The China connection
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A particularly well-written article by Andy Mukherjee carried by Mint last week read like both an obituary for Indian information technology (IT) services and a requiem for the late Dewang Mehta, the man whom many revere as the real father of Indian IT outsourcing. In the requiem, the author examines how Mehta used the Year 2000 (or Y2K) platform as an accelerator for the growth of Indian outsourcing. In the obituary, he laments the fact that the Indian IT majors were very late to embrace the world of social, mobile, analytics and cloud (SMAC) computing and instead focused on the traditional—and now outmoded—areas of infrastructure management and of maintaining customized enterprise applications.
While the Indian outsourcing industry has at least had a good run, China missed the boat as far as services outsourcing was concerned, despite the fact that it had much the same advantages as India when it came to a large, inexpensive—and trainable—labour pool. It is not that the Chinese didn’t try almost every trick in the book to build a services industry of their own—the government offered tax holidays, subsidization of rents and other sops in order to induce outsourcers to consider China as a location for the offshoring of services. China even sent several representatives to conferences hosted by Mehta’s beloved National Association of Software and Services Companies (Nasscom) in a bid to understand the factors behind India’s enormous success in the export of software and allied services.
The reasons proffered for China’s inability to emerge as a strong contender in this space are many. One of the most often cited was that China simply did not have a large enough English-speaking labour pool - thereby effectively denying them access to US- and UK-based firms that were outsourcing work to India, where English is more common. The best that Chinese firms could do was to set up centres in Dalian in North-East China. Dalian is close to Japan, and therefore has a sizable population of Japanese speakers. The firms operating out of there addressed the Japanese market, as its need for outsourcing became larger, just as the near-shore countries of Romania, Hungary and others addressed the Western European markets of France and Germany.
Another explanation was that China did not have the same ‘demographic dividend’ as India did because of its long adherence to the single child policy as a means of population control, and hence had a smaller population of young people than India who could be used as cannon fodder in the war for talent. One more reason often cited was the loose control over Intellectual Property (IP) rights under Chinese law when compared to Indian law—which meant that potential outsourcers were wary of sending work to China since their IP could be compromised.
US President Barack Obama’s administration has recently released a strategic plan which addresses many issues, such as the need for training in ethics for practitioners in Artificial Intelligence (AI)—and in an allied research paper, discusses the preparation needed to be ready for a future where the use of AI will become widespread. President Obama has even gone on record saying that it is up to governments to guarantee a universal basic income for all their citizens, since many jobs are likely to be rendered obsolete as AI grows in scope and in permeation. This concept of a universal basic income is a difficult one, since it smacks in many ways of a dole, and will therefore effectively be a disincentive for people working hard for a living.
But the most striking part of this report is that it appears that the Chinese have learnt their lesson from failing to make themselves a services superpower. According to the White House report, the Chinese appear to have leapfrogged even the US in AI research, especially in the components of “neural networks” and “deep learning”. In this case, the IP being produced actually belongs to China and is not a faithful duplicate of someone else’s product or technology. This has far-reaching implications not only for the US, but also for India. The Washington Post maintains that when AI is likely to transform virtually everything including labour and the future of warfare and cyber conflict, the US could be put at a disadvantage if other countries such as China get to dictate terms instead.
While the US has been mulling a strategy on how to respond in order to win back the lead and then maintain it, we have yet to see any concerted effort from India’s IT services outsourcing firms, their trade body Nasscom, or the Indian government to develop and maintain capabilities in this space so that the country can continue to keep its pole position in software development and exports. A top industry executive some months ago lamented that all the top Indian outsourcers had a total of less than 100 truly capable AI—or ‘bot’—programmers among them, which is frightening if true.
Having missed the SMAC market by adopting a frog in the well approach, the Indian outsourcers are currently at a disadvantage when compared with their western peers, but the AI train has not yet left the station. It may be time for Indian outsourcers to replicate a feat that many Indian rail users have sometimes deployed—run on the platform beside the already moving train, heft their luggage through the door, and then, in one all-out effort, heave themselves onto the train.
Siddharth Pai is a world-renowned technology consultant who has personally led over $20 billion in complex, first-of-a-kind outsourcing transactions.