An eye on outsourcing to India

Just when UK companies are getting used to the challenges and opportunities posed by the rapidly expanding technological base in China, they also need to look at India, a similarly vast country with a large pool of labour, both manual and intellectual, available at wages lower than those normal in the West, but with the ability to understand and speak good English, and with a business mind set close to that which westerners are used to. A mission to look at "Automotive design engineering" in India was recently organised by the Society of Motor Manufacturers and Traders (SMMT) with the support of the DTI and has just reported back the results of fifteen visits to companies actively engaged in the automotive engineering services market in Delhi, Pune, Hyderabad, Chennai and Bangalore. The country annually produces in excess of six and a half million two and three wheeled vehicles, a million passenger cars and MPVs, and 300,000 commercial vehicles. Major cities require taxis and buses to run on clean fuels, particularly compressed natural gas and there is much technical interest in the possibilities posed by fuel cells, biomass derived hydrogen and biofuels. The available pool of young university graduates in India has been estimated at 14 million, although the proportion of such engineering graduates considered suitable for employment by multinational companies is only 25 per cent. While there is a considerable cost advantage in outsourcing design there at the moment with salary rates of mixed teams only 20 to 30 per cent of EU levels, inflation and globalisation is closing the gap, although the team thought that wage rates for qualified engineers would stabilise at about 30 per cent below those in Europe, similar to the difference between the wages earned by young professionals in Mexico and the USA. Foreign direct investment in India is only $4.3 billion, compared with $53.5 billion in China, but the Indian economy is seen by international investors as being particularly attractive for outsourcing IT, business processes and R&D. A particular success for India has been the outsourced IT and software industries in clusters around Bangalore and Pune. There are differences between how things are done in Europe and India, despite superficial similarities. For example, turnover of young engineers is around 15 to 20 per cent per year, because salaries paid to experienced engineers can be four times those paid to beginners, and young engineers changing jobs can expect pay improvements of 30 to 35 per cent. The advice given by the team to those seeking to enter into agreements with Indian design and analysis companies, however, sounded remarkably similar to good practice by anybody considering outsourcing design work to somebody else. For example, service users are advised that they should ensure that IPR exposure is managed effectively. Many companies, we were told, have, "Excellent formal procedures to protect client confidentiality. However, customers need to be cognisant of the possible negative effects of high staff turnover found with some service providers." A questioner at the seminar suggested that he suspected Indian companies just wanted to learn our expertise and use it themselves. The panel responded by reminding him that, "We are all in business," while somebody else commented that Indian companies could always acquire his present day technologies while he was working on the next two technologies ahead. Advice was given to, "Avoid purchasing on price alone." The implication was that if pressed, the service provider would be likely to employ cheaper but less expert individuals. Users were advised to insist on particular named individuals working on particular tasks. As well as ensuring competence we know this goes down particularly well in an Indian context. "Select partners with care" and "Agree standards, specifications and deliverables in advance" is always sensible advice anywhere. Businesses doing anything else are gambling with their survival. DTI Global Watch Service