India eyes Western IT services companies as skills shortage bites

Swollen with cash from US and European outsourcing deals, but increasingly short of staff as their growth outpaces the supply of new graduates, Indian IT firms are sizing up European IT services companies as potential acquisitions.



The Indian business press has been full of rumours that French-based Capgemini is one such target, with Indian IT giants Wipro and Infosys both showing interest.



The impact of current economic difficulties has lowered the price of such acquisitions, and Indian companies are being advised to make the most of the opportunity.



Already, many western IT software and services companies which began by setting up their own Indian operations have sold them to Wipro, Infosys, Tata and other Indian companies.



According to the annual survey by India's IT services association NASSCOM, India's software and services exports grew by 29% over the last year.



But the pool of properly qualified graduates is not big enough for that level of growth. In the early days of the outsourcing boom, western cheerleaders would crudely boast that British bank customers could find someone with a PhD from a top Indian university sorting out their problems with lost travellers' cheques. Now as demand increases, the IT companies are being forced to widen their recruitment activities from the relatively small number of elite universities which have traditionally provided them with graduates.



And that's where the problem lies: universities in small cities and rural areas don't necessarily provide the same quality of education. Teachers with good IT skills tend to leave the classroom for better money and more rewarding jobs in the IT sector itself.



Funding problems and poor teaching mean that, according to Nasscom, as many as 50% of India's engineering graduates and up to 85% of other graduates aren't suitable for employment when they leave college. A McKinsey Global Institute study gives even worse figures: of the 360,000 engineering graduates produced every year, only 25 per cent are employable. Of the remaining 600,000 graduates, McKinsey says, only ten per cent may be ready to start work.



An analysis by consultants Kaizen Technologies describes the characteristics of some of the "educated illiterate products of a hollow education system": they are "rich in qualifications but poor in fundamental knowledge", and "ill-equipped in basic skills like communication, common sense, arithmetic and computer literacy".



Many also speak poor English, the international language of outsourcing.



Infosys alone is said to be planning to hire 25,000 graduates this year. NASSCOM predicts a shortfall of 500,000 IT employees by 2010.



The IT services companies are increasing their in-house training. Tata Consultancy Services, India's largest outsourcing company by sales, is said to spend more than two per cent of its annual revenue on training. But with these overheads added to expectations of better salaries, Indian companies could find themselves losing out to emerging competitors in the Philippines and Eastern Europe.



Another answer would be to acquire ready-made staff closer to the markets where the outsourcing services are provided. Unlike the US, which is a massive single market of English-speaking people, Europe is highly fragmented. But the advantage of taking over, for example, a French IT services company is that the staff are not only already qualified, they also speak French like natives, since they are natives.



As budgets tighten and the value of our IT services companies falls, expect to hear of more acquisition plans by the Indian giants. And be patient next time your customer service call is answered by someone with poor English and a difficult accent. The tables could be turned before too long.



Nick Langley



























Jul 17, 2008