Reactions of an Uncle Sam protege on outsourcing

Are the smiles on Indian faces but a reflection of the tears of US ?

I guess the situation is not that bad but thats what macroeconomic fundamentals are . In a world with no borders, labor and capital arbitrage isues will drive the future and our smiles/tears. An interesting read below from an uncle sam protege:

Analysis: Offshoring getting more costly in India.

Not many global IT majors have started recoiling yet, but the recent decision of Apple Computers to shut down its new Bangalore center and local news about Intel planning to lay off a number of people from its Indian operations have sparked fears that rising cost may have started threatening India"s attraction as an IT offshoring destination. (The very first sentence of the first paragraph starts out with a lie. This is typical of OFFSHORING material. A great many organizations have reversed themselves on the issue of OFFSHORING. The anger of the American public has reached deeply into the American citizen"s knowledge banks. The crime is argued in the Congress and it is well known on the news shows, especially CNN every night. Ask the 30,000 GM employees being fired in the 14 plants being padlocked here, and re-built in Mexico and Communist China whether the issue has subsided? The same treachery is happening at Ford. Chrysler is already a German company. OFFSHORING is so despised, -- those engaging in this crime hide behind constant renaming and rearranging. There is "off-shoring", "Out-Sourcing", "Off Shoring", "Asia Sourcing", "OFF-Shored", "Out-Sourced", "Near-Sourcing", "Offshore Outsourced", "Remote Sourcing", "OFFSHORERS", "Outsources", "OFFSHORES", "Out Sourced Offshore", "Near Shoring", "Offshore", "Overseas Sourcing", "OFFSHORER", "Outsourcers", "Offshoring", "Onshore Offshoring", "BPO" and the newer variation "KPO", "Global Sourcing", and the newest entry - "Homeshoring". OFFSHORING means India and Communist China. Red China is known worldwide for their respect for Trademark and Patents ownership, and their respect for Human Rights, and their respect for Intellectual Property Rights. Even the United States Navy crew of an EP-3 patrol plane is familiar with China"s respect for International laws, International air-spaces, and the International Borders near Hainan Island. OFFSHORING is a crime against Americans. Americans and others [UK] doing jobs in factories or in cubicles are the victims. Selling out one"s country to it"s [economic] enemies in war time for money is treason. Treason will never be a minor crime. Anger about it never decreases among patriotic Americans. That is as true for OFFSHORING as it is true for TREASON. Both are not NEW trends. Treason goes back to the days of Benedict Arnold, before my country was a country. Both deeds are still despicable deeds. I abhor both deeds. Journalists regularly defend one. The citizens of France rioted for two weeks in the streets, burning every corporation and vehicle which they could reach with a Flaming Molotov. Their issue was JOBS. Soon, every bank lobby in France and the USA will be filled with a mob, and every customer will be carrying a flaming torch. Every city which hosts a WTO convention expects and receives riots. Among the long term unemployed, I could even believe that some day soon lynchings of MULTI-National CEO"s will become socially acceptable. Saying that "not many" "have started recoiling yet" - - that is humorous.) And although the Indian IT sector has shrugged off these two developments as just "internal corporate decisions," many are worried that rising cost pressures -- which are showing signs of lasting for a while -- may end up in some lost opportunities and may even blunt the competitive edge of offshoring IT in India. "As the Apple story points out, India"s first-mover advantage is gone -- at least in established city centers like Bangalore," said Michael Corbett, executive director of The International Association of Outsourcing Professionals, the global organization for the outsourcing profession. "The marketplace dynamic of supply and demand is resulting in rapid salary inflation, high turnover, and other forms of cost escalation (such as technical incompetence, continuous repetition in all communications, nightmares of time zone issues, extremes of travel costs, and risks to executives for kidnapping for ransoms), which may end up in some lost opportunities for the Indian IT." He added that other competing countries like Philippines, (Communist ) China, Russia and Eastern Europe "will exploit India"s growing pains to improve their competitive posture," and could even give India a run for the money. (Recently, Bill Gates was in Vietnam collecting hugs and kisses. Same for Sam Palmisano CEO of IBM collecting his hugs and kisses in India recently.) In a startling announcement last week, Apple, which opened its software division in Bangalore with much fanfare in April, announced without citing reasons that it is closing down its Indian operations and "has decided to put its support center growth in other countries." Consequently it served layoff notices to about 600 newly appointed employees, who, according to reports, said "India isn"t as inexpensive as it used to be," and that was impacting the financial feasibility of the Indian operations. "Apple hired professionals at salary levels much higher than the industry standards and soon realized that the business generated from the additional expenditure did not justify the costs," said an industry insider requesting anonymity. (The problem was the thousands of American former customers of Apple who slammed their phones down with extreme enthusiasm, upon being connected to incompetent Hindi speaking Apple technicians.) But if the Apple decision perplexed the Indian IT offshoring industry, what came as a jolt were local reports that said that Intel, as a part of the company"s global cost-cutting and layoff exercise designed to cut $1 billion out of its forecasted expenses, is seeking to downsize its Indian operations as well. (Intel corporation is a fine display of OFFSHORING. Intel corporation, rushing into India and Communist China has now been FAILING on dozens of projects [cancelled Tejas, and Timna, recall on Grantsdale, recall on Pentium III with no re-release, cancellation on 4 gig Pentium IV, cancel on Alviso, on Prescott, on Dothan, and crashing in flames on LCoS Liquid Crystal on Silicon for digital flat screen TV"s]. --- All of that failure happening in a single corporation, and because of OFFSHORING. Intel is not alone with such blatant failures. Microsoft, rushing into India, has just missed two important deadlines. One ship date for a new Operating System [hacker-proof "Vista"], and the other for a new Microsoft "OFFICE 2007". In March 2006, Microsoft announce that they will miss the start of the school year fall season which was still 5 months forward. They will also miss the holiday retail shopping season which was still 9 months forward. Retailers [snakes who buy all their other merchandise from Communist China] are furious when India fails on new software. Microsoft did not fail when they were an American company. United Airlines is repeatedly teetering on the brink of bankruptcy, trying to scrape off its Pilot"s Pensions. Northwest Airlines is enduring a strike, hiring lowest bidder aircraft maintenance, and in bankruptcy. Delta Airlines is in Bankruptcy. U S Air with employee morale in the dumps from repetitive pay cuts, went through an embarrassing holiday season fiasco with mountains of luggage lost and thousands of customers abandoned across half of the USA. Every former customer vowed to never book U S Air and never lose their vacation again. Charles Schwab and Merrill Lynch and Quick and Reilly all RE-issueing 1099-DIV Tax Forms SIX TIMES in 6 weeks to their angry (fully IRS filed) customer stockholders during a recent TAX Season. That national fiasco was because outsource software personnel proved to be incompetent, and incapable of doing the 1099-DIV software tasks correctly the first 5 attempts.

America"s problem at [IBM, GE, Microsoft] is today there are no more High Technology technical people to turn to. Our country has stopped creating them. Why should any American in year 2006 take on $40,000.00 worth of education debts to earn degrees, when there are no High Tech ENTRY level jobs at the conclusion of that costly process. ALL entry level jobs today are given to H-1B"s who work cheap and are being trained by experienced American workers (under duress of loss of severance, and possible loss of vested pension). The visa holders then take the jobs to Asia. The paychecks get cashed in Asia. The High Tech Americans become unemployed. We might as well tear down Harvard University and MIT and NYU and pave them all flat for parking. Then, we can build Wal-Marts in the center of each. Wal-Marts will be filled with stuff made in Communist China. Everything will be cheap enough to be sold to the unemployed, unskilled, uneducated, cash starved Americans.)

Rising wages are not the only rising cost component. According to Ernst & Young, other elements of cost of operations like higher interest rates, (higher counts of [former] customers who have fled your logo,) and infrastructural hurdles are also adding to the cost inflation. For instance, Ernst & Young says that the working capital interest at 14 percent in India is at least 6 percent higher compared to other countries and that along with other costs makes the cost of running IT operations in Indian about 3 percent higher than in its Southeast Asian neighbors. This is why many fear that while no single nation poses a direct threat to India yet, quite a few countries have emerged as a viable alternative. "Out of the top 30 offshore outsourcing providers identified by IAOP, 23 are based in India," said an official. "While this signifies that India still dominates, it also identifies companies that are based in the Philippines, (Communist) China, Russia and Eastern Europe and are giving India a run for the money." (With all of these locations, the paychecks get cashed where the money can never be returned to the economy of the United States of America.).

P.S: The question is can this arbitrage issue be converted to a win-win situation for all. Narayan murthy with his global delivery model may provide a clue but a final solution still evades. Till then its cheers India.

An interesting read from ET (16 dec06)

Can an Indian services company be more valuable than Google or Microsoft? Time and again, we have been told product and technology companies are the ones with high valuations, not back office processing firms or IT services firms. However, Indian software and BPO services firms are attracting price to earning (P/E) multiples higher than Microsoft or Google. For instance, Indian BPO firm, WNS (Holdings) has a P/E that is 63 times its fiscal 2006 earnings, ahead of Microsoft's P/E of 25 and Google's 61. Microsoft's P/E is also lower than the P/E of the big three Indian IT companies, Infosys Technologies, TCS and Wipro, which trade at a P/E of at least 40 times their earnings. "Microsoft is perceived as an elephant, while Indian companies are perceived to have high growth potential," an analyst said. The operating margins of WNS are 9.8% on revenues of $203 m, compared to Microsoft's 37% margins on sales of $ 44 b. ExlService Holdings, which has a P/E of 36, has an operating margins of 9.5% on even smaller revenues of $ 74 m. This is not the first time that hype has stretched reality. During the dotcom boom in 1999-2000 valuations of Indian IT firms zoomed and Infosys was valued higher than Microsoft. However, analysts say the valuations are based on the future growth potential of the companies. "The demand scenario for Indian IT companies is only getting stronger. They have shown consistent growth in revenues and maintained profitability," said Anurag Purohit, research analyst, Brics PCG. While legacy players such as IBM, Accenture and EDS are growing at about 5% or lower, Infosys is growing at 40%-45% and TCS at 35%-40%. Over the last one year, the Infosys stock has appreciated by around 40%, pushing its market capitalisation beyond that of players such as Accenture and EDS. Infosys' current market capitalisation stands at around $ 30 billion, while that of Accenture and EDS are at $ 28 b and $ 14 b respectively. The highest valuation in the IT services space is enjoyed by a company that straddles the best of the US and India. The Nasdaq-listed Cognizant Technologies is traded at 54 times its FY earnings, despite having to yet break into the billion-dollar club. The firm, sometimes referred to as an Indian company with a US face, maintained its US identity even while doing most of its development from India.

Are relationships a Sinusoid!!(16 dec )

Human relationships!!! It just amazes me. I conjecture that it follows a sinusoid . A peak and a trough characterise all relationships on the time scale. The trough may be gradual or precipitate soon.But why does this happen?Why does your best friend suddenly appear so cold after some years ? Though I havent found any conclusive evidence yet, I believe the rush of daily life takes such a heavy toll that relationshipships are the first to suffer. External factors may also result in a loss of faith .
But yes, the trough does not last long. Unless it is a permanent separation for some reason, the longingness resurfaces and usually its spring time again. A good analogy may be drawn from the seasons of the year,cyclical and always returning back.

It takes months to build relations, seconds for it to be destroyed.Perhaps people are too finicky and lash out at the slimmest chance of their interest getting harmed. A fall out of todays materialistic times for sure but what is amazing is the swiftness with which it hits you. As firing has become common parlance on the job street, can relationships be unaffected!nope, but thats the dope.Yr best friend of yesteryears suddenly bids you adieu for unexpained reasons.What do you do?Perhaps wait for the curve to turn .

Generally new relations crop up to fill the void.And life is the same again.Thats how I guess it is.The elixir of life ensures that you learn many things from your past relations but also go on to forge new ones.New relations provide a new perspective and beginning of a new relationship curve but the cycle is bound to follow. There is no escaping the cycle . As a marketeer would theorise, why not go for branding to escape this cyclical nature. Perhaps branding does not exist in the lexicon of relationships or may exist when the players are sufficiently mature to handle sudden whims and fancies.This by any means is not an easy thing to do, more so for our gennext people carrying "resignation letters in their pockets." literally.

Where is the war headed (12 dec 06)

Tata- Corus deal analysis

Analysts are divided. While most say it is the end of the road for Tata Steel as far as Corus is concerned, there are voices saying its not for nothing that India’s largest private sector steel maker invested a year in coming to this point.


WHY TATA SHOULD UP IT AGAIN
“I don’t think Tata’s would let go at this stage after having spent more than a year in negotiating. They can go comfortably up to 530 pence (a share), after which it becomes EPS (earning per share) negative. It can even take a long-term view on steel and go up to 585 pence,” said an analyst.

WHY IT SHOULDN’T
“Unless it becomes an ego issue, I think Tata Steel would pull out of the race. They will have to pay for the cost of the acquisition from the profits of Corus. If interest cost becomes higher than Corus’ profit, it would be a drain on Tata Steel’s balance sheet,” said an analyst. At an average interest cost of 8%, Tata Steel’s first offer of 455 pence would have boosted its bottomline by 17%. Expect this figure to diminish rapidly as the bid figure rises.
Note: At such high levels of M&As do ego issues matter?The matter assumes significance considering that it is the hundredth year of its existence : a milestone achieved by none in India and few in the world.


A PROXY WAR BREWING?
“I don’t think there would be a proxy war. If Tata Steel wanted be in the game, it wouldn’t have upped its first offer (of 455 pence) to 500 (pence) at one go. It would have upped it slowly, matching CSN’s. As far as I think, they come this far and no further,” said a steel analyst.

PULLOUT WON’T BE A WHEREWITHAL THING
It’s not for lack of financial resources that Tata Steel would pull out of the race. “Money is the least of Tata Steel’s worries. It has Tata Sons standing behind it. Worse comes to worst, Corus won’t be a 100% subsidiary of Tata Steel. It could be say 25% held by Tata Sons,” said another analyst.

TATA STEEL STOCK COILED UP?
“The stock has underperformed ever since the Corus bid has announced. I think if Tata Steel withdraws from the bid, the stock would jump by 7-8% before settling lower.

WHY CSN IS A BETTER FIT?
“Operationally, CSN is a better fit for Corus than Tata Steel. Operationally Tata Steel can bring synergies only post 2010-11 when its Greenfield plant comes up since it has no spare slab capacity to feed Corus.
It is only then when it can supply semi finished to Corus. Whereas, CSN has surplus iron ore which it can begin supplying to Corus from day one,” analysts said.

The game has just begun!Wait for the next moves of the goliath.

Be Careful - The Ominous signs again( Dec6 2006)

The economic performance of the US in the third quarter would definitely be worrying for developing economies and industries dependent on the world's No 1 economy. The third quarter GDP growth expectations were at an optimistic level of 2.1 per cent, but the performance was a disappointing 1.6 per cent. The US economic forecasts by the global banking community as well as the IMF are point to a "falling from a cliff" situation, especially if the inflation worries are not addressed seriously. The current forecasts for the next few quarters, stretching up to 2007 end, suggest a GDP growth not exceeding 1.5 per cent.
The key factors governing stability for the US in the next few quarters are crude oil prices and the Asian crisis. With inflation reaching its flashpoint, the US may have limited options to manage or mitigate the risks arising out of these two sensitive issues. Certainly, the US needs to tighten control of the fiscal management. But if OPEC members curtail production and supplies beyond this winter, the US fiscal prudence would get out of hand. The nuclear crisis in Iran and North Korea could push the world into a crisis.
India's Foreign Trade
What would be the economic impact on India in the third quarter onwards? The concerns are mainly on four sectors — textiles, IT/ITeS, automobile and jewellery — which have always depended largely on the US economy. The Indian textile and software industries are heavily dependent on the American consumer spending. These two sectors together could account for a huge workforce (on rolls, contractual and indirect) numbering upwards of 50 lakh.
Going by the Planning Commission's Annual Report 2005-06, India's software companies have a dependency factor of about 70 per cent on the US for their gross global revenues. Without getting seriously into the numbers, conservatively, India's IT-ITES sector exports are around Rs 70,000 crore. More importantly, a large workforce, of around 15 lakh, depends on this sector. A marginal cut in IT spending by the US could have unpleasant consequences for the Indian IT sector. The three key sectors — banking, retail, and insurance — drive the revenue of most Indian IT companies. These sectors depend on the people's savings. With reduced per capita income in the US during the last few quarters, worsened by the housing sector slump since April, these sectors may well slow down, and spell trouble for Indian IT majors.
This could have the unintended consequence of base-lining the over-skewed salaries of the workforce in the Indian IT sector with the manufacturing sector. Also, the uncontrollable levels of attrition for the last two-three years in the Indian manufacturing and retail sectors could subside.

Reduced Disposable Income

On the flip side, one can expect salary levels to reach trough levels as cost-cutting initiatives assume unprecedented levels. With key productivity initiatives all but exhausted, the only available tool may be downsizing of workforce. This would imply a reduced disposable income from the Indian working class across sectors, mainly IT/ITES, textiles, jewellery and automotive components. Within the next quarter, compounding ripple effect could become evident across other dependent sectors such as real-estate, banking, automobile and retailing.

Silver lining
But the World Bank has opined that large developing economies would be definitely decoupled from the ongoing economic slump. Already the major IT companies have hedged their risks by expanding aggressively in European and chinese markets. It remains to be seen whether the mighty euro /yen can anchor for a slumping dollar if it does happen.
Blesseth the mortals - amen!!