Australia India Business

Collaborating in a Flat World

India is more than just a low-cost alternative for Australian technology companies looking to outsource. Indian expertise, rather than economics, is generating rewarding returns on investment, writes Ian Birks of the Australian Information Industry Association.

For the first time in human history, everything is connected. A billion people, millions of businesses and a trillion devices are hooked up to the World Wide Web.
The Internet has given rise to a world without borders. As American author Thomas Friedman says, technology has flattened our world and it “has become possible for more people to collaborate and compete in real time, with more other people on more different kinds of work from more different corners of the planet, on a more equal footing than any previous time in the history of the world”.

Competitive advantage

In this flat world, global and sustainable competitive advantage cannot be achieved in isolation. The increased scope, size and complexity of projects mean that organisations must build stronger partnerships to ensure the success of their undertakings and, more importantly, to mitigate risk and achieve an acceptable return on investment.
Many people think outsourcing and offshoring partnerships are driven by pure economic reasons, with organisations seeking out the lowest cost provider. This is no longer true. In a world where everything is connected, work flows to the places where it is done best – that is, with the most efficiency and the highest quality.
Consider this: US radiologists now send their X-rays to Australia for analysis; Asian clothing manufacturers outsource design to Italy; global investment banks undertake their derivative processing in Dublin; and McDonald’s drive-through orders from the US are routed through the Philippines. The Boeing 787 is the perfect example of global collaboration – its wings were built in Italy, its fuselage in Japan and its titanium parts were designed by a team in Russia.

Economies of expertise

As these examples demonstrate, cost is not the only governing factor. If it were, we’d see all work fl owing in one direction – to the place where it could be completed for the lowest price.
Instead, companies around the globe are being drawn to ‘economies of expertise’. As an example, more than 220 of the world’s Fortune 500 companies already outsource their software development to India. And this is just the tipping point. Between 2005 and 2010, India’s developer pool will expand three-fold. By 2010, India will have 2.4 million developers at an hourly wage of less than A$8.00 – the world’s lowest price point for this increasingly scarce skill.
It costs around US$2 million to develop a software product in India, compared with US$5 million in the US, so clearly cost is a factor when companies are deciding where to place their software development projects. But with 80 of the world’s 117 Software Engineering Institute Capability Maturity Model (SEI-CMM) Level-5 companies based in India, companies are also capitalising on India’s ‘best practice’ status for software development.

In search of skills

India offers Australia – and the world – access to a massive, highly skilled supply of labour and new ways to build competitive advantage in the global economy. Its information and communications technology (ICT) industry currently employs more than 1.6 million people – a figure expected to grow to 3.7 million by 2012. India produces approximately 450,000 ICT engineering graduates every year, against the US’s 50,000 and Australia’s 9,000. Put simply, India has a resource Australia desperately needs: skilled people.
In Australia, we have an aging population, a low fertility rate and a chronic shortage of skilled labour. Unemployment is at a 34-year low and demographic trends suggest more older Australians will leave the workforce from 2010-11 than young Australians will join it. By 2020, Australia is expected to have a labour shortage of half a million people.
The latest Innovation Index of Australian Industry reveals that a lack of skilled labour is one of Australia’s biggest barriers to innovation. In 2003, 9% of mid-sized companies said skills shortages had impeded their innovation. Just two years later, that fi gure had risen to 34% – and anecdotal evidence suggests it continues to climb.

A collaborative approach

Meanwhile, India is a young country with half the population under 25 years of age. This pool of labour is very attractive for a human resource constrained country like Australia – and not just from a price or labour arbitrage point of view. With its emphasis on education and training, India’s young population is able to deliver technical expertise and high-quality work.
If Australia is to prosper in the flat world, we must take a collaborative approach to business. Australia possesses a highly skilled, culturally and linguistically diverse workforce capable of designing and developing leading-edge technologies. We have a modern economic base, political stability, an excellent education system, and cultural and legal compatibility with the key outsourcing economies. These are just some of the attributes prized by companies seeking overseas partners.
Australia’s ICT skills complement the impressive software development and implementation skills of India’s companies. India’s English-language fluency, larger labour pool and commitment to maintaining its human resource talent base with education investment makes it a natural fit for Australian companies looking for global partners.

History of friendship

India and Australia have a long history of friendship and co-operation, both on the business and sporting field. India is among Australia’s top ten export markets, for instance, with approximately A$12 billion in bilateral trade each year.
The Australian Information Industry Association (AIIA) and India’s kindred association, the National Association of Software and Service Companies (NASSCOM), are continuing this history of cooperation by working together to help companies gain a foothold in global markets. In February, AIIA and Austrade led a delegation of ICT companies to the NASSCOM Leadership Forum in Mumbai, which enabled Australian and Indian companies to connect and investigate ways to combine their strengths and capabilities to develop new products and services.
According to a NASSCOM-McKinsey report, annual revenue projections for India’s ICT industry in 2008 are US$87 billion and market openings are emerging across four broad sectors: IT services, software products, IT-enabled services and e-businesses. AIIA is committed to helping Australian companies establish connections and realise opportunities in this market.

Website: www.aiia.com.au

Getting it Together

Synergies already exist between a number of Australian and Indian high technology companies.

India into Australia

Indian companies already service a wide variety of the largest companies in Australia and New Zealand, such as NAB, Westpac, ANZ, Suncorp, Fonterra NZ, Vodafone, Hutchison Telecommunications and IBM Australia.
Eight of NASSCOM’s top 15 ICT software and services companies – Birlasoft, iGate, Infosys, NIIT, Patni, Satyam, TCS and Wipro – have offi ces in Melbourne, employing more than 2,000 people. Satyam’s Melbourne office is its largest development centre outside India and performs software development work for local and international Satyam customers.
NIIT, with offices in Sydney and Melbourne, has a strong partnership with Australia’s largest publicly-listed independent consulting company, SMS. NIIT helped SMS with its market expansion into Asia through the expertise of its delivery capability.
HCL has established itself in Canberra, tapping into the A$2 billion annual Federal Government ICT budget, and realising an opportunity to work with the innovative companies that operate in the nation’s capital.

Australia into India

Likewise, many Australian companies are gaining a foothold in India. Since establishing its independent Indian operations in 1991, ANZ has achieved CMM Level-5 status and now has a workforce of more than 1,700 people.
ContentKeeper Technologies, which provides internet filtering solutions that enable organisations to monitor and manage staff access to Internet resources, entered the Indian market in August 2006. ContentKeeper recently signed a major agreement with India’s largest systems integrator, HCL Infotech, and now has a range of Indian corporations as clients, including financial institutions, transportation and utility companies and government agencies.
Attra Infotech Pty Ltd originated in Melbourne, and specialises in ICT consultancy for credit card services. It has delivered major credit card systems in VisionPLUS, Cardpac, Vision21 and other systems in India’s finance sector, and now has a 4,000 metre squared offshore development centre in Bangalore.

Reprinted in full from the print edition of Australia India Business 2009.

Tags: AIIA, Attra, Australian Information Industry Association, Ian Birks, ICT, NASSCOM, National Association Of Software and Services companies