By guest author Tony Scott
This interview, the ninth in Tony’s series, is with Dr. Shami Khorana, who is the president of HCL America, the subsidiary of HCL Technologies, a $3.1 billion business and IT services company with more than 72,000 employees worldwide.
Tony Scott: Shami, thanks for taking the time to talk to me about the future of outsourcing. Before we go into it, would you give me an overview of your past and how you became involved in outsourcing services?
Shami Khorana: I worked at Freddie Mac, and then I worked at NASDAQ. The reason I need to explain this is that I was involved in organizations that were very large outsourcers – in fact one of the first large organizations to outsource to an Indian company, back in 1995. We had done lot of outsourcing to EDS and others previously. The entire reason for outsourcing at that point was to leverage talent at a low cost.
Tony: Pure labor arbitrage.
Shami: Pure and simple labor arbitrage. What happened was in the first year, or maybe the first six to eight months or so, was that most of the people were working here, not in India. The people processes weren’t there. People were not comfortable with anybody working for them 10,000 miles away. Remember, this was in 1995.
Tony: The cost of communications was also much higher then.
Shami: Right. But the fact is, if you compare that cost with the third-party contractors that U.S. organizations could use otherwise, you were still coming out ahead. So, it was pure and simple labor arbitrage. Of course, what happened is the outsourcing business transformed, and I am talking about outsourcing as in offshoring. Over time, it became more process oriented, and people were less reluctant to have other people working for them offshore. But at the same time, they were unable to manage the time zone and cultural differences.
I started to look at what has happened to outsourcing over the past ten years, and in the past two or three years in general. I saw some statistics the other day. While the figures are hard to pinpoint, it has gone up substantially. More important is that if you take the top 100 vendors, you will find their market share has increased tremendously.
Tony: So there has been consolidation.
Shami: Definitely. And then the other thing is, the top 40% of the top 100 that were there 10 years ago are not there today. These numbers astonish me, actually. This is because a lot of new vendors have come in with new value propositions, new models, and so on, which makes sense considering that things have changed substantially. And as you move forward, labor arbitrage is going to vanish, and eventually pure labor arbitrage is not going to make sense. Take India, for example: salaries are going up. At the same time, the exchange rate has become a lot more equitable. So, I think that while the paradigm is not going to away tomorrow, it is changing slowly.
But then of course if you look at what has happened in the past year and a half: the growth markets are India, China, and Brazil. And wherever there is growth, that is what you have to go after.
If you are a U.S. company today, what are going to do? You are going to have a global workforce, really and truly global. If that is the case, then you are going to need service providers who can help you with those global markets. And that puts the entire outsourcing model in a position for dramatic change. We will see who can take advantage of its new look and feel.