column of The Capitalist). Second, it could strengthen China’s presence in the IT services industry.
China’s IT sector has hitherto been confined primarily to high-tech manufacturing, while India’s has been focused on software, research and development, IT services and business process outsourcing (BPO). IT services exports make up just 3.3% of China’s total exports; in India’s case, their shares is 26.3%.
But the percentages alone could be misleading. China’s total exports amounted to $1.2 trillion (Rs58.92 trillion now) in 2007, compared with $155.5 billion for India in 2007-08, according to official statistics. Therefore, 3.3% for China is $39.6 billion, while India’s more impressive 26.3% translates to $40.9 billion. That leaves China within striking distance of India.
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True, India has some advantages. It has the biggest companies in this sector, where size does matter (see table). Each of the top three players in India is bigger than all the four top Chinese firms put together. But China has been catching up fast. After all, India no longer enjoys a wage advantage. Salaries in both China and India are almost comparable in this sector. India’s wage costs have soared primarily because its pool of educated employable is extremely shallow. Graduates (arts, science, medicine engineering) comprise just 3.5% of India’s population. And many have paper certificates, but not the skills. They remain the country’s educated unemployable. Moreover, the one advantage that India enjoyed—namely, the ability to read, write and speak good English—is rapidly disappearing (see next item).
Not surprisingly, technology market researcher IDC reckons that Shanghai, not Bangalore, will become the world’s No. 1 outsourcing centre by 2011, even though India could still boast of four of the top 10 outsourcing centres.
India’s biggest handicap will be its government, because school education is still largely government-controlled, as is the funding of skill development. Unfortunately, the system encourages everybody to inflate the numbers of schoolchildren, to divert funds collected for education, and discourages policymakers from linking funds to transparent (national) competence evaluation processes.
The crisis in education
In 2002-03, this columnist was involved in one of the most extensive surveys on functional literacy in Mumbai’s schools. The survey focused on privately managed English-medium schools (so that a private school should not get compared with a “resource-starved” municipal school).
As many as 34 schools involving 16,500 students participated in a quiz covering basic English grammar and arithmetic (like putting numbers in the right order). When the results were compiled, the findings were staggering 75% failed in English, and 65% in mathematics. Similar studies by other non-governmental organizations showed up similar results in Gujarat, Maharashtra, Madhya Pradesh and Bihar (details given at ‘http://www.yes2etl.com/Article_2004_09_Mass%20promotions_the%20great%20leap%20backward.html’).
Since 2003, the numbers of such ‘failures’ has swelled. They usually become India’s educated unemployables, and often used to swell the rent-a-crowds at political rallies.
Funding skill development
When a student is unemployable, it is usually not his fault, but that of the system, which fails to hone comprehension, communication and analytical skills at the school level. No college can be expected to remedy the havoc 10 years of poor schooling causes.
Schools are bad primarily because they have not been able to attract the best talent for teaching.
Moreover, since educational targets focus on numbers enrolled, and seldom to competence levels, nobody bothers if the teachers are not as good as they should be.
Unfortunately, even the education cess collected from India’s taxpayers is not used to revamp the school system and ensure better-quality students. State governments inflate enrolment numbers and promote more and more students (invariably ignoring quality parameters).
Today, most states promote students with grace marks even if they get just 15 marks out of 100!
Tragically, most of the cluster development training that the government has encouraged till now has been through non-teaching organizations that collect the money, show that they have trained a large number of quasi-government officers, issue certificates of having attended courses, and get away without any independent evaluation of improved competence levels. Sharing the booty is what drives such schemes. Thus, while statistics tell one story, industry tells another—of poor quality manpower. Even judgements written by judges are flawed with grammatical and spelling errors. And the fact is that good education is what drives the outsourcing business, and any country’s entire economic development.
China, on the other hand, has focused on both quality and numbers in education. As Thomas Meyer of Deutsche Bank AG states in his January 2009 report on the IT sector, “In 2006, nearly 3.8 million Chinese graduated from institutions of higher education. Nearly 220,000 Chinese gained a master’s degree, and 36,000 were awarded a doctorate. Since the turn of the millennium, the number of graduates has risen by 25% per year. . . According to the World Bank, already as many as 19% of the relevant age cohorts are enrolled at university, compared to only 12% in India.”
And that is the story of how a government sacrifices the future of its people just because it chose to give money to the wrong people who spend it without being accountable for delivering competence. (Note: this columnist is actively involved with education.)
R.N. Bhaskar runs a company with significant interests in distance learning and examination certification and writes on corporate and business policy issues. Comments on this column are welcome at capitalist@livemint.com
Graphics by Ahmed Raza Khan / Mint
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First Published: Thu, Jan 22 2009. 01 15 AM IST