Published in Economic Times, Bangalore, 29 Dec 2005

Global Skill Supply Chain: an Evolution

Rajiv Kucchal, VP & Head of Business Transformation Group, Progeon Ltd

As the global goods supply chain once made companies redefine what is core, similarly the
global skill supply chain will once again lead to the redefining of what is core and what is not.

The last 15 years have been extremely interesting with India firmly getting on to world map, first
with IT and now with BPO. A question which keeps on coming up is where this will lead to and
where will this end. Let us see if we can learn something from history in a very different context.
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If you look at movement of goods in the 20 century, the initial decades were dominated by raw
material being sourced from where it was available to be taken to factories which were closer to
where the market was. So you had iron ore or cotton being shipped to be converted finally to say
a car or a shirt through multiple stages of manufacturing. The second half of the century
witnessed a shift in this trend by relocating a part of the manufacturing process close to the
source of raw materials. However, subsequent stages being still done in locations close to the
market.

The next stage of evolution was marked by components being manufactured and shipped
followed by sub-assemblies. Today we are living in a world where products are manufactured in
the most cost-effective manner, and finished goods shipped to the final market where they are
either assembled or simply white-labeled and sold.

Now let us draw parallel with the other significant part of economic paradigm – movement of
people. The 1970s and 80s were dominated by raw material, in this case undergraduates or
graduates, moving closer to where their skills could be used most effectively. The late 80s and
early 90s saw the advent of companies in India who hired graduates, trained them in specific
skills and sent them to abroad to ultimately work on projects meant for those markets (famously
called body shopping).

During the 90s, offshoring started to pick up. Small projects (almost like individual components)
could be done offshore, closer to where talent pool was available. The last few years have seen
significant interest from the world market in getting more work done in countries like India –
almost reaching the stage of sub-assembly.

What does that mean for different entities involved in this evolving Global Skill Supply Chain? Let
us look at the three most impacted entities (though there will be more) – Indian IT services
companies, Global IT services companies, and the final sellers of the end product.

Indian Majors

Indian companies will face multiple challenges. First to move from a process mindset to a product
mindset. Indian companies have been in some sense, the catalyst in the emergence of the global
skill supply chain. The focus all this while has been on how to ensure that the supply chain works
well where a high quality work can be delivered from any part of the world. This led to unrelenting
focus on building strong scalable processes. No wonder most of the CMM Level 5 certified
companies are from India. One could even argue that it did not matter what was done, as the

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underlying process became so robust. So it led to the supply chain being used, apart from IT
work, for BPO, KPO, infrastructure management, clinical data management and what not.

As the Indian IT majors move from component to sub-assembly to full-assembly stage, the focus
has to move as much to the end product. By product I don’t mean a software product like what
Microsoft or Oracle does, but addressing specific market space. One of the best example of the
product is famous or infamous Y2K problem, which was used very effectively by Indian
companies to get entry into different market segments which were closed till then.
The second challenge that Indian IT majors will face is to scale up to build the global skill supply
chain, signs of which are already visible. The only difference is that it may not own the full supply
chain, but is also building alliances with niche players.

As focus shifts to “what” to do, rather than “how” to do, the third challenge will to build a stronger
understanding of the markets. And this will mean bringing on board skills from these markets.
This may also involve some realignment of balance of power, which skewed towards offshore
since the focus now is on execution.

Global Majors

For global majors, building the global skill supply chain will be a key imperative. It is not just about
hiring people in different countries, but making sure that the supply chain works efficiently and on
a sustainable basis. This again will mean re-alignment of balance of power, which today is loaded
towards market facing entities.

The Final Sellers

But it is ultimately the companies which are serving the markets who in my opinion will undergo
the most significant change. As the global goods supply chain once made companies redefine
what is core, similarly the global skill supply chain will once again lead to the redefining of what is
core and what is not.

Today there is a big argument about captives vs. third party outsourcing. Right now, both parties
see each other as competition, which needn’t be the case always. There hasn’t been sufficient
discussion in many of the organizations on what should be the core and what should no longer be
core. For core work, organizations should build their own supply chain whereas for non-core
work, they should leverage third parties.

There could be lot of learnings from companies in the manufacturing space. Some were quick to
adapt to the global goods supply chain by redefining their core, and there were those who were
slow to adapt. After all, Wal-Mart would not have been what it is today without global goods
supply chain. It will be interesting to see who will be the equivalent to fully leverage the fast
evolving global skill supply chain.

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