Sunday, March 28, 2010

Costs and Captive operations in India

A while back I wrote that having offshore R&D centers in India are surprisingly worried about costs. I have been discussing this topic with many people off the record lately and some of the observations I have are as below. These people are working for the biggest names in the industry and there seems to be a common underlying thread running in their comments. Please note that this is just a random jotting of thoughts from people I have talked to and so this survey has no scientific basis, it can at best be a collection of ideas from people I have talked to.

1. Most companies having offshore R&D captive centers in India have transferred some operations completely to India. There are cases where some function is handled 100% out of India with only token or skeletal staff in the US. Mind you, these are not fringe operations - they directly impact the bottom line of the organization in question or are key strategic operations. However (without exception), I did not come across a single case of a team based in the US reporting to an India based Manager, even in the same function. This is true even in the case where there are multiple teams working together in different geographies on a project being strategically overseen by a senior executive. While I understand that the US based senior executive is supervising the initiative and running with it, even the smaller teams under her based in the US working closely with Indian arm still end up directly reporting to her, not to their corresponding Indian based managers. Is it that the best managerial talent globally available is being used? Or do Indian Managers lack the skills that their counterparts in the US have to manage global teams?

2. There is a tremendous pressure on the Indian captive operation to contain/limit costs. Yes there is the recession which we are painfully coming out of - however I wonder if this is something deeper. One person gave me a shocking example of HR in his organization stalling a US$50 equivalent bonus for an employee in the guise of efficiency (even when he had the budget to spare the amount). Everything contributing to costs is being continuously looked at which is a good thing in its own right, the thing that stands out like a sore thumb is that the same yardsticks do not apply to the spends in the headquarters in the same function or team. Maybe this sentiment has no logical backing, but somehow it does not seem right to me from what I observe.

3. Extending the last point further, many companies are not able to afford pay revisions or are grudgingly doing so (the job market in India is slowly picking up). Whats most striking is that while hiring for the same job role/position from the market, the new entrant is almost unfailingly drawing a 20-30% premium over his peers already working in the same roles. Down the line the new entrant also gets "leveled down" in salary revisions to the levels of his peers and this cycle continues.

I am told India has a tremendously talented workforce and most (all?) of the companies have set up operations in India to attract the best talent and not just arbitrage on labour rates.

Dear Readers - I am sure you will have your own reactions to this - please do post your comments. Do you see the same behaviors in your organizations in India? Do you see any business reasons for this to be happening? Or is my rant fully unsubstantiated and missing the mark? Do let me know by posting comments!

No comments: