IT slowdown & self destructive tendencies


IT slowdown

Indian IT outsourcing was thriving on labor arbitrage, a concept that refers to the shifting of jobs where labor and the cost of doing business is inexpensive due to the reduction or removal of barriers to international trade. However, geopolitical developments across the globe, such as ongoing Brexit concerns, and radical industry shifts to new technologies like cloud computing have sounded out some warning signals to these firms.

In a recent presentation to Nasscom, Global advisory firm McKinsey & Company said that nearly half of the workforce in the IT services firms will be “irrelevant” over the next 3-4 years. A similar view was echoed by Capgemini CEO who feels that 60-65 percent of the workforce are just not trainable.

According to a study by Horses for Sources, India is likely to lose 640,000 jobs to IT automation by 2021.

Chart : Total impact of automation on IT/BPO services workers by major country (all skill-levels across all workers)

Automation

Robotic process automation is already a buzzword in industries around the world. It presents a massive challenge to India’s software services sector. IT services providers must not only explore new service lines and solutions but also invest in building new capabilities and re-skill employees with emerging technologies.

Unfortunately, for the USD 155 billion industry, the imperative to structurally reorient the business has come at a time when they are facing headwinds like the ones from President Trump’s protectionist agenda.The IT service industry employs around 4 million people. A large majority are engaged in jobs that are likely to be non-existent in the future. The old-fashioned manual coding jobs are likely to be replaced by automatic coding and cloud computing that significantly reduces the size of the workforce.

Slow revenue growth and adoption of newer technologies — cloud computing and automation platforms — have started replacing engineers. Hiring will definitely be slower than revenue growth as IT companies try to make their existing employees more productive. The slow pace will affect the middle management as well lower rung of employees doing work that can be automated.

Easy Way Out

The IT industry’s success story is not a straight line. The Y2K provided a great opportunity for it to penetrate global corporations while expanding its revenue base. The dot com bubble perpetuated by the internet companies impacted its growth but lasted only for short period of time. In the meantime, US went through a couple of recessions with the 2008 financial crisis being the biggest. The industry also overcame several technological shifts by quickly adopting new technologies and retraining its work force. The Indian IT industry used every crisis as an opportunity to re-invent and re-establish itself as a formidable player in the global software space. Today, it is a mighty, dominant force in the global outsourcing industry with more than 60% market share.


The industry is facing several headwinds today, of which some are structural. The whole world is going digital at a rapid pace. Newer technologies like cloud, mobility, Artificial Intelligence, Virtual Reality, etc., are redefining how global corporates consume and spend on technologies. While the global corporations still spend a substantial amount of money on legacy software, the incremental shift in spending on new technologies is humongous. This is a structural change and the industry needs to take several steps, both internal and external, to be relevant in the new digital era.

Chart : Companies with most H1b approval in 2016

Chart : Share of H1b for Outsourcing companies

The new numbers from the agency show that these companies that outsource IT roles do make up a large portion of the H-1B visas issued, according to analysis by Quartz. 
H1b numbers for last 10 years show that the companies have gotten used to easy way out and stopped innovation/workflow research. Some companies are using the Global Delivery Model to add bureaucratic controls on a growth oriented industry, at the same time trying to corner the easy visa spots such as H1b for their employees at a steep discount in the open market. Numbers show that the companies have gotten used to cornering the giant share of the H1b visas for cheap labour only without concern for the research and development in this Technology oriented field and have repeatedly lost out on new technology solutions/initiatives to innovative companies from Far east and Europe. The enthusiasm to spend on newer solutions is utterly lacking in many of these offshore companies while they overenthusiastic to manage the operations in relatively well developed markets such as USA, Europe and Middle East.

Chart : Innovation benchmark not maintained by these companies

Chart : Companies with most H1b approval in 2016

Corporate Initiative and CSR

In 2008, Bill Gates spoke at the World Economic Forum about “creative capitalism.” He encouraged companies to identify their expertise- be it technology, agriculture, healthcare- and develop products that could “stretch the market forces.” A slightly more nuanced take on “doing good,” it meant honing in on the business’ specialty, not just throwing money at various charities. He has substantially invested in poorer countries in Africa, Asia and America and demonstrated effectiveness of technology in solving social and subsistence problems of the people.


However offshore companies don’t do anything like that. Some of the companies such as Wipro and Infosys have announced investment in foundations and also claim to partake in philanthropic activities aimed at poverty reduction. We have in the Satyam saga how the owner tried to claim philanthropic activity in rural health care while trying to gain a share in corporate healthcare while paying only peanuts for the ambulatory services. These companies seem to heed no advice and drift in the direction of self destruction without taking any note of the leadership provided by the technology leaders such as Bill Gates. Taking out huge amount of money from H1b visas without proper direction will stall IT growth and it might take decades to correct the mistakes. This is creating a serious, significant issue for governments of India with a heavy reliance on its workers providing outsourcing services for Western enterprises. None of the companies are addressing the situation here nor they are doing any thing to develop new age technology leaders that can steer the companies to higher grounds. These companies are not investing on soft skills such as Humanities, Reskilling, Basic Sciences and most of the time are relying on government dole in those areas.

Class problems

The upper middle class urban elite that control the management in majority of these IT firms are mostly interested in skimming money using cheap labour on H1b and B1 visa, while they want to make use every dole provided by the government in Humanities development, Basic science development, poverty elimination in lower classes etc… These management people have proved to be real corporate chameleons by being on the top of the job market and have successfully jumped between MNCs and Offshore companies with ease. At the same time the lower middle class dominated programmers and analyst have lost jobs in thousands due to lack of proper leadership in IT field. In long run this will create major class problems if not addressed now. Over the decades these executives have bested the art of creating cheap pyramid schemes and clever head hunting tactics with utter disregard for overall social vision of the programming community. Many of these IT executives have a scant regard for the rules of the country and most of the time tried to aggressively play the international game in politically volatile countries such as Latin america, Africa and Middle east. Once the IT hayride is over these tactics will start coming back to the original perpetrators in future. These issues might provide a big headache to the IT governance at the government level in near future.

 

These people are further dividing the line between haves and have-not and are also not acknowledging the government schemes that contributed to their development initially. The burden on governments in developing coherent strategy will be immense in coming years to address the ever increase skew in income categories.

References

  • The silent crisis: Why Indian IT engineers are staring at a future of no jobs, Madhuchanda Dey Moneycontrol Research
  • Artificial Intelligence and the Death of Indian IT Sector, Harpreet Singh

 

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IT Fraud and Consumerism

Consumerism and Frauds in the Offshore IT field

Introduction

During the initial years of Westernization of Indians, many intellectuals saw the world as an undivided humanity that knows no barrier or religion, race, class, and nationality (Datta, 2003). Enduring many invasions through ages, the Indian had a broad and inclusive concept of world that emphasized amongst so many religions what we had was one among many religion. Rabindranath Tagore, the Nobel Laureate in Literature from Bengal, captured this essential oneness of mankind and visualized a universal man in Indian philosophy in his famous Nobel-winning Gitanjali:

“When one knows thee, then alien there in none,

Then no door is shut. Oh, grant me my prayer that

I may never lose the bliss of the touch of the one

In the play of the many.”

Neo-liberal Mafia

Off late due to increased westernization from 80’s, many religious gurus are professing faith in neo-liberalism that includes market fundamentalism, consumerism, welfare retrenchment, and liberal governance, away from Gandhi’s idea of Hindu economics. These revivalist gurus are professing a mix of economic efficiency, ambitious individualism beyond the traditional Hindu society, selfish narcissism, acquisitiveness and excessive materialism for their followers that are taking over the traditional Hindu ethos of toleration and equilibrium in public life. This new culture is feeding the consumer culture and exploiting the traditional Hindu ethos for the sake of new technocratic global-consumer middle class concentrated in few cities.

The Indian people had firsthand experience of this new naked commercialization where huge amounts of money was lost in the bubble busts after bull runs aided by mass hysteria without taking the operating P/E of the sectors into consideration. The new consumer class that is getting huge flows of capital from West, when examined closely, appear both self-centered and riven by paradoxes, seeking validation for their lives from Hindu evangelist gurus even as they acquire the latest consumer gadgets. At the same time this group hasn’t taken the mantle of leadership in religion-socio-economic development, and when compared to similar groups in China or Japan or Korea, they have a  reputation for creating chaos and confusion. (Deb)

This dichotomy in daily ethos among these new adherents of the urban revivalist agenda has created vast number of problems for an average Indian. The neo-liberal professors of this movement such as Subramanya Swamy have paid a nominal lip service to the vast population groups in the country while vocally professing their god given rights for the unbridled consumerism that has sees no responsibility. Some of these new jingoist adherents have identified a caste-superiority based logic in placid Hindu society that legitimizes their dominant position in High-Technology directorships, in Corporate world, in Faculty positions and in Government positions . Researchers have found that the vast masses at the base of the Indian economic pyramid are also affected by the spread of consumer culture. “Increasing desires to consume branded goods that are advertised through television is …a consistent and recurring theme.” Moreover, “intertwined cultural processes of conspicuous consumption, normative change [imposing a link between consumer goods and morality], and [interpersonal] competition” mark narratives of low caste Indian consumers. They reflect an increasingly consumerist content of Indian media that depicts the mythic lifestyles of the rich and famous. (Belk, 2008)

Satyam Scam

For example, during the High technology growth of Hyderabad in 2000’s, this new revivalist mafia tried to hijack the technology growth for their own selfish purpose while locking the vast sections of the population in their flawed pyramid of the new-liberal agenda. The case of Satyam computers highlight the nefarious potential of loose-canons that would burst the high-technology growth (only among Indians). The fraud committed by the founders of Satyam is a testament to the fact that “the science of conduct” is swayed in large by neo-liberal agenda, ambition/greed, and hunger for power, money, fame and glory. Satyam fraud spurred the government of India to tighten CG norms to prevent recurrence of similar frauds in the near future. The government took prompt actions to protect the interest of the investors and safeguard the credibility of India and the nation’s image across the world. If the government didn’t take action in time the scandal had the potential to spiral into mass hysteria that would have jeopardized the entire IT sector that employed 2.5 million people around that 2009.

Satyam fraud details

From being India’s IT “crown jewel” and the country’s “fourth largest” company with high-profile customers, the outsourcing firm Satyam Computers has become embroiled in the nation’s biggest corporate scam in living memory (Bhasin, 2009)

Satyam ownership model was flawed from the perspective of good corporate governance. There may be three factors responsible for this. The factors are not the causes of global and colossal fraud, but they provide an enabling environment for abuse and delusion.

  1. First, being a publicly owned company, Satyam could raise capital inexpensively if its existing shareholders assigned it a high value. Hence, in order to attract capital from public, it was under pressure to overstate profits to keep the company’s bonds and equities in high esteem. The promoters formed informal partnerships with this neo-liberal mafia all over the world targeting the Hindu temples, Christian and Muslim groups to develop a profitable relationship in the High-Technology sector based on false promises.
  2. Second, the promoter of the company, Mr. B. Ramalinga Raju, owned a very small fraction of the ownership stock. He diluted his holding from 25.6 % in 2001 to 3.6 % in 2009. He could overstate profits with the objective of influencing other shareholders. This ensured that the whole operation was risk free for the Owners in case of volatility in the IT sector.
  3. Third important factor for flawed ownership model may be, Satyam could preserve its fictitious profits without having to pay big taxes because its profits were protected significantly from the normal tax laws. They do not pay taxes on fictitious revenues and 22 profits. There are no penalties. The belief that exempting firms such as Satyam from service tax and corporate income tax will make them competitive is a little ridiculous. Satyam would not have overstated its revenues and profits if it had to back both with real cash. A big part of the blame for the colossal fraud thus belongs to India’s trade and fiscal policy makers who gave an uneven advantage to the neo-liberal technology mafia while ignoring the basic fundamentals of the High technology and its impact on the vast reaches of the population.

The owners maintained a consumer relation with the neo-liberal mafia over the period of 2 decades and won numerous corporate awards all recommended by this mafia. In 2007, Ernst & Young awarded Mr. Raju with the ‘Entrepreneur of the Year’ award. On April 14, 2008, Satyam won awards from MZ Consult’s for being a ‘leader in India in CG and accountability’. In September 2008, the World Council for Corporate Governance awarded Satyam with the ‘Global Peacock Award’ for global excellence in corporate accountability”. The company provided vast sums of money to this neo-liberal mafia by funding many higher education institutes such as IIIT, CCMB etc… thereby ensuring and addicting to consumerism the placid Hindu masses.

The promoters successfully cashed out of the company in an immoral relationship with the neo-liberal mafia over the period of 10 years. The cashed money was used in funding the real-estate companies and the socio-educational entities that would support this neo-liberal agenda and in future lay the foundations of the political takeover of the State governments. The owners were successful in creating a huge network of bogus companies that catered to this neo-liberals while systematically subjugating the vast populations to the consumerism. The owners of Satyam in an unethical relationship with this neo-liberal mafia wrongfully tried to influence fiscal and monetary policy of the Southern States by systematically taking over the social, agricultural, financial, educational, governmental, and meteorological aspects of the morbid agrarian population using an aggressive socio-economic agenda that created a new ecosystem of these fraud companies. The idea was to take over the top positions in the corporate, financial, judicial, religious and political eco-sphere of this new ecosystem.

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The government acted swiftly by arresting numerous managers for Income Tax evasion and the directors on numerous criminal charges. However the promoters of Satyam were able to show accounting fraud and go to prison while the neo-liberal mafia behind the company is free.

Requirement for newer controls

However this episode highlights the lack of controls at the government level on managing the IT growth and the neo-liberal mafia. The neo-liberal mafia was successful in promoting Mr. Raju as the poster boy of IT revolution and got an international audience with likes of Bill Gates, Bill Clinton, Hillary Clinton etc.. and subsequently benefited in the western countries such as United States and Canada by monopolizing many jobs in number of sectors.

The limits and responsibilities of operating a IT company catering to rich western clients were not defined properly in the existing company law. This is high-time the bureaucrats open their eye to this new pyramid scheme wrecking havoc on the age-old society in India. There should be harsher criminal punishments for people caught manipulating socio-political-economic environment for selfish greed.

Works Cited

Belk, V. a. (2008). Weaving a web: subaltern consumers, rising consumer culture, and television. Sage.

Bhasin, M. L. (2009). Creative Accounting Practices at Satyam Computers. Creative Commons Attribution 4.0 .

Datta, S. (2003). W (h) ither Indian Mind . IJT.

Deb, S. https://www.thenation.com/article/spoils-indian-democracy/.https://www.thenation.com/article/spoils-indian-democracy/.

Will Robots spell trouble for the BPO industry

Introduction

Robotic Process Automation (RPA) is the new technology driven business process automation set to take over the Business Process Outsourcing (BPO). The saying on the streets is, if a BPO provider is embracing the benefits of RPA or other transformative technology in the next year, they’re going to have plenty of business.  Providers who refuse to innovate may find themselves in the dust. RPA can help BPO providers get up to speed and offer great new services to their existing clients.  Traditional outsourcing won’t disappear overnight, but RPA can take those relationships to a new level today.

RPA

The current sophistication of the technology is still at beginner level for integration in the process pipeline. The impact on process automation is estimated at 20-40% only of the overall customer requirements, however with the increased Artificial Intelligence research and IoT technology improvements there is a huge scope in future for this number to increase. Today’s emerging RPA tools, such as Automation Anywhere, Blue Prism and UiPath, would cost around one ninth of a Full Time Equivalent (FTE) person working in, say, the UK or US, or a third of the cost of an FTE working offshore (say India) and could replace up to 20 FTE after process re-engineering. What RPA does is completely skew the business case dynamics of outsourcing: large, global organisations, such as Infosys, Wipro, TCS, Capgemini, Capita, etc, who have built their business model around employing more and more people, will now have to completely change their whole mindset to cope with the opportunities and threats that RPA brings. [Andrew Burgess, 2016] A recent CIO Journal article noted that the market for RPA is expected to jump from $183 million in 2013 to $4.98 billion by 2020. Further, The Age of Smart Process Automation (SPA) that uses AI with machine-learning capabilities just is around the corner. The outsourcing global organizations are investing heavily in this technology, For example, Cognizant acquired Trizetto; Wipro has created an AI platform called Holmes; TCS is working on an AI platform called Ignio; and Infosys has announced a major investment in automated capabilities. While RPA is likely to cannibalise existing revenue streams of the BPO players to an extent, BPO players can offset this by adopting an annuity-based business model where the players generate revenues by selling robotic software and also by managing every robot that they operate for their clients.

In Finance and Accounting, many deals are mature and rooted in legacy models, the work is highly transactional, and buyers have been stuck with the same FTE loads for years (or decades). But the real reason why F&A is starting to deliver real potential for R-BPO is the simple lack of widely accepted enterprise F&A SaaS which can fix the dysfunction of a process, with a broad-brush implementation and hefty license fee. We are seeing it in pockets with SaaS solutions such as Workday FM, Netsuite and even FinancialForce, but it’s the ultimate failure of F&A to over-rely on legacy technology, maintain strict controls that defy collaboration, and keep bloated numbers of people to deliver legacy processes that is creating a huge potential new market for robotic-led processing and human augmentation. [Phil Fersht, 2016] Forrester estimates that RPA and machine learning will cause the number of U.S. “cubicle workers” to decrease by 16%, or 12 million workers, by 2025. KPMG suggests the worldwide total could be as much as 100 million jobs. “In the next 15 years, it’s likely that 45 percent, and maybe up to 75 percent, of existing offshore jobs in the financial services sector will be performed by robots, or more precisely, robotic process automation (RPA),” stated Cliff Justice, KPMG LLP (KPMG) Advisory principal.

“That should translate into enormous costs savings of up to 75 percent for firms that get on board.” [KPMG]

To imagine the scale of potential impact on the current industry, the BPO sector globally is currently worth over $300bn. In India alone, more than 3 million people are employed doing BPO work; in the Philippines there are another million. Across Europe and the US millions more workers earn their living through BPO. RPA will have the potential to impact every single one of those jobs. The Indian BPO industry had revenues of Rs 1.86 lakh crore in financial year 2016, according to Nasscom. It employs 1.1 million people exclusively for outsourcing business. India’s share of the global BPO sourcing market is around 38 per cent. However, apart from Governance issues , pursuing arbitrage in established outsourcing destinations such as India, Philippines & China is becoming less desirable due to rising commodity and living costs. Moreover, outsourcing of labor intensive and rules-based processes leads to human-errors and makes the business vulnerable to security breaches and fraud. Replacing with RPA from the perspective of enterprises or end clients, can lead to significant benefits such as improved efficiency, reduction in the number of FTEs required to handle a process, cost savings, and improved ability to reach meet the SLA targets and KPIs. In some of the traditional markets there will be no significant change likely in the approach of large US companies until the new administration settles in and drafts new laws to deal with these newer technologies and the offshore industry.

Offshore Regulations

But there is no specific law in India that regulates outsourcing transactions except in relation to telecommunication services. Most Indian BPO companies follow the global standards of certification. However, data privacy and integrity concerns related to outsourcing have emerged as the biggest concerns for the clients of Indian BPOs. Nasscom is in talks with the government to set up a nodal agency to monitor, collate and disseminate information on international IT frauds involving Indian entities.

Frauds

There were many instances of fraud in the offshore industry particularly the IRS telephone impersonation scam.  There were instances where victims in the US were threatened with tax investigation by call centre executives of these firms pretending to be officials from the IRS. Software industry experts and officials from enforcement agencies in the country feel that absence of regulations to monitor BPOs, high unemployment rate and slow conviction in criminal cases have together made India a hub for such activity.

The Treasury Inspector General for Tax Administration (TIGTA) has only seen a rise in the IRS impersonation scam in the US with an average loss of more than $5,700 per taxpayer. “The Treasury Inspector General for Tax Administration, or TIGTA, has received reports of more than one million contacts since October 2013. TIGTA is also aware of more than 6,700 victims who have collectively reported over $38 million (Rs 253 crore) in financial losses as a result of tax scams,” a July 2016 release of TIGTA stated. As a part of its consumer awareness and protection program, TIGTA released several alerts and YouTube videos explaining the modus operandi of IRS impersonators. “TIGTA is concerned that the recent arrests in India will not bring a total halt to the IRS telephone impersonation scams,” said J Russell George, Treasury Inspector General for Tax Administration, in an email response to The Sunday Express. “Members of the public cannot and must not let their guard down,” he added.

Regarding incident where BPO employees allegedly duped over 6,000 US citizens of at least Rs 500 crore, “This particular incident is not much of a BPO issue. We should not call them (Thane call centres) BPOs. These are companies run by criminals to commit fraud. Having said that, we have recognised the issue and are closely working with law enforcement agencies,” R Chandrasekhar, president of Nasscom, said. “We are ready to provide whatever help possible to the police to get to the bottom of such cases. We are committed to make India safer,” he said.

Conclusion

Notwithstanding some frauds, Since the reality is that India brings a great advantage to the IT and BPM (Business Process Management) industry through low-cost and simplicity, there is a great chance that the indian players will have a slice of the RPA in the long run.

References

  1. How robotics is changing the face of Business Process Outsourcing, Robohub, Andrew Burgess, 2016.
  2. Why it’s time for Robotic-BPO to break the mold of legacy F&A engagements, HorsesforSources, Phil Fersht, 2016.
  3. Rise of the robots, KPMG Report.