Monday, November 13, 2006

Challenges in Offshoring to India

Today it is common for IT companies to announce a major expansion or setting up new operations in India. Companies are investing valuable time, resources and have even deputed key managers to manage things on the ground. Top management at the headquarters often do not have a complete picture of the challenges that needs to be conquered to succeed in India. Expatriate managers are often tied up grappling with the enormous challenge of setting up operations: Legal challenges, Location choices, recruitment challenges, managing workforce effectiveness etc.

Often times these challenges are not accounted to in the initial planning. As a result, the operations in India will have a series of false starts – which causes anxiety, stress and frustration throughout the organization.

It has been observed that the most common challenges facing American/European firms when expanding in India are:
  • Office Infrastructure Challenges
  • Recruitment Challenges
  • Employee Training & Skill enhancement Challenges
  • Team Coordination Challenges
  • Maintaining Service Level Agreement

Office & Infrastructure Challenges

Selecting a suitable workplace in view of the current and future requirement is a major challenge. It is a common practice of US/EU firms to lease an office space – rather than own it. The demand for office space is so huge that companies are forced to book office spaces even before the building is completed – and companies are forced to lease out a larger space in view of future expansions. And when the current office space runs out, companies are forced to look at other locations. In the end, offices are scattered all over the city (and country) and this creates a major coordination headaches.

HP for example has rented out more than 20 office spaces all over the Bangalore and this is still not enough. HP is currently building it own campus in Electronic City. The challenge of office infrastructure is forcing companies to get involved in real estate development business – which was not their original intention when entering India.

Locational choices are also restricted by the fact that Internet Connectivity and utilities are not available in all areas of the country. India has identified few Industrial townships where all infrastructures are made available – thus forcing companies to operate from those areas only. Choosing a right location – in view of all the future requirements poses a significant challenge. The best solution is to partner with a real estate developer who can offer best services – e.g.: ITPL, GTP, DLW etc. Or to own and develop a large piece of land in designated software parks which provide adequate space for future requirements.

Recruitment Challenges

Recruitment Challenge is a more recent phenomenon. India has the largest pool of English speaking professionals in the world. India graduates ~260,000 engineers a year and about 2 Million graduates; there is a shortfall of talent. With India becoming a centre of all IT/Software/Services industry, the competition to attract the best talent has heated up. The demand for talent is estimated to reach 4 Million by 2008 (according to McKinsey), the quality of college graduates vary greatly.

This forces companies to develop complex recruitment process to reach out to this vast pool of talent. Infosys for example receives 1.4 million job applications and interviews 67,000 candidates and hires 26,000 per year. Often times, US/EU based companies have to develop a completely new recruitment process that is tailored for India. The recruitment process is so competitive in major cities (Bangalore, Delhi, Hyderabad, Mumbai etc.) that companies often have to interview 50 potential candidates before getting one employee on board. In addition, companies will have to spread out the recruitment process across the country.

In addition to initial recruitment, companies have to work on employee retention as well. Attrition rates in India are far higher than in US/EU. Given the demand of talent, almost all companies are going after the same set of people – this implies that every employee in a company will be approached by a recruiter from another company. The retention policies and practices have to be uniquely developed for India. The policies of the home country (either US or EU) are rarely applicable in India.

Employee Training & Skill Enhancement Challenges

A trained workforce is a more productive workforce. This implies that the company must have a planned training program. One needs to have a planned training program. Many employees in India may be good in written English, but they may need training in verbal communication skills. BPO operations or call centres need to provide voice/accent training programs. Even software engineers have to be trained in basic business etiquette and the standard business communication skills.

The training programs have to be tailored to address the deeper cultural issues that enables new employees in India to communicate effectively with their US/EU counterparts. The training programs must be tailored by experts who understand the local Indian work culture and work culture of the parent organization.

In addition, new employees have to be trained in technical tools – to make them productive in the actual work environment. Often times, training in specialized tools (eg. Kramer, SIMMS, Chronology etc.) is not available in India. This might imply that trainers have to be flown into India or employees need to flown to US/EU.

Team Coordination Challenges

Teams working across geographies working across different time zones, drawn from different cultures will take time to integrate. During this time, there will be lots of coordination issues. Teams will spend lot of time “stroming” rather than performing. In this phase, management should take care to minimize the mistrust, miscommunication, and minimize work stress among team members. The challenges of coordinating cross-cultural teams are complex and cannot be easily dealt with company policies. Often times companies need to resort to cross cultural consultants – to help build more productive teams.

Maintaining Service Level Agreement

Companies have built their reputation with their customers over the years and have established processes and standards to measure and maintain customer satisfaction levels. Adding an “India” centre has the potential to upset this carefully crafted customer relationship. During the process of team integration, there is a possibility of dropping service level agreements (SLA’s). Moreover, there will be cultural differences – which tend to give different interpretation to SLA.

Management challenge here is to setup the appropriate benchmarks and monitor the performance during this process. The monitoring & enforcement policies must be transparent to employees. Top management should build reasonable expectations of time lines for the India centre to achieve the same levels of performance as that of the US/EU centres.

Also See:

  1. Challenges of Multi-Cultural Teams
  2. Leadership & Diversity
  3. Building a Diverse Workforce
  4. Soft Skills For Global Managers
  5. Managing Diversity for High Performance
  6. Encourage Diversity to attract top talent
  7. Distinguish Yourself As a Culturally Diverse Candidate
  8. Leveraging Diversity-Use Brainstorming Session
  9. Common Mistakes in Recruiting a diverse workforce
  10. Making Multicultural Virtual Teams Work

6 comments:

Javed said...

Hi, nice article... Although Indian IT industry is thriving there are a lot of issues - the main one according to me is mis-interpreting success in terms of how much is delivered to the client rather than what (content) get delivered. Unless we address this problem, I think there's only going to be horizontal growth.

Sandeep said...

Hi All,
I really doubt that Indian IT professional does not deliver upto the mark. This statement seems only pre-notion and I do not think that they came out from any logical study. Is there one available?
-Sandeep

Vikram said...

Liked what I read. Nice and Simple

Amit Deshpande said...
This comment has been removed by the author.
Amit Deshpande said...

Hi, I moved back to India as a expat trying to setup India development center for a US based company. I faced some of these problems mentioned in the article. But the biggest challenge was that it was very difficult for me to create a team of individuals where every individual is highly productive. The junior and even more junior resources model did not work for us. So I decided to create a development center with experienced people who could work in small teams and an 'Agile' environment with emphasis on teamwork, productivity and fun. This worked. The team we created was highly productive and this team became a great value-add to the US team. This made me believe in this model and now I have started my own company helping US/European companies create such teams/organizations in India. Even if you dont need my services professionally, feel free to ping me for a chat to exchange experiences. I am available at adeshpande@faichi.com. You can find the details of my company at www.faichi.com

Vikrant Singh said...

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