“We Can Build Digital Bridges”

Feature Article | March 3, 2008 by Angela Dunn and Michael Zipf

Digital divide or digital bridges? Low cost or scalability? Where is the IT sector in India going? Kiran Karnik, president of the Indian IT industry’s National Association of Software and Service Companies (NASSCOM) until last year, provides SAP.info with fascinating insights.

Mr. Karnik, where do you see India’s IT sector heading right now?

Kiran Karnik: We’ve seen a lot of growth, but not just in terms of numbers, revenues, or people working in this industry. We’ve seen huge growth in the scope of this industry, the kinds of things it does. In the last few years we’ve moved into the business process outsourcing industry, which includes everything from call centers to back office work to IT-enabled work.

Then you see areas like animation and e-games, which are very creative pursuits but where IT plays a key role. You see a lot of work happening in data analytics, where, for example, market research companies let Indian companies analyze whole stacks of data and send them back. So a lot of the work requires a combination of statistical and IT skills.

You’re also getting a lot of expansion in the core IT area, which is moving from just providing services or code writing toward research and development [R&D] and design. To me the R&D work is particularly interesting because when you look at India, the true and unique advantage of India is not cost. The true advantage is that you can get a high order of skills in large numbers combined with scalability.

Can you give an example?

Karnik: If you need five PhDs in some esoteric area, you might find them anywhere in the world. But if you want 100 people in some particular field who are PhDs, or you want 1,000 people who have specialized and have done master’s level research in one particular area of something that you are interested in, I think there are very few places in the world where you can get that scale of particular skills. And to me, that’s India’s unique advantage in the long run.

Why is it so important for Indian IT companies to move to more value-added services?

Karnik: There are several reasons. One is that, typically, as you move up the value chain, the margins increase. Companies, particularly those that are doing well, are pushed to capture more value by moving up the value chain.

Second, there is always a concern that companies will find somebody somewhere else in the world who can deliver the same kind of material or service at a lower cost than we can in India. There is a worry that this model is not sustainable. Once you move to the high end, the brand and relationships become more important, not commoditization.

The third factor is the perception that more and more customers around the world want delivery on a vertically integrated basis. They don’t want to go to somebody for one thing, somebody else for the next thing, and so on. So there is a possible advantage to doing vertical integration for a customer.

Could infrastructure problems endanger India’s IT growth?

Karnik: Yes, we are concerned about that because the growth rate, not just in the IT industry, is so high that the demands on infrastructure are growing very rapidly. We are already seeing signs that there’s been an overheating or a bigger deficit between demand and supply in places like Bangalore, where growth has been so fast that infrastructure has not kept up with it.

But the good news is that there is a lot of action on the infrastructure front. The government has committed huge amounts of money. They recognize that better roads and mass transportation are critical to allowing people to move more quickly. This is particularly important to us from our industry point of view. Our concern here is speed: How quickly can these improvements happen?

Do you think that attrition and rising salary levels could be other limiting factors for India’s IT sector?

Karnik: Both of these issues are symptoms of an underlying cause – the mismatch between demand and supply. There is no shortage of engineers, there is no shortage of graduates, but there is a shortage of suitable engineers.

If you want to hire an engineer, you get 10 people applying for every job. But of those 10, the technical skills very often are not up to date because the curriculum is not up to date. The soft skills are lacking and the ability to speak English, to communicate effectively, to articulate clearly, to make presentations, or to work in a team is not up to par. Of every hundred engineers who you call for an interview, only between 20 percent and 30 percent are employable.

What can be done?

Karnik: The question is whether to create “finishing schools.” This way, we could offer graduates of engineering programs a three- or four-month intensive course to update their technical knowledge and to introduce soft skills to them. Then you could increase the pool of suitable talent to almost 50 percent from roughly 30 percent in just four months. In the long term we have concerns about how to update the curriculum and how to get more and better faculties so that the teaching improves.

What role does SAP play in the Indian IT sector?

Karnik: I think there are two roles, which have been critical. One is that SAP offers extensive and very well-known and well-respected software. The other is that the SAP development centers in India are beginning to be recognized and understood more and more. Customers are very excited. They say, if SAP has a development center here, I can get more customized development that meets my unique Indian requirements.

What role could IT play in developing India’s rural areas?

Karnik: I see a huge role for IT. People talk about the “digital divide” but I see a “digital bridge” instead, where digital technologies act as a bridge between literacy and illiteracy.

The simplest example is, I have a book, but maybe I can’t read, so I am cut off. But if I have a computer and a text-to-speech system, then I can hear what was written, so I understand it. So you bridge the distance, bridge illiteracy gaps, and even bring in IT as a tool for creating education in areas such as health care.

I think as we understand the needs of rural India better, as we have understood the needs of business today in the industrial world, we can create software and IT solutions that will help people with their daily lives, their livelihood, education, and just maybe empowerment.

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