January 2009 Archives

At a time when the country is going through what is considered to be the worst economic crisis since the Great Depression of 1929, it is heartening to note that US has improved the use of its ICT infrastructure over the last year. But the fact that the country is still over 2 points below the "Perfect 10," according to a new study -- 10 being the number that any developed country should score on ICT use in this Internet age -- means that country still has a lot to catching up to do.

This is particularly relevant during a severe economic downturn, given that it is commonly acknowledged that one vital key to improving the economic and productivity performance of a country lies with the greater and better-focused use of Information and Communications Technology,

Sadly, like every other country, the US too is focusing most of its attention on stimulating the conventional sectors of the economy although, say experts, the bang for money in terms of return on investments is the biggest when spent on high-tech. 

Consider the latest economic recovery plan presented this month by President Obama's and it becomes evident how little it contains elements of the21st-century twists. Of the huge $825- billion planned stimulus just about $37 billion has been earmarked for hi-tech areas that include $20 billion to computerize medical records, $11 billion to create smarter electrical grids, and a measly $6 billion to expand high-speed Internet access in rural and underserved communities.(Congress may raise this to $9 billion.)

According to the study, called Connectivity Scorecard 2009 commissioned by Nokia Siemens Networks and written by the a noted expert in the telecom arena, Professor Leonard Waverman, even the world's best connected countries are not exploiting communications technologies to their fullest potential. And in many cases policy and regulatory activity designed to promote connectivity is not having the impact intended.

The Connectivity Scorecard 2009, which has doubled the number of countries covered in the ground-breaking 2008 study (when US also topped by scoring 6.97 albeit out of a possible 10.0), ranked the United States first in the group of 25 innovation-driven economies, while Malaysia leads a table of 25 resource and efficiency-driven economies 
 
The rankings are determined by the measurement of each country against two criteria - infrastructure and usage plus skills -- in the realms of business, government and consumer, with weightings of each of the three tailored to each country. Low scores reflect gaps in a country's infrastructure, usage or both.
 
For each of the six components of the Scorecard, countries are benchmarked against the best in class in their tier. Tthus if a country was best in all dimensions, it would score a maximum of 10. The Scorecard, therefore, measures countries against the best ICT usage that currently exists rather than an ideal model.
 
Thus, the fact that the United States scores 7.71 illustrates that not only is there considerable room for improvement in comparison to its peers in aspects of its performance, but also that there is scope for development beyond that. The Scorecard finds, for example, that the United States achieves a somewhat low score in consumer infrastructure where 3G penetration, and even household broadband penetration, is moderate by standards of other innovation-driven economies.

This under-performance also gets underscored in light of the fact that the Connectivity Scorecard confirmed the reputation of Scandinavia as a technological power region with Sweden, Denmark and Norway all ranked in the top five.

Interestingly, Japan (10th) and Korea (18th) repeated their surprisingly low performances of 2008 as did Germany (13) and France (15). The poor showing of southern European economies is also repeated as Italy, Spain, Portugal and Greece shared the bottom slots in the table with eastern European nations.

Connectivity Scorecard is a global ICT index, which measures the extent to which governments, businesses and consumers make use of connectivity technologies to enhance social and economic prosperity. Unlike other research available, Connectivity Scorecard also measures "usage and skills," such as literacy, the use of enterprise software and the accessibility of women to ICT.

According to Ilkka Lakaniemi, head of global political dialogue and initiatives at Nokia Siemens Networks, "Although the scorecard is just about two years old, it has gained immense popularity since the study helps driving future development in the areas and at the same time understand what connectivity can enable development of in societies."

Photo:Ramalinga Raju, Founder and Chairman, Satyam Computer Services, India

From a competitive economic perspective, one underlying issues is the outsourcing of American jobs. The IT sector, one of the long-term growth industries in the US, has certainly suffered as a result of outsourcing to places like India. However, it turns our, India itself is not immune to the type of economic scandal that has so frequently impacted the US economy in recent years.

The mea culpa from the founder of one of India's so called top IT outsourcing service provider Satyam Computer Services last week, and the World Bank ban on two other prominent IT companies that followed a few days later, may not yet have shaken the confidence of most US-based clients of Indian IT. But these developments may make many American companies turn to home-based companies or at least near-shoring for IT outsourcing; so feel experts.

"Although events starting with the Mumbai terror attacks to Satyam scandal recently, followed by the World Bank ban have come as bad news for the Indian IT sector, they haven't changed their [US clients'] confidence and long term strategy of outsourcing from India," said Robert Haas, Partner and Leader of Strategic IT Practice, in consulting firm A.T. Kearney, North America. "But I would say that these will make some changes in how they perceive outsourcing in terms of more vigorous intelligence and signing contracts with more options and escape clauses. There will also be a flight to safety and that would benefit US -based outsourcers such as IBM, HP, etc. over Indian companies."

Indeed, the startling confession to fraud and resignation of B. Ramalinga Raju founder of Satyam Computer Services, considered -- at least theoretically -- as India's fourth-largest computer software firm, is emerging as the biggest corporate scandal the country has witnessed.

In a letter last Wednesday Raju confessed to the Securities & Exchange Board of India (SEBI) that he has been cooking up the company's books and padding profits for "several years" which have resulted into a fraud of over $1.45 billion. Not just that; Raju also admitted that that he had falsified Satyam's books by boosting its cash and bank balances, and padding profits by inflating incomes and fudging liabilities and assets.
This magnitude and audacity of the financial fraud -- touted as India's Enron -- has undoubtedly come as big blow to global outsourcing that sends a bulk- over US$40 billion annually to India, almost 70% of which emanates from the US alone.

But even as the world of outsourcing was trying to recover from the shock that Raju cleverly managed to hide his misdeeds for as long as seven years 7 years, and were turning their gazes toward other low cost out-sourcers in emerging IT services provider markets, Indian IT industry's reputation took another knock on Tuesday.

The World Bank revealed in its website that it had barred Wipro Technologies and Megasoft Consultants -- two very prominent Indian IT outsourcing service providers from receiving direct contracts for four years from the bank under its corporate procurement program. The Bank said that it was forced to impose these restrictions on account of "improper benefits to bank staff" where Wipro offered Bank employees its shares, while Megasoft tried to set up a joint venture in China with a former Bank employee.

"Trust and the truth in the Indian tech world have been severely damaged," says Robert Morgan, director, Hamilton Bailey -- a consulting firm that advises outsourcing service providers- in his comments on the Satyam incident. "The biggest question faced by global outsourcing is, are any auditors capable of understanding and validating any outsourcer's figures?"

Morgan adds offshoring to India "has always been a difficult decision". For, although cost savings is the biggest factor that drives global outsourcing service seekers to India, there are many other factors that often become significant in offshoring decision making.  Consider the terrorist activities, for instance. Until the revelation of the Satyam fiasco, the November [2008] terror attacks in Mumbai was the biggest concern of the global outsourcing service seekers. 'That had really shaken US client's confidence," says Hass.

Besides, "the hyper-inflation in Indian technical salaries; soaring real estate prices; the lack of protective legislation such as a Data Protection Act, and the extra cost involved with positioning senior management in site," are some of the other deterring factors that are at play currently says Morgan. [And] "all these factors give rise to so called near-shore alternatives," he adds.

Nevertheless, there also exists an interesting dichotomy. "The cost pressure [that US clients are facing due to the global recession] is also actually making them to look at outsourcing more intensely," says Haas.

And that is making optimists believe that once the dust settles, the cost pressure may even force global outsourcing to turn to India with more businesses. "There are after all still lots of very professional IT services companies in India," says Timothy Bond, a UK/India-based IT consultant. "With the current downturn, once things have settled down, there will be conscious effort to offshoring more work to India."