Efficiency in governance is desirable, achievable (Governance Now)

How process science and technology can help achieve the objective of minimum government, maximum governance

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FDI in E-commerce: The welcome decision that wasn’t

As soon as the Finance Minister said something about e-commerce in his maiden Budget speech, the social media was abuzz with discussion about FDI in e-commerce being allowed. In Twitter, the tone was celebratory, with many complimenting the FM and PM Narendra Modi for this revolutionary decision. Some even started discussing what it means.

What added to the confusion is that PwC actually issued a statement welcoming the decision to allow FDI in e-commerce. And that was quoted by many in Twitter.

Even some media brands started tweeting the same. The Economic Times, India’s largest business newspaper was one of them.

In fact, ET actually did a story quoting PwC. All these were unfounded and just shows not just how social media behaves but how the respected media brands, in order to be the first with the story, compromise severely on fact-checking. Now, this is what the FM said.

FDI in the manufacturing sector is today on the automatic route. The manufacturing units will be allowed to sell its products through retail including E-commerce platforms without any additional approval.

It is very clear. Isn’t it? “The manufacturing units” will be allowed to sell “their” (ignore FM’s speechwriter’s grammar for a while) products through retail including e-commerce platforms. I could not listen to the speech properly but cautioned against some premature celebration

So, for sure, there is no implications for either the Amazons or the Flipkarts.

Does it mean it is a useless statement with no implications for anyone practically? That seems to be the tone of the despaired tweeple after they realized this.

But  even that is a misinterpretation. The companies that will surely benefit from this will be those foreign companies that manufacture in India.

Dell, which used to sell directly online before the new regulations came into force (now it sells through a partner), can start selling again directly through online channel. So can Lenovo. And Nokia. And Samsung. And many more product companies that already manufacture in India.

Will some of them start selling directly? Let’s wait and see.

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The Amazon of India is not Flipkart; Why should It be?

In a piece in Quartz, titled, The Amazon of India is not Flipkart—its Amazon, which was fairly well discussed in social media, online commentator and venture capitalist, Mahesh Murthy, returns to his familiar territory: criticizing Flipkart.

With a provocative headline like that and a very engaging style of writing — he is surely one of the few people in Indian Internet business who knows the subject and knows how to write—it is no wonder that the article has become such a hit on social media.

But then, appreciating someone’s writing style is one thing; accepting the arguments is another. There are still some old fashioned people out there, who still look for “uncool” facts and “cold” logic?

The question here is: beyond the rhetoric, how valid are the arguments?

The author argues that analysts may be club BRIC countries together to conclude that they will have their own Internet brands and they may be largely right, but India certainly is an exception. Here is what he says.

Perhaps it’s the BRIC curse. Many analysts have traditionally put forth the idea that Brazil, Russia, India and China will have their own equivalents of Google, Amazon, Facebook, Twitter and eBay and hence those are the firms one should fund and look out for in each country. It almost holds true, too: the Google of Russia is Yandex, and of China is Baidu. The Facebook of Russia is VKontakte and that of China is RenRen. The Amazon of Russia is Ozon and its Chinese equivalent is Jingdong or JD. And the Twitter of China is Weibo while its eBay is Alibaba.

The analogy falls apart in India. The Google of India is Google, with a 95%+ share of the market. The Facebook of India is Facebook. The Twitter of India is Twitter. The eBay of India is eBay. And hey, there’s reason to believe that the Amazon of India could well be Amazon, too. India, with its English-speaking Internet base and open-to-business government is probably more part of the US-UK internet brand ambit—the vast majority of Quora’s users, for instance, are from India. While China and Russia are almost on different dot-com planets.

Winning in India will probably mean you have to evade the paths where the large US players are, and build new ones. As JustDial and RedBus have shown. (Disclosure: I used to be an investor in RedBus.) It’s commonly known that Amazon turned down an offer to buy Flipkart a couple of years ago, and decided to go its own way.

No matter how engaging read it is, there are some fundamental flaws with the line of argumentation. Here is why

  1. BRICS is not just China, Russia. While South Africa is omitted (the original GS term was BRIC anyway; wasn’t it?), Brazil is not referred to show that India is so unique. Why? Just in case you wonder, here are the facts: Google has more than 95% share in both these markets; as in India.
  2. When Google and FB started, Indians, whose primary language on computers is English had no problem in using them, overwhelmingly started using them. So, no one really thought of creating a local product. It is not that there were five big Indian names and these companies came and killed them.
  3. On the other hand, by the time Amazon started in India, Flipkart was already a big brand name.
  4. And finally, the fact. Ebay, the only brand above to have an offline component of business and hence requires more to succeed than Indians’ comfort level with English, entered India by acquiring Bazee, an Indian company, modeled exactly on Ebay
  5. Also, what is conveniently ignored is that India’s top travel site (Travelocity of India, if you like) is not Travelocity, but Makemytrip; top job site in India is not Monster, but Naukri.
  6. And finally, this is a subjective argument, though, there is no reason to believe that Flipkart has done any less innovations than say Redbus (disclosure: I or no one among my friends and family has any interest in either of the companies). But then, that is a separate topic, for another day.

The point I am making is not that Flipkart will win against Amazon or the other way around. Let them compete and let the best guy win. That will be in the interest of consumers.

But let us not get carried away by “selective” facts.

 

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Why CMOs Will NOT Spend More than CIOs on IT?

Ever since Gartner made that dramatic announcement in 2012 that by 2017, a CMO would spend more on IT than a CIO in a typical enterprise, there have been many media stories, analyses, and animated discussions in both CMO and CIO forum about whether, why and how it will happen.

But mostly, I have read the analyses in US business/tech media or some specialized publications in India on marketing or IT. I decided to write this when I read a front page story, CMOs may soon outpace CIOs in technology spending, in one of the best among Indian business media, when it comes to catching a serious trend, Mint. For last two years, it is the world of marketing that I have been operating. Before that, as the editor of Dataquest, CIOs and IT departments consisted of my world. So, nothing excites me more than an issue concerning both.

Though the headline seems like a complete rejection of the idea, I must clarify, however, that I am not at all dismissive of the trend—that marketing departments are increasingly putting a lot of thrust on technology. With online and social media becoming important channels of marketing, and technologies controlling those media changing every single day, there is not really any other option for smart marketers. With the IT departments of today not geared up to respond at the speed at which they expect them to do, they resort to DIY approach. That explains hiring of own “marketing technologists”, as the article points out, and an increase in IT spend.

The trend, in a broader sense, is not new. Ever since the on-demand model has come into play, any business manager can, without answering too much questions from the corporate finance department, try out any application. After all, she is only using her budgeted opex and using no IT capex that should involve the IT department. And when I say any business manager, I mean any business manager, not just those in marketing departments. In fact, in early days of Software as a Service (SaaaS), it is these functional managers, frustrated with what they described as extremely slow pace of the IT departments, started implementing many of the point solutions, using this new-found freedom (SaaS). In a story on SaaS that I did for Global Services magazine (which was being published from the US) in 2006, I focused completely on this aspect and got a fair bit of appreciation and criticism from bloggers, mostly from the US. Unfortunately, that article is not available online now. One popular blogger who wrote on procurement even labelled the article a last-ditch effort to save the soon-to-be-extinct species called corporate IT departments.

After eight years, the endangered species not just survives but thrives. And not because of my article!

Many of those SaaS applications that the functional managers had invested on are either extinct or are part of a bigger suite and are handled by the corporate IT department under CIO.

Why? Partly because, these functional departments were not silos and could not operate as independent units; they had to interact with the other functions and the enterprise systems for smooth information flow, at some point of time. That raised a lot of technical issues which the functional managers were not capable of handling. But more importantly, many of the smarter managers never really wanted to handle. They realized that it was not worth their time and energy to devote so much attention to applications and technologies—which were anyway getting standardized—at the cost of new business challenges and opportunities that needed their attention.

There is no reason to believe that it will be any different in case of marketing technologies. True, the IT departments, compared to marketing departments, are slower. But that will always be the case. As guardians of governance and compliance in the enterprise, they will always remain a bit slower than customer facing marketing departments.

But the problem is not exactly unreal. Marketing departments which have to execute really fast many a times, have to have some solution to their problem.

The organizations must tackle the issue head on. And that issue is not CIO vs CMO, as media loves it to portray. In fact, there are two issues.

1. Getting the right balance
2. Find out a model of co-ownership that works

The first is not really a CIO’s or a CMO’s responsibility. It is actually, the CEO’s or in some enterprises the COO’s, with a little help from the CFOs. The key question is: what speed is good enough? The CMO could want supersonic speed. But is the organization ready for that? Does it even need that? Is her demand fair? Is it even necessary to prepare IT department to match that speed? The CMO may be wedded to an idea or may want peer appreciation. But then, everything has a cost. And the cost is not just what she would pay to the vendor for an app or the cost of hiring a marketing technologist. The long term cost has to be calculated taking into account the cost of integration with the enterprise.  From the organization point of view, is it worth that cost, at that point of time? So, it has to find out where lies the balance.

The second follows  from the first. There is no one best model for all. Depending on business, size, geography and genesis, an organization has to decide what is good for it.

An organization may decide that compliance and governance are of utmost importance, at the cost of everything else. In that case, it makes sense to route everything through IT department, even though it takes a little longer. In that case, the challenge is to make the IT department as efficient and faster as possible.

Another organization may decide that speed is extremely important. In that case, it may find its own solution. The marketers may need to invest directly on technology and technology manpower, with or without the IT department acting as a consultant, or for creating a specific set of rules of procurement and implementation.

An organization may even decide that the marketing may be given complete freedom to invest on their own technology vetted by IT department and may had over the system to the latter once it stabilizes.

In short, the real solution is finding a model that takes into account why both these departments were created, what is the current situation, and what would be the best model to go forward, by making the CIO and CMO cooperate.

Most organizations are realizing that there is a need to have two sets of people in IT: the demand guys—who would sit with the business needs to decide what is possible using technology and what is needed—and the supply guys, who would ensure that IT services are delivered reliably and efficiently. In many traditional organizations, the IT department is optimized to perform the second role and the approach to first role is ad-hoc, often pulling someone from IT department who knows “that technology” along with an enthusiastic young chap in the functional department, who is seen as being “tech savvy”. It is in these organizations that are good breeding grounds for conflicts between business managers ad IT departments. Just that the horizontal marketing community is a little bigger and a lot more vocal than other business managers.

Going back to the much less important but far more hyped debate of who would spend more—CIO or CMO—you do not need too get into so much of analysis to get an answer. As much as 70% IT cost in an enterprise is on maintenance and upgradation. A lot of that is on IT infrastructure such as hardware and systems software. So, factually, even if one assumes that a lot of new investment decisions will be taken by someone else, that will still not affect the overall balance so much. In other words, CIO will still account for a large chunk of IT spending, even if the organization follows a model where functional units are given charge of their own technology establishment.

 

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Open Data: Looking Beyond the Apps

The open data movement has surely gathered momentum across the world. Taking a cue from the United States, which launched its data.gov open data sharing site in May 2009, many national governments have taken similar initiatives to create their own open data sites. These include developed countries such as Australia, Canada, France, Germany, Italy, Netherlands and UK as well as emerging nations such as Brazil, India, Indonesia and Russia. Most of these sites got launched between 2010-2012.

India launched its open data site, data.gov.in September 2012. After starting off slow, it has now picked up momentum and today offers more than 2500 datasets. A dataset is a table of data on a particular area. It could be as large as all the crop production in the country crop-wise, district-wise for the last 30 years or it could be as narrow as exports of a particular item to different global regions in a single year.

The US opened the government data as part of president Obama’s open governance promise, while the first Federal CIO Vivek Kundra, the person behind implementing the initiative, called upon individuals, groups and commercial companies to make use of open data to build innovative apps that would solve citizens’ problems. Kundra consistently championed building apps and even prophesized that in the coming years, there would be “explosion of apps” based on open data.

Since then, these two attributes—transparency and citizen apps—have become the de facto objectives of government open data initiatives across the world. While the developed world has taken to both these objectives, the emerging countries have focused more on the citizen app side, for obvious reasons. Transparency is a very lofty objective to achieve in these countries just by releasing some datasets, when other governance frameworks are not ready.

While both these are worthy expectations to have from government open data initiatives, what is a little worrying is that these objectives have come to define open data priorities and policies in many countries.

Take the Apps expectation, for example. Globally, the role of apps creation from open data has been so overemphasized that many governments try to measure the effectiveness of their open data programs by the number of apps developed on the data made available. That is a completely misplaced expectation because of two reasons. One, data can help in betterment of citizen’s life in many ways beyond apps. Two, it is difficult for governments to track all the apps created. Look at the US data.gov site. Though there are more than 75,000 datasets, there are only around 350 citizen developed apps shared in the site.

Apart from misplaced expectations (and disappointments because of not meeting those expectations), the apps expectation has also resulted in misplaced priorities and policies governing open data.

Here are some of the skewed policies governments have followed because of the overemphasis on the apps part of open data.

Not measuring the efficiency accrued to the economy. Open data initiatives throw important government information in public domain, accessible easily to all. Very often, similar information is separately collected by various others (academic researchers, commercial organizations, other government bodies and agencies) for their requirements, thus duplicating the efforts. In other words, it is inefficient use of time and resources.

Open data, by eliminating—or at least minimizing—the need to duplicate that effort makes the whole economy far more efficient. This is difficult to measure in the short run but over a period of time can be measured. I have never heard any open data evangelist talking about this anywhere.

Further, if the governments realize this, they could cooperate with the other stakeholders and data collection and processing can be optimized to meet the requirements of more stakeholders. In future, the cost can even be shared. This can lead to far more efficient collection and processing of basic information and even enhance data quality.

Limited Outreach. The overemphasis on apps aspect has created a misplaced priority in terms of outreach. The outreach programs of governments in most countries are directed at the tech/app builder community with some tech savvy NGOs/advocacy groups joining in. The entire open data discussion is restricted to these three communities: government, developers, NGOs/advocacy groups. Many major stakeholders such as media, market researchers and academic researchers who could play an important role in showing the latent value that lies in open data are today left out. Even if they do show an interest, they often get scared away by the technical lingo that dominates these discussions. That is a loss for the cause of open data.

In an online conversation hosted by The World Bank on Open Data for Poverty Alleviation, I raised this point. Tim Davies of Practical Participation did agree and had this to say.

I think there is often a failure in open data capacity building to think about the consultants, analysts, researchers and so-on who might be engaged as users of data, and who will provide bespoke value added services on top of it (hopefully realizing social as well as economic value).

Restrictive data formats. Many government agencies implementing open data in their countries focus all their attention on obtaining/creating datasets in machine readable format—a direct result of working from apps backwards. While a lot of time and energy is wasted in conversion/cleaning, a lot of good, structured datasets, that are not in machine readable format never make it to their list of published datasets. That is a big loss.

True, machine readable formats do make life easier for everyone, but ignoring human readable formats is the other extreme. Open data is not defined by any format. Maybe, the implementers of data portals should take some middle path, which will encourage machine readable formats but should not leave out human readable formats such as pdf completely.

Too much emphasis on datasets on consumer interest areas. The overemphasis on citizen apps put an undue pressure on the managers of data portals to work towards obtaining more and more datasets that are directly of interest to end consumers and hence good data to build apps on. So, while a hospital list or a crime info dataset is cheered, a crop production data or exports data is often dismissed as “useless information dumped by government.” While it’s true that data that is of consumer interest can be used to instantly create apps, research on data on agriculture and meteorology, when analyzed at the hands of experts and using right tools can have a far broader and long term impact on the lives of millions of citizens. These analyses could help in maximizing agricultural production/avoiding big disasters/imparting the right skills to unemployed youth and so on, even if they are not created as sleek apps.

Slowly but surely, the constraints of associating open data too much with apps and pre-designed visualizations are being realized. Mike Gurstein, a leading voice about open data argued this in his blog.

But why shouldn’t we think of “open data” as a “service” where the open data rather than being characterized by its “thingness” or its unchangeable quality as a “product”, can be understood as an on-going interactive and iterative process of co-creation between the data supplier and the end-user; where the outcome is as much determined by the needs and interests of the user as by the resources and pre-existing expectations of the data provider?

Though Gurstein’s explicit question is about the rationality of deciding outcomes by the pre-existing expectation of the data provider, the logic can be extended to ask why should it be based on the pre-existing expectation of the apps providers? In most cases, the apps providers do not have too much of extra insight about the end users’ needs.

At the end, it must be pointed out that open data is about making information work for the betterment of society—making lives of citizens convenient, creating the basis for decisions at a macro-economic level, making the economy and business ecosystem more efficient, and yes, minimizing risk. It is not about technology; technology is a very handy tool, though.

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The Realities of Twitter Democracy!

In September 2011, as the then editor of Dataquest, I wrote an editorial, The Opportunities and Threats of Facebook Democracy. While Dataquest was one of the first publications to do a cover story on how social media was effectively used in the fight against corruption earlier that year (in April), and had celebrated the new power that social media had given to the common people, in this editorial, I had warned against attaching too much importance to the voice emanating from social media by the leaders and policy makers. My reason, of course, was the low penetration of social media. In a large diverse democracy, jumping into conclusion based on what a small section of people belonging to a particular socio-economic section say, was a potentially dangerous and suicidal thing to do, I argued.

The reason I called it Facebook Democracy was that a lot of the campaign by India Against Corruption was actually carried out on Facebook. It was the main mobilization platform.

Since then, Twitter has been used by politicians very effectively to drive their messages. Many politicians and political parties have taken professional help for that purpose. All of us know the power of #pappu and #feku campaigns. While penetration of Twitter is still miniscule compared to the size of  Indian electorate, some politicians have managed to have a very large fan following, going up to more than a million. And there are at least ten Indian politicians on Twitter who have more than a lakh followers. Considering that not more than 100 million Indians are online, those numbers are not unimpressive.

Unimpressive they may not be. But as it turns out, most of these followers are fake.

Social media management platform maker, Status People, actually provides a way to check your (and others’) fake followers. I actually checked out the the fake followers of the top ten Indian politicians on Twitter by number of followers and checked how many fake followers they have. 

And can you imagine what the average looks like?

It is 59%.

That is, as much as 59% of the followers of these politicians on Twitter are fake. And typically, the bigger the number of followers, the bigger is the percentage of fake followers, though there are small exceptions.

Here is the table.

Politician Twitter Handle Total Followers Fake Followers (%)
Shashi Tharoor @shashitharoor 1756468 62
Narendtra Modi @narendramodi 1560092 65
Dr Manmohan Singh @pmoindia 538323 55
Sushma Swaraj @sushmaswarajbjp 447766 52
Arvind Kejriwal @arvindkejriwal 314614 54
Omar Abdullah @abdullah_omar 274937 54
Subramanian Swamy @swamy39 165408 42
Ajay Maken @ajaymaken 151118 55
Derek O Brien @quizderek 149448 38
Varun Gandhi @varungandhi80 118728 52

The numbers are as on 1st May 2013

And here are some realities.

  • Narendra Modi, the potential PM candidate of BJP, heads the list in terms of  percentage fake followers, with 65% of his followers being fake.
  • As many as 8 of the 10 in this list have more fake followers than they have genuine followers. Derek O’ Brien and Subramanian Swamy have the lowest percentage of fake followers in this list.

What Does This Mean?

This, of course, does not suggest that politicians are doing something deliberate to create fake profiles/followers. And since there is not much to choose between different parties, it is not a political statement that one is making. In fact, many politicians themselves will be shocked to know this.

For that matter, there is not too much of a difference between politicians and other celebrities when it comes to the percentage of fake followers. I did check that for a couple of them. In case of Amitabh Bachchan, 73% Twitter followers are fake. For Shah Rukh Khan, that number is 70%.  But in case of celebrities, it is a reaching out to the fans, so it does not matter how many fans follow them.

For politicians too, it is a great platform to get their message across, engage with media and at least a certain section of people, who are using this medium. The problem begins, when, their PR managers try to make us believe that they are great leaders because of the large fan following. That is when we get it completely wrong.

In fact, fake followers is just one part. The above platform, Status People, also measures how many of the followers are inactive. For each Twitter profile, it divides the followers into three parts: fake, inactive and good. When you take just those followers that it terms are good (who are real and active), the total followers number drops drastically.  Here is the above list of politicians with their “good” followers.

Politician Twitter Handle Good % Good Followers
Shashi Tharoor @shashitharoor 10 175647
Narendtra Modi @narendramodi 10 156009
Dr Manmohan Singh @pmoindia 16 86132
Sushma Swaraj @sushmaswarajbjp 16 71643
Arvind Kejriwal @arvindkejriwal 14 44046
Omar Abdullah @abdullah_omar 13 35742
Subramanian Swamy @swamy39 21 34736
Ajay Maken @ajaymaken 12 18134
Derek O Brein @quizderek 22 32879
Varun Gandhi @varungandhi80 13 15435

The numbers are as on 1st May 2013

So, in effect, Shashi Tharoor’s active are just 1.75 lakh Twitter users, not 1.75 million.  The prime ministerial candidate Narendra Modi has just 1.5 lakh followers, not 1.5 million. Varun Gandhi just has 15,000-odd  active followers.

In short, these numbers denote their actual sphere of influence. Except for Tharoor and Modi, these numbers are in thousands; in a country of a billion. And when you combine this to the fact that Twitter reaches only a certain class of people, it follows quite logically that extrapolating the influence/opinion of Twitter to the real world is not a great idea. Not yet.

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Reshoring of Services: Is It Just A Matter of Time?

There is a new addition to the x-shoring lexicography—reshoring. Well, I say new because, at the time of writing this, Wikipedia still does not have an entry for it. Else, the trend has been on the rise in the last couple of years. Today, it has reached a stage where one can easily call it a trend, if not the dominating trend.

Reshoring, put simply, is moving offshored operations of a company, back to the country from where it had moved, typically the home country of the company.

“In the last two years, there has been a lot of discussion and excitement around reshoring, as the trend to move manufacturing back to the U.S. is called. In parallel, a growing number of U.S. executives are repatriating their manufacturing capabilities—moving some production operations back from overseas,” noted a report recently published by the MIT Forum For Supply Chain Innovation. The report, titled U.S. Re-shoring: A Turning Point, was conducted among members of the MIT Forum for Supply Chain Innovation and members of the Supply Chain Digest community. As many as 340 participants completed the survey. Some 33.6% respondents stated that they were “considering” bringing manufacturing back to the U.S, though only 15.3% of said that they are “definitively” planning to re-shore activities to the U.S.

The tendency to reshore is not specific to companies of any particular size. Neither is it to any particular segment within manufacturing. Some of the big names that have taken to this include Apple, Caterpillar, NCR, Ford, Master Lock, and Foxconn, representing all types of manufacturing segments, from capital goods to electronics and from contract manufacturing to automotive. And yes, GE, which once led the offshoring wave, has also started reshoring. This very interesting article, The Insourcing Boom in The Atlantic, gives a nice overview of GE Appliance’s genesis of reshoring efforts.  The articles raises some interesting questions that take on the logic of offshoring head on. But I will return to that. Just to make sure, the reshoring trend is not restricted to the likes of GE, Apple and Caterpilar. Smaller companies have also found value in that. Here is a first person account from a small sports apparel company.

Estimates about the magnitude of reshoring varies. But 40,000 to 65,000 jobs in the last three years is a decent range to go by.

While it is early days yet, the opinion seems to be turning in favor of re-shoring. In a recent Economist debate, Do multinational corporations have a duty to maintain a strong presence in their home countries? as many as 54% voted for the motion. While Harry Moser, Founder, Reshoring Initiative, an initiative that aims at mobilizing opinion in favor of reshoring defended the motion, noted economist and author of the book, In Defense of Globalization, Prof Jagdish Bhagwati argued against it.

The debate about offshoring is not new. It has been there ever since offshoring begun and has never really ceased, though it comes to the forefront only during certain phases such as presidential elections.
But usually, the tone has been political. It has been emotions vs cold logic. It has been “politics” vs economics, as some practitioners of offshoring put it.

But for the first time, it seems, cold logic and economics are being used to challenge the benefits of offshoring. This article in The AtlanticWhy We Can All Stop Worrying About Offshoring and Outsourcing, puts forth some arguments, that applies to logic, something that businesses ultimately go by.

One, it argues that labor costs for many businesses may no longer be the critical or even primary factor in global location decisions. Two, it says that the old practice of designing at home and then manufacturing abroad can slow the pace of innovation and product change. And finally, it argues that companies are questioning some of the “outsourcing”  logic and bringing certain functions in-house. While that can still be done by a company owned offshore centre, many re-shoring enthusiasts still see it as a reversal.

The jury is still out on if reshoring will be an industry-wide phenomenon,  one cannot ignore the trend any more.

Will services be affected?

So far, the trend has been seen in the manufacturing industry. All the arguments and facts are about manufacturing industry. What about services—something that really affects India? So far, I haven’t read much about reshoring in services, except for some passing mention of India in some articles while talking about broader offshoring wave.

Does it mean that services offshoring is irreversible? Or does it mean that it is only a matter of time? After all, didn’t offshoring of manufacturing precede services offshoring by a few decades?

To examine if services could follow the same reshoring trend, we must see if the factors that are driving manufacturing reshoring can impact services as well.

Let us start with the the arguments put forward by The Atlantic, as listed above.

Take the first one: labor costs for many businesses may no longer be the critical or even primary factor. We can safely say that when it comes to services industry per se, it is not going to be the case in foreseeable future. So that logic does not really apply.

The second one is more pertinent. And has different dimensions. The old practice of designing at home and then manufacturing abroad can slow the pace of innovation and product change, it argues. That essentially suggests co-location of R&D, design, and manufacturing, and preferably closer to market. Which essentially means that if the demand in emerging markets go up, there is some cold logic for having manufacturing and design there. If one examines from India’s perspectives, for example, it calls for manufacturing capability in India, assuming that the design and R&D capability are well-developed. So, it brings us back to the old debate: whether China develops services capability faster or India develops manufacturing capability faster.

The third point in the article is about inhouse offshore centres. They are not new to India. Popularly called captives and now being labeled as Global Inhouse Centres (GICs), their importance is being acknowledged. One of the NASSCOM forums that actually is seeing a lot of rising interest is the NASSCOM GIC Conclave.

The MIT study identifies six top reasons for reshoring decisions. Time to market was the top reason cited by the manufacturing companies. That only partially affects services industries. The main reason for time lag is not there as there is no movement of atoms,  as in manufacturing. Movement of bits happen in almost real time. However, not co-locating different functional teams could have some impact. But that is usually addressed in a mature offshore services operations. In fact, sometimes having people in different time zones accelerates services delivery, as many companies have found out. The other reasons cited by the respondents from manufacturing industry is cost reduction (I assume supply chain costs as oil prices keep going up), product quality, more control, and IP protection. IP protection is the only reason out of this which could be as important for services as it is for manufacturing.

Reshoring Initiatives, in its website, lists the following reasons for companies to consider reshoring.

1. Reduces Total Cost of Ownership
2. Improves quality and consistency of inputs
3. Reduces pipeline and surge inventory impact on just-in-time operations
4. Clusters manufacturing near R&D facilities, enhancing innovation
5. Reduces intellectual property and regulatory compliance risk
6. Eliminates the waste and instability caused by offshoring

Except for reason 5, none of these apply too much to services.

So, in effect, it does not seem that services would be a candidate for reshoring anytime soon. The only thing that can trigger companies looking at services reshoring is lack of availability of manpower in pockets of skill areas. But those are tactical and not strategic decisions.
Google

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