human resource foundation of the Indian IT enabled services IT industry

National Association of Software and Service Companies I n d i a

Strengthening thehuman resource foundation of the

Indian IT enabled services/ IT industry

Report by KPMG Advisory Services Private Limited in association with

NASSCOMunder the aegis of the

Department of IT, Ministry of Information Technology and Communications,

Government of India

National Association of Software and Service Companies

Preface

Developing India's human resource is key to our progress. The most visible and

successful demonstration of this is our IT industry. In this sector, human resources

comprise both the raw material and the 'technology', and is therefore of prime

importance. Availability of a sufficient number of high quality manpower is a key

requirement to ensure the on-going and sustainable growth of India's IT industry. It is

in this context that NASSCOM was particularly delighted when the Department of IT

initiated a Task Force on 'strengthening the human resource foundation of the Indian

ITeS / IT industry. We at NASSCOM felt that this was not to be just one more of those

reports, particularly as the Task Force comprised representatives of some of the leading

ITeS and IT companies in India, in addition to representatives from various government

bodies and educational institutions.

NASSCOM, as the overall representative of the Indian ITeS / IT industry, decided that

the best way to support the Task Force was by providing industry inputs and past

research, while leveraging its relationship with KPMG to look at present and future

needs.

The study aims at covering a vast and seemingly unconnected range of areas including

humanpower requirements for R&D, IT services and IT-enabled Service. NASSCOM,

with able support from the team at KPMG as well as the co-operation shown by various

industry players, managed this within a short time. The report has been prepared under

grant-in-aid received from the department of IT, Ministry of Communications & IT and is

aimed at supporting the Task Force's deliberations on recommendations.

The level of detail adopted for this study is exemplary and indicates the focus on

implementation as maintained by the Task Force and the project team throughout its

deliberations. Implementing these will however be another challenge, considering the

nature of change required and the multiplicity of stakeholders involved.

NASSCOM, however, is committed to supporting the implementation of these

recommendations. The first step in this context is to establish this report as a common

source of reference and mobilization amongst policy-makers, industry players and

potential employees. The next step is to concretize specific, actionoriented pans with

definite responsibilities and timeframes. These need to be implemented and monitored

with appropriate correctives based on feedback.

Kiran Karnik

President, NASSCOM

Global IT sector growth trends during 2002-12 1

Gap between demand and supply of manpower 12for IT / ITeS industry and share of the market for India

Strategy to enhance institutional capacity (formal and 32non-formal) to generate requisite manpower

Emerging areas in the knowledge domain for India to pursue 43and strategy to reinforce status as ITeS / R&D hub

Design of standards and common test for ITeS skills 58based on industry requirements

Measures for optimizing deployment of non-IT personnel 67in ITeS and R&D

Fiscal policy measures to maximize private sector participation 75in HRD for IT / ITeS

Comprehensive action plan for HRD in IT / IteS 81

Contents

This document, prepared by

KPMG Advisory Services Private

Limited in association with

NASSCOM, focuses on

strengthening the human

resource foundation of the Indian

ITeS/ IT industry.

A special thanks goes to the

Department of IT, Ministry of

Communications and Information

Technology (Government of

India), who have supported the

production of the publication

under a special grant.

Global IT sector growth trends during 2002-2012

1

Companies world-wide are faced with increasing pressures to improve business performance . . .

. . . even as overall budgets get reduced

Pre

ssu

res

toim

pro

ve

bu

sin

ess

perf

orm

an

ce

Business performance

Skills shortage

Productivity drivers

n Rapidly ageing population (e.g. increase in median age in OECD countries from 29.6 in 1970 to 36.5 in 2000) leading to lower laborparticipation

n Even countries like China, with a large population today, could face a shortage of up to 10 million workers by 2020

n Companies will be unable to make-up for labor shortage through automation (only 13.5 per cent of all service jobs are amenable toautomation)

n Business productivity in form output production efficiency (through automation, IT, supply-chain reconfigurations etc.) may be plateau-ing

n Business productivity growth in the future is expected to be driven more by cost efficiency of inputs (e.g. down-sizing, off-shoring, economies of scale / scope etc.)

n Index returns over the last three years for major US stock markeindices have been – 10 per cent to – 40 per cent

t

n Number of corporate bankruptcies (for companies with assets greathan USD 100 million) during 1998 – 2002 increased by 150 per cent compared to those in 1993 –1997

ter

n Even European countries like Germany are facing slowdown in growth to 0.4 –1.4 per cent accompanied by stock market index fall of 60 per cent from approx.8,065 (March, 2000) to approx.3,170 (Sept, 2002)

Source: Press reports. BCG. NASSCOM. KPMG. 2003 -2004.

This chapter provides an overview of the off-shore ITeS / IT business and the potential

benefits and impact of these services on performance.

It also provides estimates of market size and growth for the global ITeS / IT industry by

geography, client-industry and solution form.

Companies world-wide are faced with increasing pressures to improve business

performance, even as they face a looming skills shortage and an exhaustion of standard

options to drive productivity.

Skills shortage, as reflected by an ageing population in Western countries, would

increase pressure on availability of labour force. Automation is also not expected to

entirely compensate for the shortage of labour supply.

Strengthening the human resource foundation of the Indian IT enabled services/ IT industry


2

Off-shoring of business processes and functional activities is one of the options

available to a global business to improve business performance.

The benefit from off-shoring is through the ability to access relevant skills at

appropriate costs such that the savings are much higher than the incremental cost of

telecom connectivity and control / co-ordination activity involved.

Additional benefits could arise from economies of scale and re-engineering benefits at

the off-shore location. Some global companies have seen business benefits to the

extent of 35–55 per cent savings in relevant costs through off-shoring.

Off-shoring offers an option to reduce expenditure while maintaining or even improving performance . . .

. . . and can lead to savings of 35–55 per cent on current cost structures depending on specific business process and scale being considered

Illustrative

100

5

45

10

5

35

Original cost

base

Budget

reduction

Support

functions

restructuring

Process re-

engineering

Off-shoring

benefits

Reduced

cost base

45

55

35

10

1020

Labor cost

differentials

Incr telecom

costs

Incr Control /Co-ordination

costs

Consolidationand scale

economies

Process re-

engineering

Off-shoring

benefits

Technical services (IT) cost improvement for a global financial services company

Per cent of cost base

Source: J P Morgan. NASSCOM. KPMG. 2003-2004.

Benefits from off-shoring to the extent of 35 – 55

per cent of original cost base depending on client

and process specific characteristics

Note: Numbers for off-shoring benefits are based on experience of companies off-shoring IT services and back-office processing functions to India

10

3

Off-shore IT and IT-enabled services include specific services leveraging the potential of Information and Communications

Technology . . .

The phenomenon of locatingIT-services and other business

processes. . .

. . . into optimal off-shorelocations . . .

- Excludes outsourced manufacturing, product assemblyetc.

- Excludes hardware technology products

. . . largely enabled through advances in IT and

telecommunications . . .

. . . to access relevant skills / resources for business

performance improvement.

- Excludes on-site / in-country support (i.e. primarily directed atexports)

- Excludes body-shopping services or those requiring physicalinteractions

- Expands role of ITeS / IT beyond mere cost reduction to overall business improvement

Source: KPMG. 2003-2004.

Off-shore IT and IT-enabled services include:

“IT services and other business processes located in optimal off-shore locations,

largely enabled through advances in information and telecommunications

technology, to access relevant skills and resources for business performance

improvement.”



4

These could include a wide-range depending on the nature of expertise involved . . .

Back-office data entry /

processing

Customercontact

Corporate support functions

Knowledge services and

decision-support

Research/ Design and development

n Data entry(form filling)

n Data conversion(translation, transcription)

n Basic processing (checking / updating)

n Document management (storage, retrieval)

n Customer services(complaints, inquiries)

n Tele-marketing (pre-sales, order-taking, catalog sales)

n Collections support(reminders, payment support)

n Shared corporate function support (HR, Finance / Accounts, HR, procurement)

n IT support (development, integration, maintenance, help-desk)

n Analyst services (legal, financial)

n Customer analytics (segment profits)

n Application processing (claims)

n Risk management (underwriting, structuring)

n Advisory services (tele-medicine, consultancy)

Nature of work

n Engineering and design (CAD/ CAM)

n Content development (animation, web site, graphics)

n New product design (specifications, pilot testing)

Illustrative

Increasing complexity of task and skill requirements

Note: List of activities and examples above is illustrative only and not exhaustive Source: Press reports. 2003.

Off-shore ITeS / IT include a wide range of services with increasing complexity of work

from back-office data entry and processing to customer contact services to corporate

support functions to knowledge / decision support services to R&D / Development

services.

As a result, the qualifications and nature of skills required could vary accordingly.

5

The first wave of global expansion began with companies reaching out to new markets

with existing products and brands – the key driver being the increasing demand for

new products in growing markets.

In the second wave of global expansion, companies actually began shifting entire

production activities in order to take advantage of lower cost labour and capital.

Off-shoring represents the third-wave of establishing global presence, with the

segregation of business processes and functions and their outsourcing to different parts

of the world or remote locations.



. . . and partially through remote facilities

Business processes conducted only partly within client country . . .

Business processes managed within client country

Before off-shoring

After off-shoring

Wave 1: Global export

- Spreading-out of sales efforts

- Attracted by latent / growing demand for products and services in new markets

- Offer existing goods under existing brand names in new markets

Wave 2: Global production

- Spreading-out of product manufacturing

- Leverage pockets of capital / labor efficiency due to lower costs, economies of scale etc.

- Produce in specialized pockets to then ship globally / re-assemble

Wave 3: Global business re-alignment

- Spreading-out of business processes and functions

- Leveraging global presence to access low-cost skills and spread establishment risks

- Run business processes across locations over telecom networks

1 2 3 4 5

2 3

1 4 5

Nature of global

expansion

Key drivers to expansion

Business implications

Different forms of global expansion by companies

Off-shoring

Source: KPMG. 2003.

Illustrative

4

6

Companies are considering off-shoring business processes from across the entire business value chain . . .

Operations / Logistics

n Order tracking

n Order / claims / application

processing

n Payments processing

Finance and Accounts

Technology Services

Product Development

Inb

ou

nd

Lo

gis

tics

Man

ufa

ctu

rin

g/

Op

era

tio

ns

Ou

tbo

un

dL

og

isti

cs

Mark

eti

ng

an

dS

ale

s

Cu

sto

mer

Serv

ice

Human Resource Management

Sales / Marketing and Customer

services

n Tele-sales

n Order processing

n Customer services and

complaints

n Help-desk

IT services and support

n Custom development

n Systems integration

n Hosting / maintenance

n Customer help-desk /

support

Human resources

n Payroll processing

n Recruitment and selection

support

n HRIS

Research / Design and

Development

n Clinical Research

n VLSI design

n DSP chip design

n Avionics research

n Clinical Research

n Engineering design

services

n Legal research

Finance and Accounting

n Back-office

n Accounts payable

n Accounts payable /

receivable, fin. reporting

n Finance accounting

n Revenue accounting

Illustrative

Source: Press reports. KPMG. 2003.

Off-shoring is no longer restricted to specific primary or secondary activities of a

business. All the key business processes across the entire business value chain, as

exhibited in the figure above, can potentially be off-shored.

A number of companies world-wide have already off-shored business support activities

to in-house or third-party service providers.

7



This trend towards off-shoring is being driven by some key developments on the demand and supply side . . .

Ke

yd

ev

elo

pm

en

tsd

riv

ing

off

-sh

ori

ng

Demand-side characteristics

Supply-side characteristics

Scope of economic benefits possible

- Companies stand to gain 30 – 50 per cent in cost savings with additional revenue enhancement / service improvement possibilities

Comfort with and trust in off-shoring

- Companies with established sourcing relationships grow trust in suppliers for BPO

- Other companies are getting attracted by others’ success

Access to global resources- Companies with global

presence can leverage local resource access to support off-shoring

Access to trained, cost-effective skills

- Companies have access to certified / experienced skills at 1/5 –1/10 of costs in other locations

Telecom connectivity options

- Global telecom connectivity options have increased and costs have fallen under competition and technology

Regulatory support and incentives

- No restrictions/ barriers on service trade (duties etc.) have been placed

- Host countries even support services export through incentives

Source: Press reports. Merrill Lynch. KPMG. 2003.

The trend towards off-shoring is being driven by specific dynamics on the supply and

demand side. Companies are becoming increasingly comfortable with the idea of off-

shore service provider relationships.

With the continuing support from regulatory agencies, availability of low cost

infrastructure and the right skills mix, off-shoring could continue to be a large business

opportunity over the longer term.

As per estimates by IDC and NASSCOM (2003), the global ITeS / IT market (off-shored

as well as domestic) was USD 1,184 billion in 2002 (USD 392 billion for IT services and

USD 792 billion for ITeS).

This market is expected to grow by a CAGR (2003 – 2012) of 11 per cent, driven by

strong growth across the Americas, Europe-Middle East-Africa (EMEA) and the Asia-

Pacific market.

The American and EMEA markets are expected to continue to be the major markets for

ITeS / IT, contributing 80 per cent of the market in 2012 as compared to 85 per cent in

2002.

The American and Europe-Mid East-Africa (EMEA) regions are expected to continue to be the major markets for ITeS / IT although

the growth could be faster in the Asia-Pacific regions . . .

Source: IDC. NASSCOM.KPMG. 2002-03.

441 625 8641,193

792 881

1,213

1,633

2,198

3920

1,000

2,000

3,000

4,000

2002 2003 2006 2009 2012

ITeS

IT

USD billionCAGR

(2003-2012)

1,184 1,322

3,391 11 per cent

11 per cent

12 per cent

Global ITeS / IT market

EMEA

Americas

Asia-Pacific

225 313 425 577496 546

726941

1,218

2010

1,000

2,000

2002 2003 2006 2009 2012

IT ITeS

USD billionCAGR

(2003-2012)

697

1,366

1,795 10 per cent

9.3 per cent

11.0 per cent

USD billionCAGR (2003-

2012)

11.8 per cent

USD billion CAGR (2003-2012)

Source: IDC. NASSCOM.KPMG. 2002-03

2,497

771

1,838

1,040

149 212 295408173 194

272372

509

1330

1,000

2002 2003 2006 2009 2012

IT ITeS

306343

917 12 per cent

11.3 per cent

667484

66 99 143 208123 141215

318471

580

1,000

2002 2003 2006 2009 2012

IT ITeS

181 208

67914 per cent

14.3 per cent

13.5 per cent

461314

Note: Industry estimates upto 2012 are based on available short-term estimates and would need to be revised periodically based on actual performance

Note: Industry estimates upto 2012 are based on available short-term estimates and would need to be revised periodically based on actual performance

8

This growth is expected to be driven by the characteristics and needs of specific industries . . .

15

19

20

19

47

47

57

121

140

30

35

45

52

69

107

109

136

262

354

11

13

17

18

16

43

42

51

109

126

12Education

Healthcare

Transportation

Utilities

Telecom services

Retail / wholesale trade

Telecom equipment

Government

Manufacturing

Banking, Finance and Insurance Services

2012

2009

2006

2003

2002

10.9 per cent

10.2 per cent

9.0 per cent

9.8 per cent

9.6 per cent

15.5 per cent

11.2 per cent

10.2 per cent

10.2 per cent

10.2 per cent

USD billionCAGR

(2003 – 2012)

Offshore-ability

(preference and ability)

Source: IDC. Gartner Dataquest. NASSCOM - McKinsey. KPMG. 2002–2003.

Global IT services requirement projections by industry (does not include ITeS)

Note: -ability (preference and ability)

-ability (preference and ability)

indicates high degree of offshore

indicates low degree of offshore

High growth potential due to

under-penetration

9



The demand for IT and IT-enabled services across industries would vary by the specific

characteristics and needs of those industries.

The Banking, Finance and Insurance services industry and the Manufacturing industry

have been the largest user of global IT services (2002). They are expected to continue

being the largest users even by 2012 due to high offshore-ability (i.e. ability to off-shore

and preference to off-shore).

However, going forward, other industries like telecom, utilities, healthcare and retail

trade are expected to drive growth with a CAGR (2003 – 2012) of 10–15 per cent due to

under-penetration despite high offshore-ability.

The global IT services market in 2002 was driven by Application Development and

support services (on-site and off-shore).

The preference of clients to use off-shore facilities for business continuity and cost

saving requirements is going to drive the global IT services market. The market is

expected to grow at a CAGR (2003 – 2012) of 12 per cent.

The global ITeS market in 2002 was driven equally by administration support services,

customer care, finance and payment processing services.

Increasing sophistication of the off-shore ITeS delivery model is leading to new

business processes being considered for off-shoring by new clients. The ITeS market is

expected to grow at a CAGR (2003 – 2012) of 11 per cent, driven by an increasing

demand for finance support, payment processing and HR services.

. . . within specific functional / solution areas inIT and IT-enabled services . . .

135 182 235303

245 278

405

580

830

1220

500

1,000

1,500

2002 2003 2006 2009 2012

IT education / training

Appln Dev and Support*

SI and IS consulting

USD billionCAGR

(2003-2012)

12 per cent

9.0 per cent

9.4 per cent

12.9 per cent392

441

1,193

31 55 97201

323491

747

162 178

235

306

400

199216

274

330

398

169182

226

276

337

7888

124

165

219

1710

500

1,000

1,500

2,000

2,500

2002 2003 2006 2009 2012

Content Development*

Administration

Customer care

Finance

Payment services

HR

USD billionCAGR

(2003-2012)

11 per cent

10.7 per cent

25.0 per cent

9.4 per cent

792

1,633

2,198

15.7 per cent

7.0 per cent

7.1 per cent

Source: IDC. NASSCOM. KPMG. 2002 - 03.

Source: IDC. NASSCOM. KPMG. 2002 - 03.

* Support IT services are those that require on-site presence of support staff and are not delivered from off-shore location like ITeS

* Content development services include remote design services for VLSI / embedded systems, security / control systems etc.

864

881626

1,213

Note: Industry estimates upto 2012 are based on available short-term estimates and would need to be revised periodically based on actual perfor mance

Note: Industry estimates upto 2012 are based on available short-term estimates and would need to be revised periodically based on actual perfor mance

Global IT services market Global IT-enabled Services (ITeS) market

10

This growth in ITeS and IT industry is expected to usher ina new way of working . . .

. . . creating pressures on the economic and social systems of various countries to adapt to these changes

Imp

act

of

ITeS

/IT

wo

rkin

g

Night-shifts

Flexi-time

Average age of employee

Means of service delivery

n Remote services delivery imply a greater emphasis on agent voice modulation /

accent and ability to understand client accents and lower emphasis on grooming

n Remote services also imply lesser need for agglomeration into urban offices and

the move towards SOHO / tele-working

n ‘Follow-the-sun’ service expectations imply need to support night shift

operations including support for banking, healthcare, food and entertainment,

transportation for agents

n In order to manage higher returns from resources, capacity utilization through

scheduling becomes critical, leading to flexible working hours

n Agent preferences for ITeS / BPO work suggest the need for flexi-time options

n The average age of the workforce would be around 27 – 30 as compared to 35 –

40 in other industries, requiring a different organizational structure and culture

as well as facility design

11



This increasing trend towards off-shore ITeS / IT is going to change not only the way

business is organized but also the social and economic aspects of employees and

potential employees

– Tele-working and remote support is going to be increasingly common.

– Night operations, tuned to end-customer service timings are going to increase

in demand.

– Employees on the other hand will be faced with a flexible work-time depending

on business cycles as well as peak demands for their respective services.

– Average age of employees could be much lower as the education – employment

cycle gets transformed into an education – employment – reskilling –

employment cycle.

12

This chapter provides an understanding of India’s key strengths related to the off-shore

ITeS / IT industry and target market share.

It also provides an estimate of the potential manpower requirement in India upto 2012

to meet the off-shore ITeS / IT market requirements and the potential gap based on

numbers expected to be available.

India’s revenues of USD 7.7 billion in 2002 correspond to 24 per cent of the off-shored

ITeS / IT market, establishing India as ‘the services-hub of the world’.

Some of the world's leading organizations have chosen to have their business

operations supported from India through third-party or in-house facilities. This includes

a wide range of services from back-office data entry and processing to customer contact

services, corporate support functions, knowledge support functions and research and

design activities.

1.98.3

1.7 0.4

0.8 0.2

8.41.1

2.47.7

1.1 3Ireland

Israel

E. Europe

Russia

China0.3N/A

Philippines

Australia

2.1 0.4

India

0.02 0.04

South Africa

24.43.7

0.5N/ACanada

Mexico

Global IT / IT-enabled services market (2002)

Domestic

Off-shored

Source: McKinsey Global Institute. 2003.Note: Numbers above indicate total market for off-shored and domestic ITeS / IT for year-ended December 2001 or March 2002.

Eastern Europe includes Poland, Hungary, Romania and the Czech R epublic

USD billion

. . . however India’s share of the global ITeS / IT spend was still low at 0.8 per cent (2002), suggesting significant growth potential

India is emerging as ‘the services-hub of the world’ with a 24 per cent share (2002) of the off-shored IT / IT-enabled services market . .

Gap between demand and supply of manpower for ITeS / IT industry and share of the market for India

However, India’s current share of the total global ITeS / IT spend (off-shore and

domestic) was still low at 0.6 per cent, suggesting significant future growth potential

related to off-shoring.

India’s proposition for off-shore ITeS / IT support is driven by:

– availability of appropriately skilled resources;

– lower costs of manpower (1/5th to 1/10th); and

– ability to generate better quality of work, more efficiently.

There are examples of companies with off-shored services being provided from India

which have improved service levels by 5–10 per cent across different parameters such

as customer satisfaction, response time, accuracy, speed etc.

India’s proposition in this area is based primarily on the availability of a significant pool of appropriately skilled and trained

resources at a competitive price . . .

Skills

availability

Cost of

manpower

Quality of

work

efficiency

§ Highest base of employees currently within ITeS

§ A graduate base of over 14 million people with over 1 million IT-trained users

§ Salary levels at 1/5th to 1/10th of that of equivalent jobs in the U.S.

§ Reduced trade response time for an European airline services company

§ Increase in transaction processing speed at a U.K.-based retail bank

§ Increased customer satisfaction at a U.S-based financial services company

§ Increased accuracy of transaction entry at a U.K.-based retail bank

Philippines

Ireland

India

15,000

18,000

106,000

Dbase Admin.

Fin/Acctg Exec

Teacher 1/10

1/4

1/5

Note: Indexed to U.S. salary level for equivalent post

India

facility

U.S.

facility85 per cent

92 per cent

18 hrs.

4 hrs.

100

120

95 per cent

98 per centIndia

facility

U.K.

facility

Work facility

India

Europe

facility

India

facility

U.K.

facility

Source: NASSCOM. KPMG. 2002-2003.

Illustrative

13



India’s revenues in the ITeS / IT market grew by more than 25 per cent in 2002–2003 to

USD 12 billion by 2003.

Going forward, India’s value proposition and an overall shift towards off-shore ITeS / IT

are likely to help India’s revenues to grow at a CAGR (2003–2012) of 35 per cent,

reaching USD 148 billion by 2012.

The key contributors to this would continue to be IT export services (with revenues

estimated to be USD 55 billion by 2012, at a CAGR (2003–2012) of 25 per cent) and IT-

enabled services (revenues estimated to be USD 64 billion by 2012, at a CAGR (2003–

2012) of 44 per cent).

Based on its initial successes, India is expected to achieve revenues of USD 148 billion in the ITeS / IT area by 2012 . . .

8 15

55

27

64

28

21

0

40

80

120

160

2002 2003 2006 2009 2012

Domestic IT services

ITeS exports

IT exports

Source: NASSCOM-McKinsey.BCG. 2003.

Note: Market share estimates assume the same concessions and efforts in place as currently.

Industry estimates upto 2012 are based on available short-term estimates and would need to be revised periodically based on actual performance.

CAGR

(2003 – 2012)

USD billion

10 12

62

148

35.0 per cent

31.0 per cent

44.2 per cent

24.8 per cent

Indian ITeS / IT market projections (2002 –2012)

Indian ITeS market projections (2002–2012)

0

20

40

60

2002 2003 2006 2009 2012

Content Development

Administration

Payment services

HR

Finance

Customer care

1 2

21

64

Source: NASSCOM-McKinsey.BCG. 2003.

Note: Market share estimates assume the same concessions and efforts in place as currently.

33.7 per cent

54.8 per cent

101 per cent

47.0 per cent

Indian IT export services market projections (2002–2012)

24

10

18

0

20

40

60

2002 2003 2006 2009 2012

Training and Education

Outsourced support

IT Development

Consulting, integration, installation

24.8 per cent

86.6 per cent

26.4 per cent

8.6 per cent

50.7 per cent

6 7

28

55

27

14

7

CAGR (2003 – 2012)

USD billion

USD billion

24.9 per cent

23.4 per cent

CAGR (2003 – 2012)

44.2 per cent

14

The increase in revenues would correspond to an increase in India’s share of the global

ITeS and IT market from 0.8 per cent in 2002 to 1.5 per cent by 2006 and 4.4 per cent by

2012.

This is largely driven by an increasing share of the ITeS market as well as the IT market,

a lot of which could be in the form of off-shore services based on current trends.

This suggests a significant increase in India’s share of the global IT-enabled services and IT spending to 4.4 per cent by 2012 . . .

India’s share of global IT services market

India’s share of global ITeS / IT market

Source: NASSCOM-McKinsey.KPMG. 2003 -2004.

7.0%4.7%3.2%

2.2% 2.3%

60%

80%

100%

2002 2003 2006 2009 2012

USD billion

441100 percent: 1,194

USD billion

1,184100 percent: 3,391

. . . India’s share of off-shored services (i.e. not located within the same country) is expected to be even higher

India’s share of global ITeS market

392

2.9%1.3%0.6%0.2% 0.3%

60%

80%

100%

2002 2003 2006 2009 2012

USD billion

881100 percent: 2,198792

4.4%2.5%

1.5%0.8% 0.9%

60%

80%

100%

2002 2003 2006 2009 2012

1,322

Increase in overall

market share (IT and

ITeS) to 4.4 per cent by

2012

Note: Industry estimates up to 2012 are based on available short-term estimates and would need to be revised periodically based on actual performance

15



This translates into a direct employed manpower requirement of 3.7 million personnel for off-shore ITeS / IT by 2012 . . .

. . . this is in addition to manpower requirements for domestic and captive ITeS / IT support requirements within India

1.8

3.9

0.5

3

18

10

24

Training and Education

Outsourced support

IT Development

Consulting, integration, installation

0.5

0.2

0.1

0

0.3

0.4

4.3

2.6

9.7

18.8

6.2

22.4

Content

Development

Administration

Payment

services

HR

Finance

Customer care

India IT export services (USD billion)

India ITeS export services (USD billion)

274

111

529

58

972

2,717

197

147

447

690

206

1,030

IT export services employment (000s)

ITeS export services employment (000s)

2012

2002

2012

2002

Source: Press reports. NASSCOM-McKinsey.Manpower profile of India. BCG. KPMG. 2003.

Note: Billing rates and productivity assumptions have been based on nature of work and competition for services expected.

Total IT and ITeS employment (2012) of

3.7 million

Based on assumptions of utilization adjusted charge rate of USD 41.5 / Full Time

Equivalent / hour for export IT services and USD 17.3 / Full Time Equivalent / hour for IT-

enabled services, this market size translates to an estimated manpower requirement of

over 3.7 million for export IT and IT-enabled services, compared to 0.4 million in 2003.

Additionally, another 1–1.5 million could be employed in the domestic / captive IT

services area (based on current ratios of roughly 1:1), leading to a total manpower

requirement of approx. 4–6 million.

16

17

The IT export services industry could employ approximately 0.97 million

people by 2012 as compared to 0.2 million in 2003 . . . Illustrative

Revenues (USD billion)

Utilization adjusted charge rates (USD / FTE / hour)

Manpower requirement (FTE 000s)

2002 2003 2006 2009 2012

0.5 0.6 2.3 8.9 24.3

30 30 50 70 65

12 15 34 93 274

Revenues (USD billion) 3.9 4.7 6.0 7.8 9.8

1.8 2.2 4.8 10.4 18.0

0 0.0 0.1 1.0 2.7



43 43 55 70 65

66 81 81 82 111

14.5 14.7 21 27 25

91 109 167 283 529

20 20 27 35 35

0 0.4 3 21 58

Consulting, Integration, Installation

IT development

Outsourced support

Training & Education







CAGR (2003–2012)

51 per cent

38 per cent

9 per cent

4 per cent

26 per cent

19 per cent

87 per cent

75 per cent

6.2 7.5 13.2 28.1 54.8

26.7 26.9 34.2 43.0 41.5

170 205 285 479 972

Total IT export

services


Utilization adj. charge rates (USD / FTE / hour)


25 per cent

19 per cent



FTE = Full Time Equivalent

Assumptions related to manpower requirements for the IT export services industry are

provided here:

Number of working hours per FTE p.a. assumed as follows:

Total hours available 2080

Less holidays (35 days) 280

Less training time 200

Less admin. time 240

720

Utilized hours 1360 (76 per cent)



18

Assumptions related to manpower requirements for the IT-enabled services industry are

provided here:

Number of working hours per FTE p.a. assumed as follows:

Total hours available 2080

Less holidays (35 days) 280

Less training time 200

Less admin. time 240

720

Utilized hours 1360 (76 per cent)

The ITeS industry could employ approximately 2.7 million by 2012 as compared to 0.17 million in 2003 . . .




2002 2003 2006 2009 2012

0.4 0.7 2.4 8.0 22.4

10 10.5 12 14 16

29 49 145 420 1,031

Revenues (USD billion) 0.3 0.5 1.1 2.5 6.2

0.0 0.0 0.4 3.5 18.8

0.1 0.2 0.8 3.0 9.7



11 13 16 21 22

20 25 49 88 206

9 12 14 18 20

2 2 18 148 690

9.7 10 12 15 16

8 14 46 143 447

Customer care

Finance

HR

Payment services







CAGR (2003–2012)

47 per cent

40 per cent

34 per cent

26 per cent

101 per cent

90 per cent

55 per cent

47 per cent

1.5 2.4 6.5 21.0 64.0

10.2 10.9 12.7 15.4 17.3

106 160 379 1,004 2,717

Total ITeS


Utilization adj. charge rates (USD / FTE / hour)


44 per cent

37 per cent



FTE = Full Time Equivalent

0.2 0.4 0.7 1.5 2.6

8 9.2 11 13 13

17 28 48 147 147

Admin.




25 per cent

20 per cent

0.5 0.7 1.3 2.5 4.3

11.5 11.5 13 15.2 16.1

29 42 72 85 197

Content Dev.




23 per cent

19 per cent

Illustrative

19

Current graduate output and employment preference trends suggest that in the

absence of any corrective interventions, there could be a significant shortfall of

manpower required for ITeS / IT, even in the medium term.

High-level estimates suggest that this shortfall could be to the tune of 0.5 million people

by 2009 , roughly 23 per cent of the industry’s requirements of 2.1 million people for IT

services and IT-enabled services.

The key assumptions used for calculations include:

– Manpower requirements get reduced due to productivity adjustments brought

about by internal changes as well as nature of services provided. This is

reflected in the increase in charge rate per FTE per hour.

– Current pool numbers are based on NASSCOM’s estimates of approx. 160,000

employed in ITeS as at end of March 2003.

– Supply estimates are based on 13 per cent increase in annual graduate supply

(as per current trends), 65 per cent workforce participation and 1-2 per cent of

these preferring and capable of employment in the IT-enabled services sector,

with adjustment for attrition as currently observed (approx. 30–40 per cent).

Current manpower resources will not be sufficient to meet the aggressive growth targets even in the medium term (2009) . . .

1,120

140

520

460

885

525

360

Total supply (2009)

Supply expected based on

current trends

Current pool

Total demand (2009)

Products and Technology

services

Domestic IT services

IT services exports

Shortfall:235

IT manpower gap (2009)

Number (000s)

ITeS manpower gap (2009)

Number (000s)

Source: Institute of Applied ManpowerResearch. NSSO. NASSCOM. KPMG. 2003.

1,003

413

1,416

741

581

160

Total supply (2009)

Supply expected (net of attrition

at current levels)

Current pool

Total demand (2009)

Industry productivity

enhancement (product mix,

structural changes)

ITeS market demand (current

productivity)

Shortfall:262

Total graduate / engineer pool addition of 51 million,

discounted for labor force participation (65 per cent) and ITeS employment preference /

suitability (1 - 3 per cent)

. . . with a shortfall of over 0.5 million by 2009 for IT and ITeS, based on current human resource supply trends

Note: Manpower supply numbers are based on extrapolation of current trends related to growth in educational institutions, attendance rates, out-turns and labor participation as well employment preferences.

Reduction in manpower requirements depending

on mix of services offered

and delivery efficiencies



20

Not addressing this gap means that India’s target share of the export IT and ITeS market

would fall short accordingly.

High-level estimates, based on population and economic growth, suggest that India will

be one among many surplus countries across the world that will have a labor surplus

and would be able to meet off-shoring requirements of the world.

The issue, however, will be of being able to skill this surplus to be able to meet the ITeS

/ IT requirements.

A number of other countries with marginal surplus (like China, Philippines, Ireland and

Mexico) are already making strong efforts to establish the necessary policies,

institutions and infrastructure to meet these skilling objectives.

Potential labor surplus / shortage in working age group across the world (2020)

Shortfall

Surplus

India will be one amongst other countries with surplus manpower that could possibly be trained and deployed for ITeS

/ IT requirements . . .

. . . China, Philippines, Ireland and Mexico are some countries that could pose a competitive threat to India’s market share aspirations

Philippines

Japan

Australia

India

Egypt

UK

IrelandGermany

Spain

France

47

-9

-0.5

5

Indonesia

5Malaysia

1

Pakistan

19 China

-10Russia

-6

Turkey

2

4

-3

-3

-2

2-3

Brazil

3

Mexico

5

-17

US

-X

X

Source: US Census Bureau. BCG. 2002-2003.Note: Working population is defined at the 15–59 years age group. Ratio of working population to total population is assumed to be constant.

Labor numbers are based on assumptions of no interventions by respective governments.

Million

21

Comparing India to some of the emerging ITeS /IT destinations, one observes the

availability of a significantly large human resource pool that can be utilized.

India currently has some advantages as compared to these countries in terms of the

availability of skilled manpower at competitive costs.

However, the efforts by these countries to develop human resources pose a significant

competitive threat to India in the long-run.

Although these countries are currently not as favorably positioned as India in terms of availability of low-cost skills . . .

19,500

1,400

2,900

2,000

2,400

Ireland

Mexico

Philippines

China

India

43,200

137,600

380,000

950,000

2,100,000

Ireland

Mexico

Philippines

China

India

Manpower comparison across countries

Average salary for graduates

(USD per annum, 2001)

Total number of graduates per annum

(2001)

Source: NASSCOM-McKinsey. 2002 -2003.

. . . they are making significant efforts in improving the quality and quantity of manpower to meet global ITeS / IT requirements in the future

Note: Numbers are for year-ended December 2001 or March 2002.



22

Ireland’s vision to become a knowledge-based economy has evolved based on industry

and competitive developments.

Once Ireland had established itself as the preferred manufacturing / services destination

for a number of European and some American businesses, it decided to focus on high-

end services to avoid competing head-on with other countries that could boast of better

cost structures due to labor cost differences.

Ireland began with an overarching vision to become a knowledge-based economy driven by off-shoring . . .

n Ireland is one country that has strategically pursued the development of an outsourcing services market. It has developed a business environment that promises upto 44 per cent of savings for companies worldwide and over 1,200 companies have already chosen Ireland as a base. Ireland’s focus has been on becoming the foremost out-location service centre.

Ireland began with a vision of becoming a ‘knowledge-based economy with a world class infrastructure’ to promote foreign investment, export earnings and growth in employment. It invested heavily in telecom infrastructure (USD 5 billion over 10 years; IRP 250 million in a Technology Investment Fund for infrastructure modernisation) and education and training (IRP 75 million to develop technology skills; introduction of tele-service courses; focus on multi-lingual skills) to be able to compete as an outsourcing service provider country. It formulated tax incentives to attract foreign investment and instituted the Investment and Development Agency (‘IDA’), Ireland, to promote Ireland as a global location for back- end processing services.

The success of initial ventures attracted new players leading to intense competition for skilled labour. As a result, wages rose and Ireland lost its low-cost advantage. To boost supply of skills, it invested in its educational system that produces 60,000 English-speaking graduates each year. In order to arrest attrition, the government made efforts to spread development of outsourcing service centres beyond big centers like Dublin. It then leveraged the sophistication in its workforce and technology infrastructure to offer value added services. Outsourcing service providers were encouraged to upgrade their services portfolio. According to the IDA, “We don’t position Ireland as a low-cost environment. . .[but a place where companies] get quality people with high skills and high productivity.”

Ireland’s strategy today is to continue to promote inward investment but focus more on development of strategic business areas, clusters of excellence through the converged efforts of academia, business and venture capitalists. Amidst increasing price-based competition from other countries, it has identified its niche of value-added services where ‘ideas are created and used’.

Today, at least 60 companies have established call centres and at least 30 companies (2001) have established shared service centers in Ireland.

n

n

n

n

Case study

Source: Press reports. CII–KPMG study on ITeS. 2002.

23

Ireland focused efforts on creating a world-class education system that attracted and

generated skills ‘employable’ for high-end knowledge support services and then

conducted reforms in the enabling infrastructure (e.g. telecom, VC-funding etc.).

At the same time, various national agencies coordinated efforts at marketing and

positioning through industry interactions and specifically directed policies.

. . . and is striving to migrate to high-end off-shore support and management through a mix of investments and incentives . . .


Create right environment

Co-operation between stakeholders Commercialize new concepts

Growth through sharingEncourage support industries

n Ranked second most-global economyn Initiated Partnership 2000 program to

manage wage inflation in off-shoringn Corporate tax rates down from 24

per cent (2000) to 12.5 per cent (2003)

n Revamping of copyright and related intellectual property rights law for the comfort of potential investors

n Push towards higher quality education (already ranked #1by IMD, 2001) with multi-lingual skills, tele-service courses

n Supporting upgrade plans for current outsourcing centers into high-end off-shore support facilities

n Investment in off-shored centers started with Whirlpool Europe’s SSC in Ireland in 1995

n With unemployment rates at 17 per cent, company’s were able to attract suitable graduates at lower wages to achieve savings of 10 – 15 per cent as compared to operating in the UK

n IRP 250 million invested in telecom infrastructure modernization

n IRP 75 million to be invested in upgrading technology skills over four years

n Upto 400 per cent deduction on taxable profits for R&D expenditure

n Use of the Investment and Development Agency (IDA) as a common platform for FDI and off-shore attractiveness promotion

n Change of focus in 2001, towards setting-up of ‘Clusters of Excellence’ for specialized off-shoring

Case study



24

Ireland’s stakeholders have worked together across defined boundaries to formulate a

national strategy towards establishing Ireland as the preferred choice for knowledge

services.

This includes efforts at the policy level, efforts at working with the industry to identify

opportunities as well as efforts related to guiding the development of human resources

for future requirements.

Init

iati

ves

top

rom

ote

Irela

nd

as

acen

ter

for

bu

sin

ess

All the key stakeholders have been involved in efforts to promote Ireland as a ‘cluster for business excellence’ . . .

Involving government

agencies

Involving the industry

Involving the educational institutions

n Clarification on specific enabling regulations related to Copyrights, telecommunications and e-Commerce n Identified Foras as a national-level policy body to support and co-ordinate efforts across multiple agencies and

geographic regionsn Launch of National Spatial Strategy (involving hub-spoke approach) to co-ordinate efforts by various regions to

attract investments as per vision and to avoid unnecessary competitionn Identification of expert group on future skills needsn IRP 2.5 billion under the National Development Plan (2000 -2006) for R&D including a seven year fund of IRP

635 million under the Science Foundation Ireland for ICT / biotech R&D funding

n Special body under ICT Ireland to promote the development of indigenous ICT companies targeting domestic as well as exports businesses

n Strategic Competitiveness program as a forum for local set-ups of 1,100 global businesses already in Ireland to assist with competitiveness and sustainability

n Targeting of ambitious clients like Intel Fab 24, Google who were willing to experiment with new forms of organizing business

n Prominent business leaders invited to join policy makers in a series of studies addressed to meet quantity and quality of future skill requirements in the IT and other industries

n Using feedback from international review committees (e.g. IMD World Competitiveness Report) to ensure ‘fit’ between educational system and desired output characteristics

n Working with local educational institutions to retrain staff in order to meet market requirements (e.g. Prudential Inc. in Letterkenny)

n Locating universities based on market demands (e.g. three universities offering courses specific to the requirements of International Financial Service Center in Dublin, within a four-mile radius)


25

China is leveraging its excellent reputation in the manufacturing sector to attract global

ITeS and IT companies.

It has developed partnerships with large global giants in the area of manufacturing and

is now developing the requisite infrastructure for the ITeS and IT industries.

There has been increased focus on imparting English language education to enhance

the skills of the potential working population.

Case study

China is investing in improvement of existing infrastructure andresources . . .

n

n

n

n




China has already had experience of outsourcing services for the domestic market and has built relations with global clients through outsourced manufacturing. The focus now is to develop the capabilities, institutions and incentives that would propel China into grabbing a large share of the global services market. Comprehensive efforts are already visible across areas of telecom infrastructure, education and global marketing.

In order to bridge its capability gaps in the area of English language and technical skills, China has initiated a massive investment programme. USD 5.4 billion were invested in nine universities to revive the domestic IT resource pool. In order to spur English skills, the government plans to start English classes from the third grade and about 60,000 English teachers were invited from other countries to teach English. Success at the Olympic Games 2008 bid and the recent accession to the WTO are other drivers behind the enthusiasm for developing skills in English.

Reforms in the telecom industry were seen as critical to the success of this industry and were initiated in phases in 1999. The first phase involved separation of government ownership and operations. The second phase involved attracting new domestic players through active privatization and the third phase is about attracting global players and at the same time enabling domestic players to compete with them.

Promoting China’s advantage in providing outsourcing services has been handled at multiple levels, from repositioning China as an investment location, to projecting China’s low-cost advantage and the bundling of permissions to access the domestic market with a commitment to invest in China-based outsourcing services.

26

The focused approach, as illustrated above, involves a right balance of creating the

right business environment and increasing stakeholder co-operation.

At the policy level, the government is playing a key role by introducing reforms in

telecom policy as well introducing initiatives to encourage new investments.

Increasing promotional activities such as international fairs and business promotion

events are helping to promote China as an investment location of choice.

. . . with a structured approach to capture a larger share of theglobal off-shoring market . . .



Commercialize new concepts


n Policy geared towards globalization and accession to the WTO

n FDI approval for almost all projects at provincial level

n Preferential tax rates of 15 per cent (normal 33 per cent) under EPZs and other zones. Tax refund on capex over five years

n Attract investments from high-tech majors in the form of technology parks

n Labor law reform through a single comprehensive framework

n Promoting economic co-operation for industrial development in mainland China

n Leveraging experience of off-shored manufacturing and outsourced services to offer off-shore services to the global market

n Exploiting low cost structure supported by government subsidies, low software / labor costs etc.

n Phase approach to telecom reforms including divestment, privatization and competition

n Import of over 60,000 English teachers to build language capability

n New legal framework for lending by Chinese banks to JVs

n Use of international fairs and special business promotion events to promote China as an overall destination for investments

n Permissions for MNCs to leverage Chinese markets bundled with responsibility for off-shoring

Case study

Co-operation between stakeholders

27

Philippines is leveraging its economic and geographic proximity to the US to grow its share of the ITeS / IT industry . . .

Case study

Source: Press reports KPMG. 2002 -2003.

n

n

n

n

n

n

n

The Philippines government has recognized ITeS as a key driver to the country’s economy and has identified focus areas related to call center services, medical transcription, animation, shared back-office functions, software development and engineering and design.

The government aims to achieve revenues of USD 1.65 billion by 2004, largely from call centers services, with medical transcription being the second highest segment.

The government has established the Information Technology and e-Commerce Council (ITECC) through private – government partnerships to oversee and review the national promotion strategy for e-commerce

The ITECC works with the Department of Trade and Industry (DTI) to promote technology-related investment opportunities in Philippines

The country has launched the ‘IT 21’ plan to transform Philippines into a ‘Knowledge Center for Asia’ over the next 10–25 years

Private sector involvement has been sought to devise skill upgradation programs to meet the needs of the contact center industry and the ITECC is working with the Technical Education and Skill Development Authority to promote employment in call centers

Attractive infrastructure development incentives have been planned and the two ex-US air bases at Clark Bay and Subic Bay have been transformed into world-class, ready-to-use facilities for ITeS / IT industry

Philippines has had the advantage of significant cultural influence of America on its

society, and is using this proposition to a large extent to promote its ITeS / IT industries.

The ITECC, a government arm, is carrying out pioneering work to promote the industry

by developing public-private partnerships to upgrade the skills of the workforce and

cater to the specific needs of the ITeS / IT industries.

There is also greater emphasis on developing the infrastructure and help set up world

class facilities with all necessary telecom and IT support.



28

. . . and is targeting to become the Asia-Pacific region’s ‘e-service’s hub’ with revenues of USD 1.65 billion by 2004 . . .



Co-operation between stakeholders Commercialize new concepts


n ITeS identified as the key economic driver for the country by leading authorities within the country

n Income tax holiday for 4 – 6 years with permanent resident status for medium / large investors

n Collaborating with private sector companies (e.g. TIM, CRC etc.) for skills upgradation through formal and non-formal sectors

n Conversion of ex-US air bases into ready-to-move ITeS / IT facilities

n Leveraging proximity to the US and low connectivity costs for ITeS, Philippines aims to grow into the E-Services Hub for Asia with a focus on call center, animation / design, transcription and back-office operations

n Launch of ‘IT 21’ plan to transform Philippines into knowledge center for Asia with HR development

n Plans to address telecom sector investments through competition

n Incentives for IT infrastructure developers with up to 15 projects being supported

n Use of DTI and ITECC to promote IT-related investments as well as to support skill enhancement

Case study

The Philippines government has identified ITeS as a priority sector to drive economic

growth. Towards this end, it has formulated a number of incentives and encouraging

investment policies.

The ‘IT 21’ plan has been launched to help Philippines develop into a hub for ITeS / IT in

Asia by bringing about rapid human resource development.

The focus areas decided by the ITECC include call center operations, animation/design,

transcription and back-office operations. Philippines aims to leverage its strengths in

these areas and develop long-term competitive advantage.

The imminent manpower shortage in the IT and ITeS industry in India is already

affecting various operational and financial parameters. This makes the industry less

competitive in the global market and less attractive to potential entrants.

Considering that the next few years will be critical to the overall ramp-up of India’s ITeS

/ IT revenues, some actions are required to address this issue at the earliest.

The manpower shortage is already impacting the performance of the Indian ITeS / IT industry today . . .

ITeS

/IT

healt

h-c

heck

ind

icato

rs

Employee attrition levels

Salary costs

Company profit margins

Service billing rates

2000 – 01

n IT: USD 30 – 40 per hour

n ITeS: USD 10 – 12 per hour

2000 – 01

n ITeS: 10 – 15 per cent per annum

2000 – 01

n ITeS: USD 200 per month (cost to company)

2000 – 01

n ITeS: 30 – 40 per cent operating profit margins

2002 – 03

n IT: USD 15 – 25 per hour

n ITeS: USD 4 – 11 per hour

2002 – 03

n ITeS: 30 – 40 per cent per annum

2002 - 03

n ITeS: USD 330 per month (cost to company)

2002 – 03

n ITeS: 17 – 25 per cent operating profit margins

Source: Press reports. KPMG. 2003-2004.

. . . making the industry as a whole in India less competitive on a global scale and less attractive for potential entrants

n Competition from captives turning third-party

n Ease of entry into ITeS / IT

n Competition for talent with MNCs able to afford poaching with salary hikes of 15 – 20 per cent

n Over-qualification of labor pool attracted has led to higher wage rate

n Wage rates increasing with competition

n Overall margins under pressure with domestic and international competition, regulatory restrictions and large capital requirements

29



A number of interactions were held with key stakeholders such as the Department of

Information Technology and BPO industry service providers to get a clear

understanding of the current issues faced and ways to resolve them.

Some of the key concerns raised were related to high attrition, increasing salary costs

and low productivity of employees. These concerns are deep-rooted and it is imperative

to address them with immediate / concerted action.

The ITeS / IT industry has indicated concern and the need for animmediate action plan . . .

“Career paths are often not made clear to staff .

. . leading to attrition issues.”

“Efforts at improving resources required being done in pockets . . . in Kerala, AP, Karnataka.”

“Emotional maturity and physical stamina

requires at least graduate level of

education”

“ITeS / BPO is not seen as a career . . . there is a need to bring respectability to

the work”

“Low hit rates of 1-5 per cent lead to significant

costs related to recruitment and selection

of resources”

“There is a need for a common agency to certify and counsel

resources.”

“It is expensive to attract skills above the age of 35 into ITeS.”

“Functional education to be strengthened to

support high-end services.”

“University education needs to be re-oriented to support vocational

training for ITeS .”

“Shifting the BPO employment opportunity

to second-tier cities would reduce resource

pressures.”

“Even high literacy states like Kerala may

have lower awarenessof ITeS career options.“

nRising attrition, both inindustry and out of the industrynRising wage costs due to

scarcity of resourcesn Impediments to growth

plans for various service providersn Lower staff productivity

Source: Department of IT interactions with IT / BPO industry service providers. Industry interactions. Press reports, KPMG. 2003–2004.

30

IT-enabled services and IT services are expected to become significant contributors to the growth of the Indian economy . . .

2002 2003 2006 2009 2012

Domestic / Captive IT services

ITeS

IT export services

0.5

2.2

5.0

Direct ITeS/IT

employment

(million)

Percentage of

total

employment

0.1 per cent

0.1 per cent

0.9 per cent

2002 2003 2006 2009 2012

1.9 per cent

6.6 per cent

12.3 per centOff-shoring

as per cent of GDP

Contribution to GDP growth 2003 - 2006 2009 - 2012

. . . actions must be initiated now in order to address manpower requirements for the ITeS / IT industry in the longer term

Source: NASSCOM. Institute of Applied Manpower Research. Statistical Outline of India. KPMG. 2003.

Note: GDP growth assumed as 9 per cent per annum upto 2012

Contribution to direct

employment

Contribution to GDP growth

1.1

0.2 per cent

0.4 per cent

0.7

2.2 per cent

3.4 per cent

2006 - 2009

17 per cent

31 per cent

8 per cent

The ITeS / IT industry could be a significant contributor to the economic growth of the

country, considering its long-term growth potential of 25 per cent per annum

(compared to overall GDP growth expectations of 8 – 10 per cent).

Benefits from ITeS / IT include a direct employment opportunity of approx. 5.1 billion by

2012, of which approx. 3.7 billion would be for export IT services and IT-enabled

services. Comparative numbers for 2002, according to NASSCOM, were 0.5 million.

Estimates by NASSCOM-McKinsey and BCG have suggested that the ITeS / IT industry

could generate another equal number of employment opportunities in support

industries (e.g. transportation, catering, office administration and services etc.).

The share of off-shore revenues to total GDP is also expected to grow significantly, with

a potential contribution of 12 per cent of GDP by 2012, as compared to 1.9 per cent in

2002. High growth of ITeS / IT revenues implies that it could grow to become a

significant contributor to overall GDP growth as well.

31



This chapter provides an understanding of the need to enhance institutional capacity in

the formal and non-formal sector.

It also suggests other approaches to generate requisite manpower for the ITeS / IT

industry.

The demand for IT and ITeS manpower is going to be driven by their requirements in

specific solution areas for IT and ITeS.

Out of the total requirements for IT export services, as much as 83 per cent could be for

systems integration and outsourced support (facilities management) services.

Similarly, for ITeS, 80 per cent of the manpower requirements could be in the areas of

Human Resources, Payment processing and Customer Care services.

Manpower demand for IT* services (2012)

275

111529

58

972

0

250

500

750

1000

Consulting,

integration,

installation

IT

Development

Outsourced

support

Training and

Education

Total

(000s)

There is going to be a significant demand for manpower related to the Indian IT export and ITeS industry by 2012 . . .

Manpower demand for ITeS (2012)

Source: IDC. NASSCOM. KPMG. 2003–2004.

1,031

206690

447

147197

2,717

0

700

1400

2100

2800

Customer

Care

Finance HR Payment

Services

Administration Content

Development

Total

(000s)

. . . requiring upto approx. 3.7 million people for export IT services and ITeS by 2012, up from 0.4 million people in 2003

83 per cent of requirements in

systems integration and

support

80 per cent of requirements in

HR, payment services and

customer care

* Manpower requirements for IT services under domestic / captive operations are in addition to requirements for IT export services shown above.

32

Strategy to enhance institutional capacity (formal and non-formal) to generate requisite manpower

Manpower estimates based on current staffing patterns for the export IT services and

ITeS requirements suggest that there could be a significant requirement in terms of

experienced personnel at the manager / team leader level.

This requires the ability to generate people with relevant skills at least 2–4 years prior to

the actual demand, reinforcing the criticality of requirement for action.

For example, by 2012, compared to a workforce of 3.7 million for export IT services and

ITeS, there could be a requirement for approx. 0.85 million managerial staff with over

5–6 years of relevant experience i.e. participating in the workforce since 2006 / 2007.

Although the educational capacity in existing / planned institutions to meet these

requirements may not be an issue, the specific skills provided as part of the education

system may need to be reconsidered.

Manpower will be required across all levels of the organization in the IT export services and ITeS business . . .

IT requirements*

Senior Manager:

Project Manager / Leader:

Programmers / Executives:

Total:

Source: IDC. NASSCOM. KPMG. 2003 –2004.

ITeS requirements

Manager / supervisor:

Team leaders:

Agents / Executives:

Total:

2003 2012

7

26

179

212

36

141

831

1,008

3

20

140

163

51

277

2,439

2,767

Qualifications Work experience Skill-sets

n Graduation / Post-graduation

n 6+ years- Managerial skills / Crises management- Analytical reasoning- Client interface and selling skills- Domain expertise

n Graduation (+Diploma) n 3 – 6 years - Supervisory skills / Domain expertise- Resource management and utilization- Planning and reporting skills

n Graduation / Diploma n 0 – 3 years - Computer proficiency and IT programming- Problem solving and analytical skills- Team-working

n Graduation / Post-graduation

n 5+ years- Managerial skills / Crises management- Analytical reasoning- Client interface and selling skills- Domain expertise

n Graduation (+Diploma) n 3 – 4 years - Supervisory skills / Domain expertise- Planning and reporting skills- Meeting process targets

n Graduation n 0 – 3 years - Language / communication skills- Analytical skills- Computer proficiency- Team-working- Customer service orientation

* Manpower requirements for IT services under domestic / captive operations are in addition to and roughly equal to requirements for IT export services shown above.

Manpower (000s)

33



The more complex tasks under ITeS / IT are expected to require post-graduate

qualifications or other certification in addition to standard graduate degrees.

For example, while a typical back-office data entry/processing employee would need to

be a graduate in any stream, an employee in the area of research/design and

development would need to be at least a graduate / post-graduate in a specialized area.

Illustrative

Different categories of work at the agent level itself will requirespecific qualifications . . .

Note : List of activities and examples above is illustrative only and not exhaustive. Activities within a category are not necessarily in order of skill levels required


Back-office data entry /

processingCustomer contact


Knowledge services and

decision- support

Research/ Design and development

Nature of work

Increasing complexity of task and skill requirements

Typical qualification

for work

n Graduates n Graduates with excellent communication skills

n Graduates with specialization, diploma/certificate holders

n Graduates / Post-Graduates in related areas (e.g. Law, Economics, Accounting)

n ICWA / CA

n Graduates / Post-graduates in related areas

n Design engineers with some work experience

n For website / DTP design, diplomas in related areas

n Data entry(form filling)

n Data conversion(translation, transcription)

n Basic processing (checking / updating)

n Document management (storage, retrieval)

n Customer services(complaints, inquiries)

n Tele-marketing (pre-sales, order-taking, catalog sales)

n Collections support(reminders, payment support)

n Shared corporate function support (HR, Finance / Accounts, HR, procurement)

n IT support (development, integration, maintenance, help-desk)

n Analyst services (legal, financial)

n Customer analytics (segment profits)

n Application processing (claims)

n Risk management (underwriting, structuring)

n Advisory services (tele-medicine, consultancy)

n Engineering and design (CAD/ CAM)

n Content development (animation, web site, graphics)

n New product design (specifications, pilot testing)

34

However, people with specific graduate degree qualifications may be better suited for

specific functions.

For example, a Chartered Accountant / Chartered Financial Analyst maybe better

qualified to support remote accounting services or equity research support for a client.

The person may also be required to undergo additional certification if required by the

regulations of the client country (e.g. FSA in the UK). However, for the data entry

support work of maintaining shareholder database or attending queries, a normal B.A. /

B.Com. / B.Sc. may be sufficient.

Even within a function, different levels of work may require specific qualifications . . .

Back-office processing

Customer contact Knowledge support Research and DesignHR Finance IT / Tech Support

Corporate functions

- Loan Admin.- Card / clainms

processing- Account

reconciliation- Data entry,

transcription, mining

- Records management

B.A.

B.Pharm.

B.Com.

B. Sc.- Maths- Statistics- Econ.

- 401 K

B.A.

+

Pensions Admin. Training

- Tax services (planning, preparation, payroll, book-keeping)

B.Com.

B. Sc.

+

Diploma in Acctg, Tax laws

- Acctg services- Shareholder

services- Equity research

(industry / sector / markets)

- Portfolio mgmt- Credit rating

CA / CFA / ICWA

Diploma in Fund Mgmt

Stock exchange certificate

- Payroll / Benefits processing

- Employee benefits

B.A.

B.Sc.

B.Com.

- Training & Development

- Performance Management

Post Grad. In HR / Behav. Science

Diploma in Labor Law, HR / IR, Staff welfare

- Outbound collections

- Outbound sales / marketing

- Inbound customer service

- Loans / processing service

B.A.B.Sc.B.Com.+ Vocational

Diploma (e.g. Hotel, Tourism)

- Inbound customer services

B.A.

B.Sc.

B.Com.

- Query resolution

- Problem solving

B.A.B.Sc.B.Com.+ Vocational

Diploma (e.g. Hotel, Tourism)

- Hardware help-desk and trouble-shooting

- Software and technical query support

BCA

B.Sc.- IT

ITI (Dip.)

IT course (e.g. DoEACC)

- Network configuration / hardware support and maintenance

- Software design / programming

BCAB.Sc.- ITMCA

B.E.

Certificate (CCNE, MCSE)

- Equity research(industry / sector / markets)

- IPR filings

CA / CFA / ICWA

MBA

- Tele-medicine and advisory services

MBBS

- Content development (web-site design, DTP, animation)

Courses in Animation/ Fine Art

Dip. in Multi-media

- Distance learning

- Engineering design / testing

- Product design/ testing

- Biotech research

B.E.

Dip. in CAD / CAM

Ph.D.

Basic

Med

ium

Hig

h-e

nd

Illustrative

Source: Industry interactions. KPMG. 2003 - 2004.

35



In addition to standard qualifications, different functions under ITeS / IT often require

certain specific skills related to language (comprehension, fluency), analytical (problem

solving, reasoning), computer proficiency (keyboard), customer service orientation

(team-working, listening) and behavior (confidence, integrity, drive).

However, the importance of these could vary depending on the specific function. For

example, ‘Listening skills’ are inherently more important to a customer contact function

as compared to knowledge services support, where ‘Reasoning skills’ may be much

more important.

These must be supported by some necessary delivery-related skills . . .

Spoken English

Written English

Foreign Languages

Accent Understanding

Logical reasoning

Problem Solving / Num. ability

Comprehension / Creativity

Listening / empathy

Initiative/Enthusiasm

Multitasking / Time management

Language Skills

Analytical Skills

Customer Service Orientation

Team working

Assertiveness and Confidence

Integrity / values and discipline

Motivation / Drive

Behavioral traits

Keyboard skills / Browsing etc.

Computer proficiency

ü

ü ü

ü ü

ü ü

ü

ü

ü

Data entry / processing

ü

ü ü

ü

ü ü

Customer contact

Human Resources

Finance & Admin.

Tech. Support / IT

Knowledge service / DSS

R&D and Content Dev.

ü

ü ü

ü ü

ü ü

ü ü

ü

ü

ü

ü

ü ü

ü

ü ü

ü ü

ü ü

ü

ü ü

ü

ü

ü ü

ü ü

ü ü

ü ü

ü ü

ü

ü ü

ü

ü ü

ü

ü ü

ü ü

ü

ü

ü

ü

ü

ü ü

ü

ü ü

ü

ü ü

ü ü

ü ü

ü

ü

ü

ü

ü

ü ü

ü

ü ü

ü

ü ü

ü

ü

ü ü

ü ü

ü

ü ü

ü

ü

ü

ü ü

ü ü

ü

ü ü

ü

ü ü

ü

ü ü

ü

ü

ü

ü

ü ü

ü

ü ü

Source: Industry interactions. KPMG. 2003-2004.

Illustrative

Note: ü ü: Necessary skillsü: Desired skills

Technical / Programming skills ü üü ü ü

Sociability / Dependability / Reliability

ü ü ü üü ü ü ü ü ü ü ü ü ü

36

In order to meet the ITeS / IT skill requirements, the entire education lifecycle must be considered . . .

Attract Educate Certify Deploy

Source : KPMG. 2003–2004.

Re-train

n Creating awareness about and preference for ITeS / IT as a lifelong opportunity, thereby creating a pull in the market

n Development of formal and non-formal mechanisms to equip students with requisite skills for ITeS / IT

n Pre-certification of potential employees through a standard / industry accepted testing body

n Counseling and deploying manpower into ITeS/ IT industry

n Using industry feedback to drive curricular changes and highlight employment opportunities

n Re-training ITeS / IT professionals to upgrade skills to meet changing industry requirements

One of the key success factors for meeting the manpower requirements of the ITeS / IT

industry is to lay emphasis on each aspect of the education lifecycle.

While it is important for institutions to provide students with relevant knowledge and

skills, it is equally important for students to gain recognition in the industry.

Skill recognition can only come about by developing a standard system of testing and

certification that is accepted by a formal authority.

Students will only be attracted to the ITeS / IT industry by getting good employment

opportunities and remuneration. Thus, a virtuous cycle is established between attraction

and deployment.

It is also necessary to keep track of changes in the industry and specific requirements or

opportunities. These should be incorporated into the curriculum as well as used as

inputs for re-training employees to face new challenges.

37



A World Bank study highlighted generic shortcomings in the Indian education system,

especially in its ability to generate highly-skilled manpower with the inclination and

capability of creative thinking in-line with global industry developments.

Some of the observations pointed out the inability to maintain and share common

infrastructure facilities across institutions, shortage of skilled faculty with industry

exposure and rigidities in the curriculum and evaluation system.

A study by the Ministry of HRD, Govt of India titled ‘Technical Education Quality

Improvement Project’, in Oct 2001, also highlighted potential action points (e.g.

networking, curriculum changes, faculty development etc.) required to improve the

quality of technical education in the country.

A World Bank study (2001) highlighted generic shortcomings in India’s education system to generate quality manpower. . .

Weakn

ess

es

inin

frast

ruct

ure

/in

sti

tuti

on

al

set-

up

Weakn

ess

es

inco

urs

ecu

rric

ulu

man

dd

eli

very Faculty

Infrastructure

Administration

Policy

- Expense allocation is often based on political pressures as against market conditions

- Lack of adequate quality controlin implementation of policy

- Inefficiencies due to limited mechanization / automation within R&D set-ups

- Lack of appropriate incentive / reward systems

- Facilities are poorly maintained, leading to shorter utilized life cycle

- Little sharing of expensive infrastructure and equipment

Finance

- No incentives for financial prudence and efficiency in R&D

- Excessive controls over finance allocation leads to costly delays

Source: World Bank Study on Science & Technology Manpower in India (2001). Industry / Academia interactions. KPMG. 2003.

Evaluation system

Curriculum

- Low compensation and lack of clarity on career progression attracts fewer teachers

- Teachers lack industry rigor, R&D background and exposure to tools

- Inflexible and rigid curriculum, not exposed to innovation / industry

- Teaching is exam-oriented without focus on communication skills, problem solving

- Continuous evaluation is often not systemized

- Exams are often memory-basedand encourage partial studying through ample choice

Students

- Lack opportunity / encouragement for creative thinking

- Lack of counseling for higher education choices and career decisions

38

The current education system lacks specific policy initiatives to help it align to the

specific requirements of the ITeS / IT industry.

There are also issues related to funding as well as development of institutional and

infrastructure facilities.

Moreover, there is a strong need for monitoring agencies to assess and correct gaps

related to developing and directing skills towards ITeS / IT employment opportunities.

In addition, the current system has gaps across the entire education life cycle related to skilling for ITeS. . .


n People are not aware

about employment

options, including

flexibility offered

n ITeS perceived as largely

requiring IT skills

n Jobs in the ITeS industry

lack esteem

n Employment not seen as

a long-term career option

n Key skills required by the

industry are not

developed through

current educational

system

n Lack of a standardized,

modular curriculum for

ITeS

n Lack of national-level

mechanism for pre-

certified pool of

resources

n Lack of understanding of

specific parameters to

test and certify upon

n Lack of feedback loop on

resource deployment

and skills provided

n Lack of direct placement

links between

institutions and ITeS

industry, especially in

Tier-II and smaller cities

Source: Industry / Academia interactions. Department of IT. KPMG. 2003-2004.

39



The current system of education does not provide some of the necessary skills for ITeS /

IT, even at the graduate / post-graduate level.

Resources produced may have a strong conceptual / theoretical background but often

lack communication and vocation-specific skills and the creative drive or specific

regulatory certifications required by clients in foreign countries.

This could be addressed through specific modules integrated into the current system of

education, right from the primary / secondary education level. For example, a strong

focus on Computer literacy could be established at the primary / secondary level,

followed by a focus on customer service related skills (team-work, time management)

at the higher secondary levels.

Specific changes across the current system of education in Indiarelated to skills required for ITeS could be initiated . . .

n Mathematics and English skills are refined. Student’s get introduced to science and social science subjects

n Students acquire basic mathematics, language and general awareness skills

n Theoretical specialization in subject of choice; gradual shift to applied studies

Source: Department of IT. Industry interactions. KPMG. 2003-2004.

Higher secondary

Primary / Secondary

Graduation

Post-Graduation

n Students acquire basic mathematics, language and general awareness skills

n Student’s select subjects of their choice and specialize in a particular stream; cross-stream courses rarely available

Existing manpower for ITeS / IT are graduates/post-graduates with strong conceptual / theoretical knowledge but lacking in communication and

vocational skillsAdditional inputs required to make

‘employable’ for ITeS / IT

n Domain specific training linked to international developments

- Insurance certification- Healthcare regulatory standard (HIPAA)- Accounting standards (US GAAP)- Banking standards (Basel II)- Labor / Taxation laws (France, Germany)- HR practices (e.g. 401 K)- Alternative languages (e.g. Japanese)

n Customer service orientation- Listening skills- Time / stress management- Leadership- Team working

n Language skills- Written English (Grammar,

Comprehension)- Spoken English (Fluency)

n Computer literacy- Key board- Internet searching

Illustrative

40

China has taken significant steps across the education lifecycle in order to ensure that

its human resources are geared up to tap the opportunities presented by the ITeS / IT

industry.

A key step has been the promotion of English language in schools, colleges and

universities. The government has been quick to realize that learning the language can

lead to significantly large business opportunities in the future.

Long-term plans are also in place to develop knowledge in core areas of R&D. The ‘863’

program is focused on developing a highly qualified and competent scientific and

technical staff.

At the same time, a number of infrastructure building activities, such as setting up of IT

parks, is underway to ensure effective deployment of trained students in the ITeS / IT

industry.

China has made some significant efforts to develop language and culture skills relevant to global ITeS support . . .

Case study: China


n The government is

encouraging overseas

and domestic experts

to play a major role in

strategy formulation for

ITeS/IT

n The government is

focusing on increasing

urbanization of its

premier cities like

Shanghai and Beijing

(by 2005, over 50 per

cent of the Shanghai

population would have

internet access)

n The government is

encouraging English

language learning in

schools and colleges

(over 60,000 English

teachers brought in)

n Alliances with

prestigious foreign

institutions like Yale to

set up technology

centers and enable

student exchange

programs

n English teaching

combined with IT

training under

computer classes

n ‘China education and

research grid’ to share

IT research efforts

across 100 universities

n ‘Radio and TV’ universities

have been created to

facilitate learning

n The Chinese ministry of

science and technology

had established the

‘863’ program to

develop a highly

qualified scientific and

technical staff

n Upto 53 high quality

technology parks have

been set up by the

government to

encourage MNCs to

establish offshore R&D

and IT centers

Source: Press reports, UN / World Bank report. KPMG. 2003–2004.

41



Philippines too has undertaken a number of initiatives to enhance the present

educational system and develop manpower for the new ITeS / IT economy.

At the school-level, there is an increased emphasis on basic subjects like Maths and

English that are imperative for language and communication as well as analytical skills.

The government has also begun taking steps towards increasing accreditation of

technical and vocational education. This accreditation would lend recognition to

students when they seek jobs in the ITeS / IT industry.

Universities and colleges are also developing partnerships with companies in order to

help students gain exposure to the working environment in the ITeS / IT industry. This

would help them appreciate the challenges posed by the industry and obtain necessary

skills.

Philippines too has made efforts to revamp its core curriculum approach to develop resources more suitable for ITeS / IT . . .

Case study: Philippines


n Balik IT professionals’

program to attract

overseas Filipino IT

professionals and inject

actual experience and

fresh insights into

knowledge workers

n Established ‘TESDA’ as the driving force for changes in curriculum and implementation of better training programs

n Greater focus on

Maths, Science and

English at the primary

and higher secondary

education level

n Training courses for

graduates and post-

graduates focused on

key ITeS areas for

Philippines

n Use of best of breed

methodologies, tools

and practices to train

students

n Training and re-training

teachers in formal

institutions to develop

IT skills

n Established a unified

‘TVET’ program

registration and

accreditation system in

consonance with a

quality technical and

vocational education

n Identification of specific

certification

requirements and

dedicated government

programs to carry them

out in areas like

Windows, Unix, Java,

SQL, XML, Linux and

C++

n Development of

alliances between

educational institutions

for students to get on-

the-job training and

companies to identify

untapped manpower

pools

Source: Press reports, UN / World Bank report. KPMG. 2003– 2004.Note:

TESDA – Technical Education & Skills Development Authority

TVET – Technical & Vocational Education Training

42

This chapter discusses the potential opportunities in off-shored R&D support services

that India could aim for based on current strengths in terms of people, infrastructure

and industry.

It also looks at some of the best practices followed in other countries and highlights the

issues that India currently faces in the R&D services sector.

43

We define research and development in the broad sense as a quest for knowledge . . .

“Creative work, undertaken on a systematic basis, in

order to increase the stock of knowledge (including

knowledge of man, culture, society) and the use of this

stock of knowledge to devise new applications

I. Basic research

“experimental / theoretical work to

acquire new knowledge of the

underlying bases of phenomena,

without any particular application”

II. Applied research

“original investigation to acquire

new knowledge, directed primarily

towards a specific practical aim or

objective”

III. Experimental Development

“systematic work, drawing on

existing knowledge stock to

produce / install / improve

materials, products and services”

Source: Frascati Manual (OECD). 1993.

. . . the focus is on the provision of R&D work in the form of support services for development rather than actual product development

The entire R&D value chain can be split across the areas of Basic Research, Applied

Research and Experimental Development.

Each of the areas has its own characteristics in terms of nature of activities, capital

intensity, labor intensity, commercial viability etc.

There are different players that occupy significant positions in the different parts of the

value chain based on their strengths, priorities and constraints.



Emerging areas in the knowledge domain for India to pursueand strategy to reinforce status as ITeS / R&D hub

44

Investments in technology related to R&D has been shown to have direct / indirect contribution to GDP growth . . .

Direct and indirect correlation between R&D investments and economic / social benefits

Investment in R&D

Innovation

Appropriated research

Spillover research

Productivity enhancement

Trade benefits

Enhanced competitive-

ness

License revenues

Social / Environ benefit

Productivity enhancement

Knowledge stock addition

Inward FDI

Employment generation

Source: OECD Working Papers (Endogenous growth theory). KPMG. 2003–2004.

Multiple direct and indirect benefits

from R&D

Research suggests that R&D investments have a positive impact on the development of

a country due to the benefits encompassing most developmental aspects of any nation.

In addition, from the perspective of a developing country such as India, foreign direct

investment in R&D facilities by MNCs is even more attractive.

This is because MNCs’ subsidiaries with strong R&D mandates as well as strategic

geographical or product range responsibilities tend to be stickier to the host economy

and hence are considered to be highly desirable in terms of their effects on local wealth

generation.

R&D activities conducted by government and institutions concentrates on research

areas which may not be remunerative or lead to commercially feasible/attractive value

propositions.

The R&D activities undertaken by the government/institutions have a different objective

function. While economic benefits are important, the benefits of such R&D activities are

not limited to economic areas but also encompass areas such as benefits to the society

and environment that are not directly quantifiable.

Governments and educational institutions try to balance R&D efforts across different areas of potential benefits . . .

Bala

nci

ng

ben

efi

tsfr

om

R&

D

Engineering and Design

services

Pharma. and Biotech

IT and electronics

Economic benefits Social benefits Environmental benefits

Illustrative

Source: Press reports. Ministry of Research, Science and Technology (New Zealand). KPMG. 2003-2004.

n Access to low-cost skills as well as proximity to a cluster from where IT support work is being carried out

n Application of IT for agricultural monitoring, educational delivery and medical automation

n Use of IT / electronics for control systems related to effluent / waste disposal systems

n Reducing the cost of new drug development and clinical testing

n Round-the-clock research on genetic sequencing to reduce time

n Crop productivity through genetic engineering and research

n Increased immunity / better medication through bio-informatics

n Use of biotechnology in hazardous waste treatment and pollution control (e.g. bio-remediation for oil spills)

n Access to low-cost skilled resources for materials and component design / testing

n Safer and better designed housing facilities with cheaper, stronger materials

n Increased productivity and efficiency in industry processes

n Fuel research to reduce pollution related to automobile exhausts

45



The overriding objectives of R&D activities in the private sector remains economic

benefits such as revenues from new products, reduced time/cost of manufacture etc.

In this sector, R&D function has evolved from being a isolated activity that is loosely

connected to the overall business to being a core part and driver of the overall business

strategy.

As a result, R&D activities in the private sector are now guided by consumer groups

and end customers so that the research yields products/services that are readily

acceptable to the end customers.

The focus of R&D efforts by the private industry, on the other hand, has evolved from resource driven to customer / business

driven . . .

Evo

luti

on

of

ap

pro

ach

toR

&D

n Resource-driven

First-generation R&D

n Project-driven

Second-generation R&D

n Business-driven

Third-generation R&D

R&D philosophy

n R&D as an overhead costs under annual budget exercises

n Funds based on needs and risk-sharing

n Based on technology maturity and competitive impact

Funding approach

n Management of tacit knowledge in compartments

n Integrated use of tacit and explicit knowledge

n Synergy through conversion of knowledge to explicit form

Knowledge management

n R&D seen as a separate unit from business operations

n R&D as a supplier to overall business operations

n R&D efforts as partners adding to effective business delivery

Link between R&D and business

n No link between R&D and end-customer

n Remote linkn Use of consumer groups / end-

customers to guide R&D effortsLink between R&D and end-customer

Source: Nolan Norton & Co. KPMG. 2003.

. . . and are driven by economic considerations

46

As a result, the R&D focus areas for government, institutions and industry, across the world have become divergent . . .

. . . requiring a different R&D focus in terms of approach, time lines and funding

Primary focus on basic research

Balanced approach, more on applied

R&D

Primary focus on experimental development

Institutional expenditure on R&D Government expenditure on R&D Industry expenditure on R&D

0% 25% 50% 75% 100%

US

Spain

Japan

Iceland

France

Denmark

Australia

0% 25% 50% 75% 100%

US

Spain

Japan

Iceland

France

Denmark

Australia

0% 25% 50% 75% 100%

US

Spain

Japan

Iceland

France

Denmark

Australia

R&D expenditure distribution

(2000)


(2000)


(2000)

Basic research

Applied research

Experimental Development

Source: OECD R&D database (May 2002-2003). KPMG. 2003-2004.

47



A review of R&D spend across countries suggests that while educational and

specialized research institutions focus more on basic research, government agencies

tend to focus more on basic and applied research. As a result, the approach to R&D is

often that of a process of discovery without strict time-bound funding plans.

R&D spend by the industry is focused on developing solutions to specific business

problems. The approach to R&D is hence more often project-based with specific

investment budgets and return expectations. This is because private sector companies

have to address the requirements of its shareholders who have invested in their

company.

The divergent nature of activities undertaken by the various players in the R&D area

requires them to coordinate their efforts so that they can leverage each other’s

capabilities and knowledge capital.

World-wide the funding for R&D is increasingly being driven by the industry and this is most likely to be off-shored due to its

specific nature . . .

Ratio of R&D spend by industry to government

0.0

1.0

2.0

US UK Turkey Singapore Israel India Germany China Canada Brazil

. . . off-shoring service provider countries like India should focus on aspects of R&D which support experimental development

Source: UNDP –Development Indicators (2002). KPMG 2003 - 2004.

48

Across the globe,

– There is an increasing trend of reduction in the government’s contribution to

R&D activities.

– Greater reliance is being placed on the educational institutions, and all sectors

have expanded their participation in a variety of domestic and –

international partnerships both within and across sectors in order to pool

resources and leverage capabilities.

– The share of R&D activities by the private sector is witnessing a significant

rise.

Globally, the R&D spend is increasingly being driven by industry / business houses

(upto the extent of 50–60 per cent).

This suggests that the nature of R&D spend would be more directed towards specific

product / service related attributes in the form of experimental development work,

could be affected by industry life-cycles and may be subject to specific performance /

productivity targets.

A review of historical patent filings suggests that India’s R&D efforts have been prolific in some key areas . . .

Technology Class

Technology descriptionCumulative patents

(1995 –1999)

Class 514n Drug, Bio-affecting and Body-

treating compositions31

Class 435n Chemistry: Molecular Biology

and Microbiology26

Class 424n Drug, Bio-affecting and Body-

treating compositions25

Class 549n Organic compounds: part of the

Class 532 – 570 series20

Class 540n Organic compounds: part of the

Class 532 – 570 series14

Class 502n Catalyst, Solid Sorbent, or

Support: Product / Process10

Class 568n Organic Compounds – Part of

the Class 532-570 series8

Class 326 n Electronic digital logic circuitry 7

Class 528n Synthetic Resins or Natural

Rubbers –Class 520 series7

Class 585n Chemistry of Hydrocarbon

compounds7

Class 264n Plastic and Non-metallic Article

Shaping and Treating: Process6

Class 510n Cleaning compositions for solid

surfaces and process to make6





Class 623n Prosthesis, parts or Aids and

Accessories5

Others 134

Total patents across technology classes 316

Total patents across above 15 classes 182

IT and ElectronicsFor example:- VLSI design- Photonics- Robotics and AI

Pharma & BiotechFor example:- Clinical research- Bio informatics- Gene sequencing

Engineering and DesignFor example,- Materials research- Stress testing methodologies- Transportation systems

Source: US PTO (2000) KPMG. 2003.

The past few years has witnessed an increase in R&D sourcing from India in the areas

of IT, Pharmaceuticals/Biotechnology and Engineering and Design Services.

In all, a total of 316 patents were filed from India in the period 1995-99 with a 132 of

them being in the 15 classes mentioned in the table above.

Over 50 patents were filed in the areas of molecular biology, micro-biology and drug,

bio-affecting and body-treating compositions.

49



India’s strengths in the areas of IT, Pharmaceuticals/Biotechnology and Engineering and

Design Services can be leveraged to a large extent.

There are significant market opportunities in specific knowledge domains like

embedded systems and VLSI/chip design. For example, if India taps into the growing

demand for embedded software, R&D activity in India can go upto USD 1.5 bn by 2004-

05.

Similarly, Information Security is another area where companies require significant

R&D services in network security, cryptography etc. The Indian market is growing at a

rate of almost 30 per cent and is expected to develop even further.

. . . and India could leverage these strengths into specific opportunities that promise growth . . .

Bio-technology

/Bio-informatics

n Indian bio-informatics market expected to exceed USD 2 bn by 2008

n Market for Indian biotech R&D products and services expected to be USD 3 bn by 2010

n Molecular biology, DNA sequencing and RNA transcriptionn Molecular biology software packages and molecular modelingn Java, Unix, C, C++ and RDBMS like Oracle or Sybase

Embedded systems

VLSI/chip design

n R&D activity in India expected to go upto USD 1.5 bn by 2004-05

n Embedded system tools such as Micro-controllers, DSPs, FPGAsn Design of embedded hardware and software n Real-time programming skills

n Expected to be a USD 808 mn industry in India by 2005

n Basic electronics,digital electronics, micro-processor and micro-computer knowledgen VLSI design, circuit layout/design, verification and logic design n Supporting tools such as Verilog,HDL,VHDL and FPGA

Market potential Key skills required

Information security

n Worldwide demand for information security services expected to reach USD 23.6 bn by 2006.

n India market growing at CAGR of 27-30 per cent

n Cryptography, AAA framework, software security and reliability, network security, secure operating systems, application security, design if security policies, disaster recovery, biometrics and security auditing

n Certified Information Systems Auditor (CISA) and Certified Information Systems Security Professional (CISSP)

Illustrative

Source: Press reports. IDC. NASSCOM. KPMG. 2003- 2004.

50

India has also made significant progress in the areas of high-performance computing

and wireless applications. These are expected to propel further growth in the IT

economy.

Nano-technology is an area that is increasingly receiving emphasis in the scientific

efforts of many countries. The reason being that it finds use in a number of products

and applications (consumer durables, medicine, semiconductors etc).

However, the key to converting the advantage to significant revenue potential in these

areas is to develop the requisite skilled manpower. Some of these specific skills

required in each area have been mentioned.

Wireless applications

Market potential Key skills required

n Worldwide demand for wireless and mobile applications expected to be USD 37.4 bn by 2006

n J2ME, wireless messaging API, Micro Java and MIMEn C++ on pocket PC, Brew, Symbiann TCP/IP, HTTP, POP3, XML protocolsn Knowledge of various industry standards

Nano-technology

n Global market expected to touch USD 1 trillion over next 10 years

n Chemistry, electrical engineering, materials, biophysics, physics and mathsn Molecular electronics, nano-particle manufacture, quantum computers and scanning

probe microscopyn Knowledge of semiconductor technologies, magnetic materials, nano-structured

materials, electronic and photonic devices

Digital signal

processing

n Global market expected to touch USD 19 bn by 2004

n Fundamentals like convolution, DFT, FFT, Spectrum analysis etc. n ‘C’ , C++ programming n MATLAB and other tools for design and analysis of DSP algorithms

n Expected to be a USD 1.6 bn market in India by 2005

High-performance computing

n PC hardware and software knowledge and troubleshootingn Linux operating systems and administration, routing and network analysisn C++, development tools and parallel programmingn Security administration and computer security forensics

Illustrative

Source: Press reports. IDC. NASSCOM. KPMG. 2003.

(continued) . . . and India could leverage these strengths into specific opportunities that promise growth . . .

51



Given India’s strengths in the form of availability of human resources, training

infrastructure and past experience / background as well as the potential for direct

benefit (economic as well as other) to India, we have identified an illustrative list of

opportunities towards which Indian R&D efforts could be directed.

Certain areas like bio-informatics, embedded systems and VLSI/chip design should be

immediately focused upon since they pose long-term benefits (to the economy,society

and environment). Moreover, India also has inherent strengths in terms of human

resources, infrastructure and industry exposure to realize these benefits.

Policy makers should also review these focus areas every 2-3 years in order to take

stock of the benefits accrued and progress made. New areas of development should be

studied and made part of the long-term agenda.

Going forward, R&D focus should be on those opportunities that leverage India’s strengths to meet market requirements . . .

. . . these could be reviewed over specific intervals ( 2-3 years) in order to revise and refine

n Water resource management

n Energy efficiency and management

n GIS applicationsn Dairy products research

Low

Low

High

High

Benefits expected from R&D

- Economic benefit

- Social benefit

- Environmental benefit

India’s key strengths

- Human resources

- Infrastructure

- Industry interface / exposure

Illustrative

n Industrial applications such as robotics,AI and mechatronics

n Disaster forecasting and management

n Nano-technology n Micro-electronics and

photonicsn Bio-technology and crop /

seed development

n Strategic and professional electronics

n Transportation technologyn Materials and components

n High performance and advanced computing

n Multilingual technologiesn Digital signal processing

n Bio-informaticsn Embedded systems and

softwaren VLSI and chip design

n Clinical drug trialsn Auto component design

n Network communication-wireline and wireless

n Information securityn Consumer electronics and

capital equipment

Potential areas for Indian R&D focus

Source: Industry interactions. Department of IT. KPMG. 2003-2004.

52

A review indicates that R&D activities in India did not attract the highly skilled

personnel. In comparison to the figure of 8.2 per 10,000 skilled personnel involved in

R&D activities in India, Singapore has a ratio of 56 per 10,000 skilled personnel in 1996.

A large proportion of R&D staff are not involved in R&D activities and instead end-up

supporting administrative functions.

While R&D activities in India in the past were primarily driven by government and

educational institutions, there is increasing participation of the private sector (Indian

companies and MNCs) in R&D activities. For example, out of the 50 research scientists

deployed by one of the leading multinational pharmaceutical companies at its R&D

center in Bangalore, 45 are Indian scientists who have returned back to the country

leaving similar overseas employment.

Many MNCs have started leveraging capabilities and competencies offered by Indian

educational institutions. The effect of such sourcing on the educational institutions has

been manifold - increased enthusiasm in conducting research in cutting edge areas,

renewed interest in R&D activities due to the economic benefits etc.

Going forward, the government could play the role of a facilitator as against the

principal initiator of R&D activities, to foster strength and interest of highly skilled

personnel in the R&D sector in India.

The current approach to attracting and deploying manpower for high-end R&D has had some shortcomings . . .

Current low attraction of highly-qualified personnel

towards R&D . . .

n Low base of PhDs in R&D

- Total Ph.D.s (1996): 16,839

n Low enthusiasm of higher educated staff into R&D activities

- Sci. / Tech. graduate base (1996) in PhD: 8.2 per 10000

- Approximate Ph.D. candidates p.a. (2003): 5,000

- Share going into teaching / research: approx. 37 - 40 per cent

n Low growth in R&D staff

- CAGR (1988 – 98) for total R&D staff: 0.7 per cent

- CAGR (1988 – 98) for core R&D staff: - 0.1 per cent

. . . with little improvement in staffing mix for

productivity in the last decade

Total R&D personnel

1992: 0.29 million 1998: 0.31 million

Core R&D staff Aux. support Admin. support

Source: Press reports. Institute of Applied Manpower Research. KPMG. 2003.

32 per cent

. . . increased presence of the private sector in R&D could drive more effective manpower development and deployment

31 per cent

53



The government as identified policy initiatives related to improving interest in the R&D

area but these need to be supported by specific actions related to funding,

infrastructure / institutional support and monitoring mechanisms.

For example, the current process of plan / non-plan funding may not be relevant in the

context of R&D investments and could be changed based on practices in other

countries.

Finland uses the concept of Centers of Excellence, where funding for research as well

as research related training is provided as a unit for a period of six years.

In Germany, the 16 public, non-university labs were re-organized under the common

Helmholtz Association and funding was provided based on ex-ante review on a

program / project basis.

Recommendations on specific actions required are provided separately in detail (ToR

VIII).

The new Science & Technology Policy (2003) has indicated

some potential steps towards meeting manpower requirements

for R&D . . .

. . . but these need to be elaborated upon and implemented through a comprehensive action plan

n Providing curriculum changes, career progression options, fiscal incentives to enhance

R&D aptitude and raise conversion factor from current 8 per cent (60 per cent in

Singapore,16 per cent in South Africa)

Su

gg

este

dacti

on

sfo

rH

RD

for

R&

D

Raising R&D interest

Attracting R&D staff of Indian

origin

Attracting resources from

industry / academia

Attracting women into

R&D

n Providing lifestyle incentives to attract Science and Engineering graduates from other

countries (approx. 12.5 per cent of those in the US in 2000 were people of Indian

origin)

n Staff from industry and academia need to be rotated to support resource requirements

as well as benefit R&D productivity through increased exposure and part-time

involvement

n Need for special incentives / work culture to attract more women into R&D (only 11 per

cent of R&D staff are women although 20 – 25 per cent of Science & Engineering

graduates are women)

Source: Ministry of HRD. Science & Technology Policy (2003). KPMG. 2003.

54

The US has been extremely successful in its approach to R&D, driven by a mix of

policy, infrastructure and development initiatives. It is a benchmark model that India

should follow in order to develop a successful R&D programme.

The entire system is well organized to promote regular interaction between the

government bodies, industry as well as universities. As a matter of fact, some of the

best research endeavours in the US take place in the universities through privately

funded programmes.

Scientists and faculty get tremendous exposure to the latest technologies and initiatives

by interacting with peers from other universities as well as countries. Students get

good scholarships to pursue research activities. At the same time, private firms take

them in on projects and provide the necessary exposure and training.

The US provides a good case study of successfully promoting R&D through a mix of policy, investments and infrastructure

initiatives . . .

Case study: R&D in US

The US’ success in R&D . . .

n 298 patents per million residents (1999)

n 2.7 per cent of GDP spent on R&D (1996 –

2000)

n 4,099 scientists and engineers in R&D per

million people (1996 – 2000)

. . . is based on an overall strategy encompassing HRD and otherinitiatives . . .

Note: Corresponding figures for India were:1 patent per million residents1.2 per cent of GDP on R&D157 scientists / engineers in R&D per million people

Source: UNDP-HRD. OECD Case Studies. KPMG. 2003.

HRD initiatives

Infrastructure initiatives

Policy initiatives

Industry / Academia

involvement

- Attracting greater proportion of graduates to R&D by marking grant / scholarship levels against alternative employment prospects

- Use of professional networks to increase awareness and guide enrolment across the K-12 level based on future R&D requirements

- No mandatory age for retirement of academics (and hence R&D staff)

- Industry role in R&D much greater than government involvement- Most of government investment in R&D channeled through University-

based R&D- Rotation of staff to ensure strong relevance of R&D on industry and

global economic requirements and constraints

- Use of federal body to co-ordinate and balance R&D efforts, funding- Balancing market forces against social considerations (i.e. reliance on

research institution rankings) for R&D resource allocation- Streamlining of funding administration through co-operation and

simplification (Federal Demonstration Partnership)

- Investments in ‘education centers’, ‘centers of excellence’ and ‘quality of life’ related facilities to attract R&D resources from across the world

- Support and encouragement to corporate philanthropy to fund research (e.g. Carnegie, Hewlett and Gates Foundations)

- Invested in intermediate research funding level (funding to fund R&D)

55



The PITAC is the advisory committee that guides state funding for new R&D

opportunities in the US. Its role is to guide the R&D activities of the various support

agencies in the area of IT R&D and provide the White House with strategic inputs on

focus areas for the future.

The committee on the PITAC is represented by a right balance of industry experts,

scientists and government officials.

The role of the committee is to identify the needs and challenges faced by the American

society, define the government’s role in solving these issues (while also identifying the

role of the private sector) and make recommendations on funding requirements for the

R&D areas that will resolve these challenges.

The PITAC* chartered by the U.S Congress is one of the many

initiatives in place to drive future R&D activities in the US . . .

Objectives of PITAC

n To provide the President and the Federal

agencies involved in information technology

research and development (IT R&D) with

expert, independent advice on maintaining

America's preeminence in advanced

information technologies

n To focus on critical elements of the national

infrastructure as high performance computing,

large-scale networking, and high assurance

software and systems design

n To review the Federal Networking and IT

R&D program

n To help guide the administration's efforts to

accelerate the development and adoption of

information technologies vital for American

prosperity in the 21st century

Software

§ Software engineering

§ Component Technologies

§ Human-computer interaction

§ Information Management

Scalable Information Structure

High-end Computing

Socio-economic research

§ High-end software§ Architectures§ High-end

acquisitions

§ Transformation of social institutions

§ Governance§ E-commerce

research§ Social and

economic simulation and modeling

§ Network Research

§ Large Scale systems and applications

Areas of Focus recommended by PITAC

Setting up an Expert Committee

Defining National Challenges and Transformations required

Defining the Government’s role in R&D

Recommendations of Committee to the Government

– A Committee represented by eminent scientists, academicians and industry professionals

– The objectives of the Committee are to recommend key focus areas and funding necessities and to provide an external perspective rather than an internal resource based perspective

– R&D activity to be based upon top issues faced by the country and people

– Identification of needs, the challenges faced, and the benefits to the society will determine the key focus areas of technology

– Defining the areas where the government will provide support to IT R&D activity based on Phase 2 results

– Defining the areas that the Government will not undertake and leave to industry players

– The recommendations were related to:

– Amount of government funding required for focus areas of R&D

– Channelization of funding-based on Phase 2 and Phase 3 results

– Completeness of R&D portfolio

Case study: R&D in US

* President’s Information Technology Advisory Committee

56

A review of specific efforts being made in other countries to develop and encourage

human resources in the knowledge space shows a structured approach involving

attracting more talent, driving curricular changes to meet employment requirements

and managing R&D activity more efficiently.

Some of the Scandinavian countries especially Sweden and Finland are forerunners in

R&D initiatives. Australia and Canada are also carrying out significant work in science

and technology.

Most of the efforts are directed towards curriculum improvements, better supply of

competent teachers, incentives to industry involvement and improving public sector

R&D efficiency.

57



Other countries have taken specific, structured steps to

promote HRD for their planned R&D requirements . . .Illustrative

n Increasing / encouraging overall

funding (public + private) for R&D

n Putting available research funds to

optimal use

n Directing research efforts into

priority areas

n Improving research capabilities

of institutions / industry

n Developing evaluation structures and processes for institutions, related to R&D

n Making best provisions for future

supply of quality researchers

n Strengthening the international

R&D links

Overall agenda for R&D

Feeding the supply pipeline

Adapting to meet resource requirements

Efficiency in public sector

R&D

n Improve interest in R&D related

courses through:

- Curriculum improvements

- Increasing supply of teachers

- Increased funding for PhDs

n Finland’s LUMA program (since 1996) has helped

improve science / mathematical knowledge within

teaching fraternity at a national level by adding to

teaching tools, materials and through free training

n Sweden, despite huge base of R&D staff has set

aside EUR 12 million to attract young researchers

n Attracting women and under-

represented minorities through:

- Incentives

- Part-time optionsn The US and Australia have systematically grown the

share of non-tenured, temporary staff in R&D

n The ATHENA project (UK) is addressing women’s

under-representation in higher edu. employment

n Attracting talent from abroad through:

- Educational centers of excellence

- Administrative / Fiscal incentives

n In 2001. Sweden passed a law to alleviate tax

burden on highly-skilled foreign workers upto 5 yrs.

n Australia is extending immigration opportunities to

2,500 Australia-educated overseas students

n Increasing industry involvement in

Ph.D. training through:

- Curriculum changes

- Co-funding

- Industry / academia involvement

n The US national academy has recommended

changes to PhD curriculum to facilitate employment

n The NSERC in Canada encourages industry

involvement through co-funding of fellowships

n Since 1990, Netherlands has supported special

‘graduate schools’ focused on high-quality research

n Improving public sector R&D

efficiency through:

- Private sector partnerships

- Process / systems revamp

n Most other countries have managed significant

private sector involvement and process automation

to ensure reduced administration costs

HRD strategy for R&D Case examples

Source: UNDP-HRD. OECD Best Practices. KPMG. 2003.

58

A centralized common test and certification for ITeS skills offers

a number of benefits for the ITeS industry . . .

. . . however a completely common testing model may not be possible given the diversity of skills required for the ITeS / IT sectors

Ben

efi

tso

fcert

ific

ati

on

test

for

ITeS

Reduced recruitment costs

Reduced training costs

Higher agent productivity

n More effective hit ratios for recruitment and selection as compared to

2–5 : 100 as currently

n Lower time for recruitment screening with standard certification

n Lower training time required for certified skill-sets at a common level,

leading to reduced trainer and other overhead costs

n Certified skills could be deployed faster into client service operations

n Attrition rates could be higher given that agents would have invested in

training for ITeS as at least a mid -term career option

Design of standards and common test for ITeS skills based on industry requirements

This chapter discusses potential options to design and use a common test for ITeS

skills.

It also provides a case example of attempts at common tests for ITeS being tried out in

various states.

Having a common test could benefit the ITeS / IT industry in terms of reduced

recruitment costs, reduced training costs and higher productivity brought about by the

process of specialized certification.

However, as discussed, different functions within ITeS / IT may lay greater stress on

specific skills and qualifications, thereby making a common test difficult to develop and

administer.

In this context, it is better to consider a common test for necessary skills as a pre-

certification for employment. The test could also be used to identify specific training

requirements or even counseling against entry into ITeS / IT.

High-level estimates suggest that an ITeS / IT could save as much as 19–23 per cent of

relevant costs associated with recruitment and training through the use of a common,

certification test that could be used as a pre-screening tool for potential applicants.

While training costs for an ITeS company could come down from INR 6400 to INR 5200,

recruitment costs could come down from an average of INR 11250 to INR 8700.

The assumptions for these calculations have been stated in the exhibit above.

High-level estimates suggest that a pre-certification of core skills could save as much as 19-23 per cent of relevant costs . . .

. . . this is in addition to benefits associated with higher employee productivity as mentioned

Illustrative

Revised

estimates

Current

estimates11,250

8,700

Savings in agent recruitment costs

for ITeS company

Savings in agent training costs for

ITeS company

INR / agent INR / agent

Key assumptions:

1. Costs shown as loaded cost for an ITeS company for a 500 agent call center company in Delhi / Gurgaon with growth estimates of 30 per cent and targeted attrition of 30 per cent

2. Recruitment channel costs assumed to be INR7,000 (1 month salary at agent level)

3. Recruitment executive and trainer costs assumed as INR 17,000 –20,000 per month

4. Overhead costs associated with executives assumed as 2 – 3 x salary costs

5. Standard training time assumed as 40 hours for voice/accent, 40 hours for soft skills under a class size of 10 - 15

Source: Industry interactions. KPMG. 2003-2004.

Revised

estimates

Current

estimates6,400

5,200

23 per cent reduction

19 per cent reduction

59



Companies in the ITeS industry have been able to use alternative certification from

specialized post-graduate courses in lieu of their requirements for domain-specific

testing.

For example, the ITeS industry is employing qualified chartered accountants for back-

end accounting operations as well financial statement preparation and analysis.

However, the industry lacks a common certification for the basic skills requirement and

ends up spending an additional amount related to screening and training.

‘Pro

xy’

filt

ers

use

dfo

rh

igh

-en

dw

ork

The ITeS industry has already identified alternative certification

for domain-specific skills . . .

Examples: Resourcing for high-end ITeS in India

Source: Press reports. Industry interactions. KPMG. 2003-2004.

MCSE / CCNE certified IT staff

Doctors / Genetic

Engineers

Chartered Accountants

Masters in Business

Administration

- Use of Microsoft Certified Software Engineers and Cisco Certified Network Engineers for IT help-desk requirements

E.g.:

- IT help-desk- Network equipment support- Application support

- Use of qualified doctors / pharmacists for transcription

- Use of genetic engineers / PhDs for research support

E.g.: - Special coding for claims adjudication- Genetic research

- Use of ICAI certified chartered accountants for back-end accounting and financial statement / tax preparations

E.g.:

- Finance processing and Accounting- Tax preparation and Accounting

- Use of second-tier MBA graduates for back-end research, economic research, presentation preparation and special filings

E.g.: - IPR filings- Macro-economic research- Equity research

. . . but lacks a common certification for the basic skills requirement

60

Some of the common skills necessary for ITeS could be tested using a mix of questions /

situations and these could be modeled upon existing standard / proven testing methods.

For example, the TOEFL (Test of English as a Foreign Language) and TSE (Test of Spoken

English) have become internationally recognized and accepted as tests for fluency,

vocabulary and comprehension in English. The common test for ITeS could be modeled

upon the testing philosophy and approach of these examinations.

Various existing common entrance tests (Management Entrance, Clerks’ Entrance, IAS,

CAT etc.) could also be used to design the test, along with inputs from industry

practitioners in the non-formal ITeS / IT training system (e.g. Aptech, NIIT).

Components of the common testing system could be modeled

upon some existing standard and proven testing methods . . .

Source: Industry / Academia interactions. KPMG. 2003-2004.Note:

Easy to test

Testing possible under constraints

Difficult to test

n Ability to speak and write foreign languages

n Will measure fluency, vocabulary, sentence construction

n Will measure fluency, clarity, quality of speech and intonations n Tests such as the TOEFL ® (Test of English

as a Foreign Language), TSE ® (Test of

Spoken English), IELTS ® (International

English Language Testing)

n Objective reasoning type of items consisting of numerical ability

problems, syllogisms, analogies, logic games etc.

n Assessment of creative pursuits and review of performance under

specific problems

n Can be measured using situational, simulated exercises

n Aptitude tests such as the DAT ®

(Differential Aptitude Test)

n Objective tests for these skills such as The

Guilford Creativity Test ®

n Behavioral skills are best measured using

simulation exercises.

Spoken English

Written English

Foreign Languages

Accent Understanding

Listening / empathy

Initiative/Enthusiasm

Multitasking / Time management

Language Skills

Customer Service Orientation

Team Player

Assertiveness and Confidence

Integrity / values and discipline

Motivation / Drive

Behavioral traits

n Ability to comprehend and respond to various accents

n Will consist of standard personality measurement type items

n Standard personality measures such as the

16PF, MBTI (Myers -Brigg Type Indicator),

EPQ ® (Eysenck Personality Questionnaire)

Ease of testing

Nature of testingStandard tests on which specific components could be modeled

Illustrative

Logical reasoning

Problem Solving / Num. ability

Comprehension / Creativity

Keyboard skills / Browsing etc.

Analytical Skills

n On-line practice test involving speed of response, accuracy and PCapplications usage n Standard computer typing tests

Computer proficiency

Candidate profile

Basic skills

Technical / programming skills n Structured paper tests for problem-solving, syntax/structure etc. n Standard programming problems tests

Sociability / Dependability / Reliability

61



The overall philosophy of designing the common test involves an understanding of

how the test would be administered, the frequency of administration, period of validity

for the scores and standardization / norming processes to be adopted.

The Indian ITeS Certification Test (IICT) would be a computer adaptive pattern test that

measures the aptitude of candidates. Details of the employment of the test have been

illustrated above.

Testing for domain-specific skills would require a separate set-up. These could be called

ITeS Domain Tests (ITDT), and could be better managed by individual business-specific

tests, depending on their specific function requirements. Details of the employment of

the test have been illustrated above.

Overa

llp

hil

oso

ph

yfo

rIT

eS

test

desig

n

The common test for ITeS should be designed to meet the basic

skills requirement of the industry . . .

Nature of test and delivery

n Objective measure of the candidates aptitude

(inherent abilities) and not educational achievement.

n Computer adaptive test pattern providing a

consolidated score on each section

n Will be available for administration at authorized

testing centers around the country

n Can be accessed and taken during specific periods

during a month / quarter

n Score will be valid for a period of six months as

industry standards and requirements are fast

changing and the test will be required to be

constantly revalidated

n Once employed, the test need not be taken again.

n Standardization and norming processes must be

well established

n Score reports will provide individuals score along

with a comparative percentile rank for the last six

months.

Indian ITeS Certification Test (IICT) ITeS Domain Tests (ITDT)

n Objective measure in various key domain areas

n Paper pencil tests that will be developed into a

computer adaptive pattern over the next two years

n Students can take as many domain specific test as

desired

n Score will be valid for a longer period, of 10 - 12

months

n Once employed, the test need not be taken again.

Frequency of administration

Period of validity of scores

Standardization and Norming

Source: Industry / Academia interactions. KPMG. 2003 - 2004.

n Paper pencil tests will be available for

administration over six months. Testing agency may

tie up with educational institutions to use their

infrastructure to conduct large scale group testing

n Standardization and norming processes must be

well established

n Test content must be created with inputs from the

industry in terms of content and proficiency levels

62

A common test in the form of the ‘Indian ITeS Certification Test‘ (IICT) could help certify

basic skill levels required for ITeS (L1), related to language capabilities, analytical

abilities and computer proficiency as well as candidate profile characteristics (L2) such

as orientation for customer service and basic personality traits.

The certification mechanism could even classify applicants based on performance on

each of the parameters chosen as employable, trainable or non-trainable.

Personnel with L1 certification as employable could join the industry directly or after

undergoing L2 and IDT certifications if required specifically by employers.

Personnel with L1 certification as trainable would undergo training at their own or

company-sponsored expense before they are deployed into ITeS.

Personnel with L1 certification as non-trainable could be counseled against applying for

ITeS jobs and seek alternative opportunities.

A hybrid model with a base-level common testing andcertification supported by company-specific requirements is

more suitable . . . Illustrative

ITeS Domain Test (IDT)

Company-specific tests

n Structured interviews

n Problem-solving (paper-pencil)

tests

n Situational tests / workshops

n Domain specific testing

related to, for example:

- Finance / Accounting /

Insurance

- Pharma / Healthcare

- Design

- HR

- Legal

L1: Basic Skills

n Language skills

n Analytical skills

n Computer

proficiency

n Training for ITeS skills under

formal or non-formal systems

Note: IICT and even IDT would be common tests under a body that is recognized by the government and accepted by the industry

Source: Industry-academia interactions. Department of IT. KPMG. 2003-2004.

L2: Candidate

Profile

n Customer service

orientation

n Basic personality

Indian ITeS Certification Test (IICT)

Certified Employable at L1

ITeS training

Denotes required test

Denotes optional test

Certified Non-Trainable at L1

Certified Trainable at L1

63



Categorization of Employable / Trainable / Non-trainable categories could be based on a

normalized score with agreed cut-offs that may be tuned based on industry demands.

Those that are ‘Employable’ may not necessarily have to appear for the ITDT. However,

that would be determined by the specific requirements of the companies. They can

further enhance their employability by taking the L2 test as well.

Those in the ‘Trainable’ category would need to clear the L1 test and become

‘Employable’ before they can be considered eligible for the L2 test. However, in some

cases, where companies have large training budgets, they may even get hired.

‘Non-trainable’ people would need to review their basic skills before considering ITeS

as a feasible career option. A strong counseling system would need to be in place in

order to guide such people.

Thus, this system would ensure quality control for the industry when it comes to

recruitment.

Results of the test could categorize potential applicants into

specific categories to also identify training requirements . . .

EmployableTrainable

Scoring System (for L1 under IICT)

0 100

Non-Trainable

Employable:

Trainable:

Non-trainable:

Score Range

n Those scoring above pre-determined score in L1 test could

be certified as employable under the IICT

n These personnel can appear for L2 test, if required and could

also apply to specific companies with their certificates and

may / may not have to undergo the domain-specific test

(IDT), depending on employer preferences

Illustrative

n Those scoring above the minimum requirements but less

than the pre-determined score could be signaled as

‘trainable’ for ITeS

n These personnel may not be eligible for L2 test until they

are certified as ‘employable’ under L1 but may be hired by

companies willing to invest in their training

n Those scoring below the minimum requirements may be

signaled as ‘non -trainable’ for ITeS

n These personnel may not appear for L2 certification test and

may be counseled against an ITeS career without first

improving upon basic skills required

Source: Industry / Academia interactions. KPMG. 2003-2004.

64

The Government of Andhra Pradesh has already initiated pilots to review and certify

specific skills for the ITeS industry and has reported some success.

It has introduced a Graduate Employability Test that specifically caters to certification

for the ITeS / IT industry. It is administered online and is offered at various training and

testing centers.

Learning from the experiment could be used to drive the roll-out of a nation-wide

certification test as planned.

The state of Andhra Pradesh is experimenting with such

centralized testing and certification under its Graduate

Employability Test (‘GET’) . . .Case study: Andhra Pradesh

Policy and legal framework

Funding andbudgetary allocation

Infrastructure and institutional

set-up


Monitoring systems

n The state government instituted the GET / IITeST as an ‘employability test’ following an 11 -week

training program related to voice skills

n The course content has been designed by various non-formal, private-sector education service

providers in association with Linguaphone (UK) and Monster.com (India)

n The test is not mandatory and the scores are shared with leading ITeS companies in the state

n The GET / IITeST is subsidized by the state government to the extent of 50 per cent and applicants

need to pay a fee of only INR 100 for each administration

n The GET / IITeST is administered on-line, at facilities of various training and testing partners of the

state government (e.g. NIIT, Aptech, Hero MindMine)

n The state government has identified the APSCHE (State Council for Higher Education) as

responsible for execution of the GET / IITeST and uses its own marketing body (APFIRST) to

generate awareness about the test

65



The Government of Karnataka has introduced an aptitude test called the BPO-SAT or

BSAT to measure verbal and analytical skills.

A private company has assisted the government in designing the test and is also

helping out in the assessment of candidates.

However, currently the test is not mandatory and the scores are only revealed to ITeS

companies if the candidate desires so at the time of application.

While being a good source of revenue to the government, it also provides the

necessary confidence to companies at the time of recruitment.

. . as is the Government of Karnataka with its BPO Skills Assessment Test (BSAT) . . .

Case study: Karnataka

Policy and legal framework

Funding andbudgetary allocation

Infrastructure and institutional

set-up


Monitoring systems

n The BSAT measures generic skills related to verbal, numerical and analytical abilities in addition to

communication skills (written and oral) as well as key-board skills

n The test is not mandatory and the scores are shared with ITeS companies, if desired by applicant

n The total cost for the test is INR 200 and the ‘Board for IT Education Standards’ (BITES) contributes

around INR 100 for every eligible candidate, providing a 50 per cent benefit

n The BSAT is administered through an identified third-party service provider (MeriTrac) as an on-line

test at facilities of other non-formal, private-sector education service providers

n The BSAT is administered by the BITES, registered under the state government as a non-profit

society, in co-operation with the local IT industry and other educational institutions

n MeriTrac, an independent local firm, has been identified as the assessment partner for the BSAT

66

As much as 93 per cent of annual graduates in India prefer to join non-IT related work

or prefer to be non-employed (i.e. opt out of work-force participation due to social or

other factors).

For example, in 2002, out of the total 2.4 million graduates, 0.9 million opted out of the

work-force (higher share for women as compared to men) while around 1.4 million

joined non-IT jobs.

67

Non-IT personnel represent a significant proportion of India’s resource pool . . .

. . . these could potentially be trained for and attracted into the ITeS and R&D occupations

Source: Institute of Applied Manpower Research (2002). Press reports. NASSCOM. KPMG. 2003–2004.

0

500

1,000

1,500

2,000

2,500

Annual Graduate

output

Graduates not

participating in the

work-force

Engineers

(Deg./Dip.) in IT

Other Engineers

entering into IT

Other Graduates

entering into IT

Graduates in the

work-force in non-

IT areas

(000s)

2,356

825

91 36 32

1,372

Manpower profile of graduate employees in India (2001–02)

Of total annual graduate output 35

per cent is non-employed Of total annual graduate

output 58 per cent is in non-IT work and some of these

could be attracted based on demands in the other sectors



Measures for optimizing deployment of non-IT personnel in ITeS and R&D

This chapter highlights the potential resource available in the form of non-IT / non-

employed personnel. It also looks at the possible actions required to attract and deploy

these personnel into ITeS / IT.

Personnel entering the work-force have a number of potentialemployment options based on their qualifications . . .

Source: Press reports. Interaction with industry and academia. KPMG. 2003-2004.

Illustrative

Graduation

Post-graduate Diploma / Courses

Post-graduation /

Masters

n B.A. n Journalism, Market Research, Social work, Administration, Sales, Airline Services

n B.Sc. n Market Research, Social work, Administration, Sales, Airline Services, Med. Reps.

n B.Com. n Sales, Accounting & Book-keeping, Airline Services

n LLB. n Legal research, Corporate law, Administration, Practicing law

n B.Ed. n Teaching, Social work

n B.Pharm. n Clinical research, Medical Representatives, Chemists

n B.M.M. (Mass Media)

n IT, Product testing / design, R&D, Sales

n B.C.A. (Comp Appln)

n Journalism, Advertising, Digital Content, Market Research

n B.E. / B.Tech. / B.Arch.

n IT

n Armed Force (Officers) n Teaching, Social work, Administration / Security services

n Finance / Banking - Function specific role (officer / supervisor / executive)

n HR

n Travel & Tourism

n Design

n Hotel Mgmt / Catering

n Sales & Marketing

n Secretarial

- Function specific role (officer / supervisor / executive)






n ICWA

n CA



n M.A./ M.Sc./ M.Comm.

n M.B.A.

n PhD. / Doctorate

n High-end expert role in specific area (e.g. VLSI design, Library services)

n Managerial / Advisory role (e.g. HR, Operations, Finance. Strategy)

n Expert role and R&D work in specific area (e.g. Bio-informatics)

68

Graduates preferring to join non-IT work have a number of options available to them,

based on their specific background. This has been highlighted in the table above.

Specialized post-graduate diploma courses narrow down the employment options to

some preferred sectors. For example, a Ph.D. or Doctorate course necessitates

employment as an expert in a very specific area. At the same time, a course like B.Com.

(graduation in commerce) opens up careers in sales, accounting and book-keeping,

equity research and analysis etc.

Even within ITeS / IT industry, based on the nature of work required and empirical

evidence of current practices, some qualifications may be better suited for specific roles

/ functions.

For example, the nature of training for a graduation in education (Bachelor of Education

- B.Ed.) enables the person to be better equipped for customer contact support services

as compared to a graduation in Commerce (Bachelor of Commerce - B.Comm.), which

may be better suited for data entry and processing work.

Also, specific qualifications such as Chartered Accountancy could enable a person to be

in a better position to support knowledge services related to data modeling and

advisory services.

Graduates have specific opportunities in the ITeS/ IT sector . . .

Source: Press reports. Interaction with industry and academia. KPMG. 2003 - 2004.

Data entry

Data Proc.

Doc. Mgmt.

Data entry / Back-office processing

Cust. services Collectn Mktg and

sales

Customer contact support

HR Finance IT


Search andanalyses

Decision support

Consult. and advise

Knowledge services andDecision support

IT andElectr.

BioChem/ Pharma

Engg. Design

R&D and Development

üü üü üü

üü

üü üü üü

üü üü

Illustrative

üü üü üü

üü üü üü

üü üü üü

Note:

Direct fit with requirements

Fit into requirements with some specific training / some stretch

üü

ü

B.A.

B.Sc.

B.Com.

LLB.

B.Ed.

B.Pharm.

B.M.M. (Mass Media)

B.C.A. (Comp Appln)

B.E. / B.Tech. / B.Arch.

Armed Force (Officers)

Finance / Banking

HR

Travel & Tourism

Design

Hotel Mgmt / Catering

Sales & Marketing

Secretarial

ICWA

CA

M.A. / M.Sc. / M.Comm.

M.B.A.

Ph.D. / Doctorate

üü üü üü

üü üü

ü ü ü

üü üü üü

üü

üü üü üü

üü üü

üü üü üü

üü üü üü

üü üü üü

üü üü

üü üü

üü üü

üü üü

üü

üü

üü

üü

ü

üü

üü

ü

üü

üü

üü üü üü

ü ü

ü ü

ü

üü ü

üü

üü üü üü

ü ü

ü

üü

üü üü

üü üü üü

üü üü üü

üü üü

ü

ü ü ü

ü

ü

üü ü üü

ü

ü

üü

üü üü üü

üü üü üü

69



Over the years there has been a large base of ‘non-employed’ people, some of which

may be interested in re-entering the work-force but may find it difficult to do so due to

lack of awareness of opportunities or the capabilities required.

A large portion of this base includes women who complete graduation but opt out of

work-force participation.

Others include handicapped staff, early retirees (especially given the increasing

adoption of Voluntary Retirement Scheme – VRS – in most large businesses) and those

who opt to continue education.

No

n-e

mp

loyed

seg

men

tso

fed

ucate

dp

ers

on

nel

In addition, there is a large base of people not participating in the labor force directly (i.e. prefer to be non-employed) . . .

Source: IndianNGOs.com. Institute of Applied Manpower Research. KPMG. 2003.

Higher education aspirants

Women

Handicapped people

Retirees

n Around 7 – 10 per cent of graduates each year opt out of the labor

force and continue to study post-graduate / other doctoral courses

(another 0.1 per cent go abroad to study)

n Only 25 – 30 per cent of women graduates in India (compared to 80 –

85 per cent men) participate in the workforce, very often due to family

reasons (marriage / social pressures)

n Personnel with physical disabilities (60 – 75 million) either rely on

government subsidized employment opportunities or drop out of labor

force due to lack of industry / social support for pursuit of employment

n Retired people and people with short-term employment / short-service

commissions often find it difficult to get re-employed in other sectors

70

ITeS/ IT as a profession offers some specific benefits and issues which could drive the

choice of employment amongst the potential employee base.

While ITeS / IT in general offers greater financial benefits in addition to development

and growth opportunities, they may involve shift-working and monotonous work.

However, these depend on the specific nature of the service provided and the specific

HRD policy of the company related to job rotation / promotions.

It must, however, be noted that a number of issues related to ITeS are common to other

professions like airline services (monotonous), secretarial work (work-related stress)

and nursing (night-shifts) and proper counseling could help attract these segments.

The choice of ITeS / R&D as a profession by these groups of

personnel will be driven by their understanding of specific

benefits and issues . . .

Ben

efi

tso

fw

ork

ing

inIT

eS

Financial benefits

Training and skills

development

Work environment

Global exposure

Issu

es

rela

ted

tow

ork

ing

inIT

eS

Shift working

Work-related stress

Monotony

Career progression challenges

n ITeS employment offers 20 – 50 per cent

more salaries, including other benefits

related to transportation / food, as

compared to other employment options

n ITeS employment involves significant

domain specific training as well as soft

skills and voice training opportunities

n The workplace in most ITeS businesses is

more ergonomically designed as compared

to other occupations and offers an

environment and culture of fun and youth

n The prominent ITeS companies in India

include MNCs or large Indian set-ups and

employment offers a global exposure

including internal rotation opportunities

n Personnel have often identified late night

and inconsistent shift working as the

primary reason for leaving the industry

n Increasingly, agents are found to be

complaining of food / digestion and sleep

problems, associated with work-related

stress

n Majority of the work in ITeS involves

rigorous and often monotonous work with

high repetition, which may lead to loss of

interest

n The nature of the operations and need for

high agent base implies that the

competition for career advancement within

the organization is very intense

Source: KPMG. 2003.

. . . however, the issues related to ITeS employment exist in other occupations

(like nursing / airline services, sales, secretarial work, production) as well

Illustrative

71



Specific actions would be required to position ITeS as a favorable employment option,

attract the right kind of talent and retain selected staff from across the different target

categories.

This may require changes in policy and incentives provided to relevant companies,

infrastructure made available and a monitoring mechanism to review success of

companies with these categories.

For example, to attract housewives into the workforce, especially for ITeS, there needs

to be an awareness drive managed through the relevant channels such as social groups

and TV advertising, This must be supported by specific incentives related to flexi-time

and availability of day-care / creches to meet the specific requirements of this category

of potential employees.

Similarly, special efforts are required to attract high-end professionals such as actuaries,

trained lawyers, management graduates and Ph.D.s for specific high-end support work

required.

Attracting personnel from these groups of personnel into ITeS

will require a structured approach . . .

Positioning Attracting Retaining

n Generating awareness as a

preferred occupation, through:

- Career fair representation

- Pointed news articles

- Youth oriented advertising

n Simultaneous higher education affiliations with partial fee support (upto 50 –70 per cent)

n Cross functional training (Sales, Operations, HR, Quality) and career progression options

n Generating awareness about

flexibility in ITeS, through:

- Social group workshops

- Articles in women’s mags.

- TV advertising

n Greater control over work-place

and work-timing with additional

facilities related to child care

n Special concessions related to

family support

n Simplicity in exit / re-entry into

ITeS occupation through

sharing of background records

and employment history under

a central database

n Awareness drives and

discussion on skills required for

ITeS, through:

- Rehabilitation / support

center workshops

n Provision of special workplace

related facilities (ramps /

elevators / medical support ) as

well as work operation

concessions (frequent breaks)

n Flexibility in minimum working

hour requirements

n Subsidies and support related

to extended leave under

medical considerations

n Awareness drives and

presentation on skills required,

through:

- Presentations in schools

- Teachers’ fora

n Describing (during interactions),

the overall workplace

environment (culture, flexi-time,

youth) as well as financial

benefits (salary, other support)

n Foreign travel opportunity

n Career progressions options

including foreign placements

for teaching

Graduates (employed / non-

employed)

Housewives

Handicapped / Disabled

Teachers

Source: KPMG. 2003 - 2004.

Illustrative

n Better structuring of benefitsn Specialized and on-the-job

training opportunitiesn Possibility of foreign travel

related to process migration, training or exchange programs

n Positioning based on

opportunities for challenging

work and recognition with

world-class working facilities

n Providing salaries comparable /

exceeding those in other

domestic professions

n Defining career growth path

options

n Interactions with global client /

peer group

n Job rotation and content

enrichment

Professional / Technical personnel

72

Many companies in India have begun utilizing the resource pool mentioned earlier and

are slowly bringing about changes in their hiring policies. Some of these companies

and their hiring initiatives have been illustrated above.

The biggest advantage for companies that have offered employment to some of these

categories include higher loyalty of employees at a relatively lower salary cost.

Some companies have even been able to leverage past skills and experience to

enhance the overall service delivery under ITeS / IT.

Some companies in India that have experimented with such an

approach are already realizing its benefits . . .

. . . efforts must be made to broad-base these through government support


Case studies: Attracting non-IT personnel into ITeS

III party service provider in NCR

n Developed relations with resettlement

boards of the Army and Air Force to recruit

retiring personnel

n Employs retired school teachers and

housewives as agents / support staff

n Planning to employ handicapped personnel

BPO subsidiary of an IT services company

n Employs a number of Chartered

Accountants / ICWA certified staff for

support with tax preparation / filing and

account preparation related work

BPO division of one of the leading IT

companies

n Employs 10 – 15 Ph.D.s in microbiology /

bio-technology to support research

requests from clients

n Plans to expand this team to build a

‘Knowledge Center’ in India with a

database on R&D in biology

VC-funded III party outfit in Mumbai

n Action plan to hire handicapped and retired

people

n Facilities and equipments to meet special

requirements of these employee groups

n Developing plan to attract housewives for

morning / afternoon half-shifts

High-end BPO company in NCR

n Employs over 180 MBAs from India as

well as abroad to support economic /

business research services

n Also hiring specialized skills to support IPR

filing and other legal documentation

services

One of the largest captive BPOs

n Employs scientists and doctoral staff in

the John F Welch technology center to

focus on R&D support services for group

companies world-wide, in the areas of

materials, heavy engineering and

electronics / medical systems

n Ability to leverage past experience

and maturity which reflects in

higher productivity and end-

customer empathy

n Realistic salary and growth

expectations for personnel

employed

Attracting ‘non-employed’

people into ITeS / R&D

Attracting highly qualified staff into ITeS /

R&D

Attracting high-end PhDs into

ITeS / R&D

n Ability to leverage qualifications

and certification to meet

regulatory as well as work related

requirements at lower costs,

without additional training

n Ability to attract right profile of

people at lower costs by offering

access to global knowledge base

and emerging opportunities

n Greater loyalty by personnel due

to lack of adequate alternative

employment options

Typical benefits to organization

73



Best practice efforts by some OECD countries related to attracting resources to specific

employment opportunities suggest that there needs to be a stronger push from the

industry side as well as the potential applicant’s side.

For example, in the US and Canada job search assistance within training and financial

incentives have been combined to re-deploy sections of the labour force into specific

occupations. Similarly, in Germany and Netherlands special laws have been introduced

to allow greater control over working hours for part-time employment options.

Thus, in India, efforts could be made in the areas of policy as well as funding and

infrastructure, in order to attract non-IT persons into ITeS / IT employment.

Efforts being considered in other countries suggest action steps

for the government and other related bodies in India to attract

non-IT personnel into ITeS / R&D . . .

Source: OECD Employment Outlook. KPMG. 2003.

Driving preference to be

employed

n The US and UK have long been practicing employment-

conditional benefits under which specific benefits (tax credit,

subsidies, access to social support facilities) are made available

to individuals / families that are gainfully employed

n France and Netherlands have encouraged personnel to develop

higher skills through reduction in employers’ contribution

towards social security (pension) for low-end jobs

n Austria provides corp. tax deduction for specific training invstmt.

n Countries like Ireland direct 0.5 per cent of GDP and approx.50

per cent of spending towards labor market development

towards targeted employment subsidies (of which 33 per cent

is related to employment in the private sector)

Driving appropriate

skill-ing

Driving employer

preferences

n The US and Canada have combined job-search assistance within

training and financial incentives to re-deploy sections of the

labor force into specific occupations

n Significant spending on vocational rehab. for disabled personnel

Enabling employment

n Germany and Netherlands introduced special laws in 2001, to

allow greater control over working hours for part-time

employment options

Special situation support

n Counseling at the graduate level on employment

benefits

n Implementing fiscal incentives / disincentives to

drive employment-seeking (esp. women)

n Highlighting typical skills requirements for

various employment options

n Co-financed educational schemes in association

with industry/ pvt training centers (upto 70 percent)

n Mandating special reservations / providing

specific subsidies related to employment of

under-represented groups

n Working with industry to redesign labor laws,

workplace standards to attract specific groups

n Co-ordinating efforts by industry to attract non-

conventional talent into ITeS through seminars

n Implementing special requirements in

conjunction with the ITeS industry (e.g. flexi-

hours) as well as independently

Illustrative

74

This chapter reviews the direct / indirect incentives available within the Indian context.

It also looks at possible changes based on practices in other countries to encourage

private sector participation and individual preference for higher education related to

ITeS / IT.

A number of fiscal incentives are in place related to labor laws, income tax benefits and

location preferences. However, most of these are relevant at the institutional / company

level rather than individual.

As a result, there is a lack of individual interest and inclination towards spending

towards higher education / vocational training.

The example of the housing finance industry suggest how tax breaks on housing loan

repayments led to massive growth in the housing finance industry – a similar elasticity

could be expected if educational expenses including expense on vocational courses

were to be given tax breaks.

75

There are already a number of fiscal incentives in place related

to support for HRD in ITeS / IT . . .

n Tax rebates for expenses towards children’s education

n Shops and Establishment Act has been liberalized to allow for around the clock functioning (subject to certain conditions being met)

n Commercial training or coaching provided by certain computer coaching / training centers are currently exempt under service tax regulations

n Certain exemptions from Customs to computers and peripherals donated to educational and research institutions by units under 100 per cent EoUs, STP, EPZs

n Certain exemptions from Customs for research equipment imported by public-funded and non-commercial research and academic institutions

Note: List of incentives / concessions mentioned is indicative not exhaustive.

Source: Government of India. KPMG. 2003-2004.



Fiscal policy measures to maximize privatesector participation in HRD for ITeS / IT

If we were to consider countries with a similarity of approach to education as in India (i.e. the US, UK and Canada), analyses by the OECD indicates that higher education leads to cash flows with a positive IRR, greater than the real interest rates (e.g. commercial lending rates) for the respective economies. This suggests that investment in human capital is a more attractive way for an average person to make wealth.

Different countries have introduced varied fiscal measures to provide incentives to personal investments in higher education.

– For example, in the US, this is driven by the substantial increase in wages possible through higher education – an indirect appreciation of skills gained through education.

– In the UK, the high availability of funding support in the form of scholarships / grants etc. makes up for up to 47 per cent of tuition costs involved – an indirect way of the state influencing funding for employment. Funding is available in the form of Career Development Loans for vocational courses.

– In Canada, incremental salary from higher education is not substantially high although the risk of unemployment decreases (i.e. term of employment increases) substantially, to provide a net benefit from education.

A review of OECD countries shows how policy is designed to

make investment in tertiary education more attractive . . .

. . . different countries have used different mechanisms to ensure that higher

education remains an attractive choice for people

4.7

2.3

14.9

2.1

0.9

18.9

Comprehensive

benefit

Funding

support

Tuition fees

Unemployment

risk

Taxes

Earningsincrease

Note:

n Methodology

Costs involved with higher education include:

= Tuition fees + Foregone post -tax earnings (adj. for employment prob.) - Resources through grants / loans

Benefits from higher education include:

= Post-tax earnings (adj. for employment probability) - Repayment associated with public-support grant / loans

n Assumptions

Full-time employment with no income during study; Course drop -out not considered

2.7

2.1

18.5

3.6

1.6

18.1

2.3

0.5

8.7

1.8

1.3

8.4

IRR for choice of higher education, per cent United States United Kingdom Canada

Industry appreciation of skills gained

Tax on additional income

Application lifetime of skills gained

Cost of higher education

Government / Industry funding support for higher education

Source: OECD Economic Studies (2002). KPMG. 2003-2004.

Commercial lending rates 1.3 5.85.1

76

The Malaysian government believed that the industry in Malaysia spent little on Human

Resource Development in the form of education / training.

Hence it invested in specific contributory funds as well as instituted specific incentives,

at the individual and company level. The table above highlights some of these

incentives.

The primary objective of these initiatives was to drive greater spend on education and

training.

Malaysia has made specific efforts at promoting private and

personal investments into HRD . . .

Incentives directed at individuals

n Attracting global ICT skills

- Income remitted within two years of arrival exempted

from tax

- Personal effects brought are tax exempt

- Owned assets in country of residence (e.g. cars)

exempted from import duty and sales tax

- Permanent Resident status to close family of

applicants within six months from the date of arrival

n Investing in skills development fund

- Skills Development Fund Division to use the fund to

provide loans to students in technical / vocational

courses

- Loans available at nominal administrative charges and

long repayment terms

Incentives directed at institutions / corporates

n Double Deduction Incentive for Training (DDIT)

- The DDIT scheme (allowing double deduction of

training expenditure for tax calculation) between

1988 -1993 was very attractive to MNCs operating in the

electronics industry in Malaysia

- Since 1993, the scheme has been restricted to small

firms (less than 50 employees) and a levy rebate has

been offered to larger companies

n Human Resource Development Fund (HRDF)

- HRDF instituted in 1992 as a contribution fund

managed by the government and industry, reimbursed

against training expenses

- Led to increased training expense for almost 50 per

cent of those companies registered under the HRDF,

especially those in the instrumentation industry


Case study: Malaysia

77



The Philippines government has introduced an ICT scholarship scheme for students

wanting to pursue a career in information and technology.

It has provided incentives in the form of tax holidays to training institutes. There are

also additional incentives like unrestricted use of consigned equipment.

The private sector has also been provided incentives by taking up socially relevant

projects as well as sponsoring the computer classrooms in schools.

Philippines have specific fiscal incentives directed towards HRDfor the ICT industry . . .


n ICT scholarship program

- Administered by the TESDA for students who pursue

careers in ICT sector

- Assistance includes tuition fee subsidy for approved

courses and up to 50 per cent subsidy for ICT skills

certification


n Incentives to ICT training institutions

- ICT training institutions (formal / non-formal) are

eligible for a three-year income tax holiday

- Additional incentives are provided in terms of

additional deduction of labor expenses (teachers) and

unrestricted use of consigned equipment (computers)

n Private sector involvement

- ‘Adopt -a-school’ programs allow generous tax

incentives to the private sector in return for

technology systems provided to schools


Case study: Philippines

78

Sweden has undertaken initiatives to build the competence of its working population.

For example, the state provides support to individuals who are keen on getting trained.

It also provides them with incentives to learn.

At the institutional level, incentives are provided for specialized vocational training and

connectivity support through computers and internet provision.

All these initiatives have helped Sweden develop into one of the front-runners in global

IT, innovation and R&D.

Sweden has been very successful in developing requisite HRD

skills for R&D, through special incentives . . .


n Financing of competence building

- Swedes can open an Individual Learning Account

where their investments for training and competence

building are matched by state investments and

incentives

- Adult education under the state schools system is free

- Special grants are provided to the unemployed

towards higher secondary education


n Specialized vocational training

- Advanced Vocational Education (AVE) is financed by

the Education Administration budget to offer a new

form of post-secondary training involving theoretical

and practical applications

n Connectivity support

- The state and municipal funds provide limited period

support to special computer / education centers to

enable connectivity to the Internet


Case study: Sweden

79



A review of practices in other countries such as Malaysia, Philippines and Sweden,

suggests that India could adopt a number of tax-related incentives.

The focus should be more so at the individual level, to drive HRD as well as

employment preference towards ITeS / IT industry.

Detailed recommendations on specific policy initiatives are provided under the Action

Plan.

There are a number of additional fiscal measures possible to

promote personal and private sector involvement in HRD . . .

n Tax incentives could be extended to training / coaching activities even under IT related industry.

n Investments in educational / coaching activities in IT sector could be given incentives by way of tax exemptions / 100 per cent depreciation treatment, etc.

n Grants/ donations could be made by the government to English speaking colleges / schools to give an impetus to the ITeS industry.

n Vocational training / coaching in IT related sectors could be made compulsory in colleges with linkages to fiscal directives.

n Expenses incurred with respect to training and certification for ITeS could be supported through special loans, repayment of which could qualify for individual tax exemption.

n Allowances received for working late shifts by personnel in the ITES industry could be tax exempt.

n Special incentives could be provided to women for employment in ITeS / IT sector.

Source: Department of IT. Industry interactions. KPMG. 2003.

Illustrative

80

Studies in the past have highlighted that implementation of action plans often falls

behind targets due to the inability to define a specific group accountable for the

implementation.

The inability of different groups from across ministry boundaries to work together is

another major cause of the failure of such action plans.

It is therefore critical to identify the key individuals who would take responsibility for

the implementation and be accountable for their actions.

Continuous monitoring of progress, supported by strong leadership would be the key

to successful implementation.

81

Studies in the past have highlighted what drives and inhibits

successful implementation . . .

. . . actions planned must therefore be supplemented by specific performance monitoring criteria, timeline and responsibilities

n Agreement on a common agenda and the benefits of achieving it by all the key stakeholders

n Strong support from influential individuals within the government who can drive the agenda and resolve roadblocks

n Focused, dedicated leadership and ownership by relevant bureaucrats to drive the process through to conclusion

n Continuous pressure to achieve planned objectives through reviews and performance criteria

Successful implementation

n Lack of involvement of all the key stakeholders including ministerial departments, industry and academia

n Lack of agreement on and acceptance of a common implementation plan and responsibilities

n Lack of accountability and inability to achieve planned actions by those appointed

n Lack of continuity and focus / direction by the government

Failure in implementation

Source: BCG-High level Strategic Group. Department of IT. 2003.



Comprehensive action plan for HRD in ITeS/IT

This chapter provides suggested recommendations of the Task-force on actions to meet

HRD requirements for the ITeS / IT industry.

Specific responsibilities have been assigned under each of the recommendations and

the overall implementation structure has also been discussed.

Bridging the manpower requirement gap for ITeS / IT requires specific actions on a

priority basis:

– Priority 1: Improve the employment conversion ratio through use of pre-

certification and counseling such that the resources attracted invest in developing /

assessing specific skills and are focused on working in ITeS / IT as a career.

– Priority 2: Use of counseling as well as providing adequate industry awareness

building opportunities to attract a greater share of applicants from target employee

base. This could be the biggest source of manpower as the ITeS / IT is still

concentrated in specific clusters and attracting of talent from other smaller towns

has not been utilized to the fullest extent.

– Priority 3: Expand the workforce pool through specific incentives to drive workforce

participation, especially by women and other under-represented groups who

otherwise drop-out of the workforce due to social or economic pressures.

82

Meeting the manpower requirements by 2012 could require a

number of actions directed at specific objectives . . .

2,717

1,367

549

605

195

0

1,000

2,000

3,000

Expected demand

(2012)

Projected supply

at current trends

Priority 1:

Improving

conversion ratio

Priority 2:

Improving

applicants share

Priority 3:

Increasing work-

force participation

Estimated gap based on current trends

Number (000s) Options to bridge the gap

n Requiring changes in the curriculumn Requiring a pre-certification mechanism

for ITeS / IT skills

n Requiring greater awareness of ITeS opportunities

n Requiring interaction platform between industry and potential employees

n Requiring specific fiscal incentives n Requiring work environment changes to

attract workforce participation

Illustrative

. . . requiring policy, infrastructure and funding related actions

Note: Calculations are illustrative only and assume that actions are conducted as per priority and the effects are multiplied.

Key assumptions include -

1. Increase in pure conversion ration from 25 per cent to approximately 35 per cent (adj. for double-counting of repeat applicants)

2. Increase in applicant share from approximately 11 per cent to approximately 15 per cent (adj. for double-counting of repeat applicants)

3. Growth in workforce participation from 65 to approximately70 per cent

Source: Industry interactions. KPMG. 2003.

We have developed a comprehensive framework to suggest recommendations related

to attracting, training, certifying and deploying resources for ITeS / IT industry

requirements, on a long-term, sustainable basis.

This framework would help define the policy changes, funding requirements,

infrastructure /institutional support as well as monitoring mechanism required for the

action plan to be successful.

Across the education lifecycle, the primary objective would be to generate awareness

of ITeS / IT , provide specific skills, certify students through a common test and finally

involve the industry to effectively deploy human resources.

Our framework for overall recommendations for action

encompasses the multiple dimensions that can influence

manpower development . . .

Policy changes / extension required

Funding / Fiscal incentives required

Infrastructure / institutional

support

Monitoring mechanisms

required


Policy measures to clarify / guide / enforce

Funding allocation and incentives

Infrastructure / facilities and institutional

support (formal / non-formal)

Monitoring body, frequency and

reporting

Involving industry in employing trained and

certified resources

Use of common certification test for

basic skills

Providing specific skills as part of general / special education

Generating awareness and preference

amongst graduates as well as non-employed

83



Currently, the Indian education system is not well geared up to cater to the specific

needs of the ITeS / IT industry.

One of the main issues related to attraction to the industry is that most employees do

not look upon ITeS as serious career option. This results in high rates of attrition.

Lack of a proper placement mechanism in most educational institutions is another

major hindrance in students getting good jobs. The industry interface is not well

established especially in smaller cities and towns.

A number of gaps have been identified associated with the

entire life-cycle of education in India . . .


n People are not aware

about employment

options, including

flexibility offered

n ITeS perceived as largely

requiring IT skills

n Jobs in the ITeS industry

lack esteem

n Employment not seen as

a long-term career option

n In-industry attrition

remains high

n Key skills required by the

industry are not

developed through

current educational

system

n Lack of adequate

interaction between

formal and non-formal

education systems

n Lack of a standardized,

modular curriculum for

ITeS

n Lack of national-level

mechanism for pre-

certified pool of

resources

n Lack of understanding of

specific parameters to

test and certify upon

n Lack of feedback loop on

resource deployment

and skills provided

n Lack of direct placement

links between

institutions and ITeS

industry, especially in


Source: Industry / Academia interactions. Department of IT. KPMG . 2003.

Illustrative

84

In order to tackle the issues highlighted previously, it is imperative that certain steps are

taken in a focused manner across the education lifecycle.

One of the main focus areas would be to generate awareness of the various career

options that are available to students and professionals. With India being increasingly

looked at as a destination of choice, more and more opportunities would be available.

Another key area would be the revision of curriculum to create a more IT sensitive

workforce with greater domain knowledge. Specialized training courses would need to

be developed for enhancing human resource skills.

Certification of skills would need to take place by the creation of a standardized test for

checking basic ITeS skills. At the same time a monitoring mechanism with adequate

control would need to be set up.

Finally, the loop would be completed with effective deployment of trained and certified

personnel. A greater role would need to be played by placement cells in colleges and

universities.

The key recommendations and time–frame for implementations have been highlighted

further in the report.

As a result, the recommended solutions must effectively be

designed to address these gaps . . .


n Awareness creation

programs

n Systematic counseling to

enhance the perceived

image

n Define career paths

under employment in

ITeS / IT industry

n Provide specific

incentives for ‘out-of-

industry’ hiring

n Changes in the

educational curriculum

from the primary to

graduate level as well as

new vocational courses

n Increase co-operation

between non-formal and

formal systems through

sharing for

infrastructure, faculty,

testing systems etc.

n Creation of institutional

capacity for specialized

training

n Creation of a national

testing institution

framework and

infrastructure

n Develop and norm a test

for basic ITeS skills

n Encourage placement

cells within the

education system

n Establish platforms for

industry – academia

interface to assess

employability of

resources, especially in


Source: Industry / Academia interactions. Department of IT. KPMG . 2003.

Illustrative

85



Recommendations:

1. Create an ‘ITeS / IT awareness fund’ with industry support to generate awareness

about ITeS / IT employment, especially in Tier II / III cities through advertisements,

workshops, seminars and counseling sessions.

2. Leverage existing infrastructure in the form of universities / colleges and existing

vocational counseling centers, especially in Tier II and smaller towns to provide

career counseling on ITeS / IT opportunities.

3. Provide special incentives (e.g. tax exemption, resettlement allowance, residence

status) to attract experienced expatriate talent for high-end ITeS / IT and R&D work.

4. Introduce changes in the telecom and customs / excise regulations to enable

working from home for ITeS / IT industry.

The specific recommendations on actions required include . . .

nAttracting resources into ITeS / IT (including R&D)

Create an ‘ITeS / IT awareness fund’ with industry support to generate awareness about ITeS / IT employment, especially in Tier II / III cities through advertisements, workshops, seminarsand counseling sessions

- Ministry of Finance- NASSCOM

1.

Leverage existing infrastructure in the form of universities / colleges and existing vocational counseling centers, especially in Tier II and smaller towns to provide career counseling on ITeS /IT opportunities

2.

Provide special incentives (e.g. tax exemption, resettlement allowance, residence status) to attract experienced expatriate talent for high-end ITeS / IT and R&D work3.

Introduce changes in the telecom and customs / excise regulations to enable working from home for ITeS / IT industry

4.

- Ministry of HRD

- NASSCOM

- Ministry of External Affairs- Ministry of Finance

0 – 6th month: Assess impact on Telecom / Tax and prepare a benefits case for representation

6 – 12th month: Work out specific details and reporting requirements

- Ministry of Finance- Ministry of Labor

Source: Dept of IT. Industry interactions. KPMG. 2003-2004.

0 – 3rd month: Prepare relevant information to be disseminated

0 – 6rth month: Identify industry involvement opportunities for counseling

0 – 6th month: Identify potential contributors to the fund, size of the corpus as well as the administration

6 – 9th month: Pilot the use of the fund to check effectiveness in select cities

0 – 6th month: Identify and agree on nature of benefits to be provided and the specific eligibility criteria

6 – 9th month: Establish specific monitoring and reporting mechanisms


Illustrative

Note:

High priority

Medium priority

Low priority

86

- Dept of Science and Tech.

- Ministry of Comm. & IT


- Ministry of Comm. & IT (DOT)


5. Bridge gaps in the formal education system to provide specific skills related to ITeS

/ IT as part of the primary/secondary, higher secondary and tertiary education

systems.

6. Update curriculum under the formal education system more frequently to reflect

global industry developments and skill requirements.

7. Change the evaluation system under the formal education system to encourage

creativity and learning through continuous evaluation and learning through

experience.

8. Develop specialized vocational courses for ITeS / IT under the formal and non-

formal systems to achieve speed–to-market, lower costs and better penetration of

specialized courses with industry support for training and curriculum.

9. Establish and encourage global linkages within the formal education system (e.g.

student / faculty exchange, joint R&D, internships) by linking funding to such

efforts.

Recommendations (continued) . . .

n Educating / providing skills to resources for ITeS / IT (including R&D)

Bridge gaps in the formal education system to provide specific skills related to ITeS / IT as part of the primary/secondary, higher secondary and tertiary education systems

0 – 12th month: Encourage industry and academia to review and recommend changes required

12 – 24th month: Implement and monitor impact of change

- Ministry of HRD- Ministry of Comm. & IT- NASSCOM

5.

Update curriculum under the formal education system more frequently to reflect global industry developments and skill requirements

0 – 6th month: Agree on framework for review and revision of curriculum

6 – 12th month: Appoint a nodal body to monitor need for curricular changes and to recommend changes

- Ministry of HRD (AICTE, NCERT, CBSE, IGNOU)

- NASSCOM

6.

Change the evaluation system under the formal education system to encourage creativity and learning through continuous evaluation and learning through experience

0 – 6th month: Assess the nature of change required with respect to evaluation

6 – 12th month: Work with the formal sector of education to roll-out revised evaluation process

- Ministry of HRD (AICTE, NCERT, CBSE, IGNOU)

7.

Develop specialized vocational courses for ITeS / IT under the formal and non-formal systems to achieve speed –to-market, lower costs and better penetration of specialized courses with industry support for training and curriculum

0 – 6th month: Identify specific colleges / universities in select cities to introduce specialized courses

0 – 9th month: Launch ‘train-the-trainer’ programs with industry support

- Ministry of HRD (UGC, Assoc. of Universities, NIEPA)

- Ministry of Comm. & IT- NASSCOM

8.

Establish and encourage global linkages within the formal education system (e.g. student / faculty exchange, joint R&D, internships) by linking funding to such efforts

0 – 9th month: Revise and clarify funding norms by the Department of IT with respect to R&D funding

- Ministry of HRD (UGC, Assoc. of Universities, NIEPA)


9.



Illustrative

Note:

High priority

Medium priority

Low priority

87



10. Emphasize and promote the uptake of alternative languages (e.g. W. European,

Japanese) through courses at the graduation level, with support from specialized

agencies.

11. Revise R&D funding norms for universities / colleges from current plan-based

system to a project-based system across universities and monitoring output targets

(e.g. publications, patents, consulting revenues etc.) .

12. Ensure networking of institutions at the graduate and post-graduate levels to

promote ‘networks of excellence’ as well as to share knowledge on industry trends,

curriculum and teaching practices.

13. Provide easy access to the IT systems and Internet facilities within the formal

education system for registered students, at minimal fees.

14. Allocate specific share (10-20 per cent) of funding support towards faculty

development and training through workshops, paid sabbaticals into the industry

and knowledge-sharing practices across universities.

n Educating / providing skills to resources for ITeS / IT (includi ng R&D)


Revise R&D funding norms for universities / colleges from current plan-based system to a project-based system across universities and monitoring output targets (e.g. publications, patents, consulting revenues etc.)

0 – 9th month: Identify R&D performance monitoring metrics with norms for awarding project-based funding

12 – 24th month: Roll-out new system

- Ministry of HRD

11.

Emphasize and promote the uptake of alternative languages (e.g. W. European, Japanese) through courses at the graduation level, with support from specialized agencies

0 – 6th month: Agree on supporting agencies and curriculum structure for alternative language courses

6 – 12th month: Identify courses / institutions where to be introduced

- Ministry of HRD (UGC. Assoc. of Universities, AICTE)

- NASSCOM

10.

Networking of institutions at the graduate and post-graduate levels to promote ‘networks of excellence’ as well as to share knowledge on industry trends, curriculum and teaching practices

0 – 12th month: Co-ordinate efforts of the UGC and ERNET to classify major institutions under clusters and negotiate bandwidth required with BSNL and other players

- Ministry of HRD (UGC)12.

Provide easy access to the IT systems and Internet facilities within the formal education system for registered students, at minimal fees

0 – 12th month: Work with the ERNET, UGC and industry to find options to reduce costs for IT and Internet usage by students (e.g. bulk discounts, fiscal incentives)

- Ministry of HRD (UGC)

- NASSCOM

13.

Allocate specific share (10 - 20 per cent) of funding support towards faculty development and training through workshops, paid sabbaticals into the industry and knowledge-sharing practices across universities

0 – 12th month: Work with the universities and industry to finalize options for faculty development and link to funding

- Ministry of HRD (UGC)

- NASSCOM

14.



Illustrative

Note:

High priority

Medium priority

Low priority

88

- Dept of Science and Tech.

- Ministry of Comm. & IT(ERNET)





15. Impose greater discipline associated with information security adherence through

propagation of data security policies and related training.

16. Support alternative use of the ITeS / IT facilities and infrastructure of various

industry players for training and domestic services.

17. Extend tax incentives under Section 12A to recognized vocational training

institutions as well as companies focused on IT / IT-enabled services.


n Educating / providing skills to resources for ITeS / IT (including R&D)

Impose greater discipline associated with information security adherence through propagation of data security policies and related training


15.

16.

17.

Support alternative use of the ITeS / IT facilities and infrastructure of various industry players for training and domestic services

0 – 6th month: Assess specific issues related to infrastructure sharing / utilization and prepare a benefits case

6 – 12th month: Launch pilot with volunteer companies in select cities

- Ministry of Comm. & IT(DOT)

- NASSCOM

Extend tax incentives under Section 12A to recognized vocational training institutions as well as companies focused onIT / IT-enabled services

12 – 18th month: Assess tax implications and monitoring / reporting requirements associated with the same

- Ministry of Finance- Ministry of Comm. & IT- NASSCOM

0 – 6th month: Work with the industry and associations to develop specific regulations based on practices in EU / OECD / US to develop a framework for India



Illustrative

Note:

High priority

Medium priority

Low priority

89




n Certifying skill levels of resources for ITeS / IT (including R& D)

Co-ordinate efforts to develop a common, on-line test for ITeS (IICT) with inputs from the industry and academia to test and certify relevant skills

0 – 6th month: Agree on on-line testing framework in terms of specific skills to be tested and possible existing tests to be drawn upon


- NASSCOM18.

Provide partial funding support for IICT certification in the form of soft-loans / bonds / subsidies by the central / state government and industry players

0 – 12th month: Agree with industry and academia the costs for a common test and the alternative options for funding

- Ministry of Finance- Ministry of Comm. & IT- NASSCOM

19.

Appoint a non-government, industry-approved national body like NASSCOM for administration of the IICT and to gather feedback from industry on the testing / certification process

0 – 6th month: Decide on the body for implementation and monitoring of the IICT across the country and define specific responsibilities


20.

Design standards for the IICT (including nature of test, delivery mechanisms, testing benchmarks) based on industry requirements and with inputs academic experts

0 – 12th month: Design, test and roll-out of the IICT based on inputs received from industry, academia and the learning from various state government efforts


21.



Illustrative

Note:

High priority

Medium priority

Low priority

18. Co-ordinate efforts to develop a common, on-line test for ITeS (IICT) with inputs

from the industry and academia to test and certify relevant skills.

19. Provide partial funding support for IICT certification in the form of soft-loans /

bonds / subsidies by the central / state government and industry players.

20. Appoint a non-government, industry-approved national body like NASSCOM for

administration of the IICT and to gather feedback from industry on the testing /

certification process.

21. Design standards for the IICT (including nature of test, delivery mechanisms,

testing benchmarks) based on industry requirements and with inputs academic

experts.

90


nDeploying trained / certified resources into ITeS / IT (including R&D)

Note:

High priority

Medium priority

Low priority


Illustrative

Reform labor laws to support part-time and temporary working with clarifications on benefits, employment policies, rights in case of disputes etc.

0 – 12th month: Work with the ITeS / IT industry to assess specific issues and changes required

- Ministry of Labor- Ministry of Comm. & IT- NASSCOM

22.

Providing exemptions under the Income Tax Act for expenditure on IT equipment and communication for employees working from home

12 – 18th month: Assess tax impact and monitoring / reporting requirements and responsibilities related to such incentives

- Ministry of Finance- Ministry of Labor- Ministry of Comm. & IT- NASSCOM

23.

Set-up a database of trained and certified personnel and trainers for the ITeS / IT industry under a common, national body, to be shared with industry players as required for marginal fees

0 – 12th month: Define and parameterize the database to be shared with industry participants

On-going: Update database based on regular reports / filings by industry


24.

Using industry and institutional inputs to develop ‘National Technology Plans’ on R&D focus area to guide deployment of R&D personnel and drive efforts in specific R&D areas

0 – 12th month: Involve all key stakeholders to assess potential opportunities and specific strengths for India to address those

On-going: Monitoring of technology focus plans


25.

Appoint a dedicated committee to undertake periodic reviews and suggest corrective / alternative actions in order to ensure that HR development efforts match industry requirements

6 – 12th month: Identify sub-committee participants and their roles / responsibilities

12 – 18th month: Identify key metrics and reporting systems


26.


91



22. Reform labor laws to support part-time and temporary working with clarifications

on benefits, employment policies, rights in case of disputes, etc.

23. Provide exemptions under the Income Tax Act for expenditure on IT equipment and

communication for employees working from home.

24. Set-up a database of trained and certified personnel and trainers for the ITeS / IT

industry under a common, national body, to be shared with industry players as

required for marginal fees.

25. Use industry and institutional inputs to develop ‘National Technology Plans’ on

R&D focus area to guide deployment of R&D personnel and drive efforts in specific

R&D areas.

26. Appoint a dedicated committee to undertake periodic reviews and suggest

corrective / alternative actions in order to ensure that HR development efforts

match industry requirements.

The implementation of the recommendations should be

coordinated by a dedicated team that is representative and can

be held accountable . . .

Illustrative

Ministry of Comm. & IT

Ministry of HRD

Ministry of Finance

Ministry of External Affairs

IT/ ITeS industry

Industry associations

IT/ ITeS training service providers

Government

Industry

Committee on HRD in IT

Sub-committee on awareness efforts monitoring

Sub-committee on educational changes monitoring

Sub-committee on certification performance monitoring

Sub-committee on industry deployment / feedback measurement

Appointment for a term of six years with rotation of members every two years;

Accountability for development and performance targets

Sub-committees involving dedicated resources for

long-term support


The illustrative identifies the key stakeholders from both government and the industry.

A dedicated team would be needed to effectively coordinate activities of both the

spheres.

The Committee on HRD in IT would be the nodal point for all suggestions and action

points. This committee would in turn be organized into four sub-committees looking

after various activities related to each aspect of the education lifecycle.

This Committee on HRD would be appointed for a term of six years with rotation of

members every two years. The sub-committees as well as the Committee on HRD

would be accountable for the implementation of programmes and would have key

performance indicators to measure success.

92

93


KPMG

KPMG is the global network of professional services firms whose aim is to turn

understanding of information, industries, and business trends into value. With nearly

100,000 people worldwide, KPMG member firms provide audit and risk advisory, tax

and legal, and financial advisory services from more than 750 cities in 150 countries.

The Indian practice of KPMG was established in 1993, where it operates out of its offices

in Mumbai, Delhi, Chennai, Bangalore, Hyderabad and Kolkata. KPMG India gives its

clients full access to the resources and infrastructure of KPMG’s global network of

professional service firms. KPMG in India offers a range of services that include

assurance, risk advisory, tax and regulatory, financial advisory and business advisory

services.

The firm has access to the resources of Indian and expatriate professionals with diverse

educational backgrounds including business administration, economics, accountancy,

law, engineering, computer science and other disciplines. Many of its professionals are

internationally trained.

NASSCOM


The National Association of Software and Service Companies (NASSCOM) is the apex

boy and umbrella organization of IT services and IT-enabled services organizations in

India. It was formed in 1988 with the primary objectives of being a catalyst for the

growth of the software-driven IT industry in India. NASSCOM is a non-profit

organization and is registered under the Societies Act, 1896. It currently has over 850

member companies who collectively contribute to more than 95 per cent of the

revenues of the IT services and IT-enabled services industry in India.

NASSCOM’s aims and objectives include facilitating trade and business in IT services,

IT-enabled services and the e-commerce industry; encouraging the advancement of

research, facilitating the education, employment and growth of the Indian economy.

NASSCOM works with the Government of India and various state governments to

formulate policies and procedures in the IT services and IT-enabled services industry.

NASSCOM organizes conferences, seminars, workshops and exhibitions in India and

abroad. These events focus on areas such as Internet, e-commerce, e-governance, IT-

enabled services, ERP, networking and banking. It also organizes specialized export

promotion events in various countries of the world where overseas companies are

encouraged to interact with Indian companies.


Key contacts for the report

Kiran Karnik Narayan Seshadri

[email protected] [email protected]

Sunil Mehta Rajesh C Jain

[email protected] [email protected]

NASSCOM KPMG

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Although we endeavor to provide accurate and timely information, there can be no guarantee that

such information is accurate as of the date it is received or that it will continue to be accurate in the

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throughout the world.

National Association of Software and Service Companies I n d i a

Strengthening thehuman resource foundation of the

Indian IT enabled services/ IT industry

Report by KPMG Advisory Services Private Limited in association with

NASSCOMunder the aegis of the

Department of IT, Ministry of Information Technology and Communications,

Government of India

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human resource foundation of the Indian IT enabled services IT industry

Documents

human resource foundation

actual perfor mance

permanent resident status

impose greater discipline

reform labor laws

checking updating

monitoring output targets

direct placement links