A shortage of skilled workers will stare the Indian industry, particularly the BPO sector, in the face in the next decade or so, a Nasscom-McKinsey report has cautioned.
Currently, only about 25 per cent of the technical graduates and 10-15 per cent of general college students were suitable for employment in the offshore IT and BPO industries, respectively, the 'Nasscom-McKinsey Report 2005' said.
"As countries from around the world enter the market and competition for offshoring contracts intensify, India must improve the quality and skills of its workforce," the report released at Nasscom's 'India Strategy Summit 2005' in Bangalore said.
The study said that India lacked a large number of workers who were fluent in French, German, Japanese and Spanish, making China and Eastern Europe more attractive offshoring destinations for Japanese and West European companies, respectively.
On talent supply, it said India would need a 2.3 million strong IT and BPO workforce by 2010 to maintain its current market share. The report projected a potential shortfall of nearly 0.5 million qualified employees -- nearly 70 per cent of which would be concentrated in the BPO industry.
The gap could be bridged by expanding the pipeline of people willing to join the industry, improving the quality of the potential and current workforce and by better matching jobs to people so that attrition is reduced.
The study also pointed out that urban infrastructure is an equally major challenge, noting that Indian offshoring industries were dealing with bottlenecks ranging from power to cafeteria services.
"Cities are at a breaking point and further growth will have to come from entirely new business districts outside Tier-I and Tier-II cities," the study said.
But it added that India could sustain its global leadership position, grow its offshore IT and BPO industries at an annual rate of more than 25 per cent and generate export revenues of $60 billion by 2010.
India, the report said, should aim at sustaining its current leadership by assisting the growth of the offshore market, and maintaining its current market share in the face of intense competition from other low-cost regions such as South Africa, China and Eastern Europe.
This would result in export revenues of $60 billion by 2010. To that end, IT and BPO industry players in conjunction with central and state governments need to accelerate trade development efforts, improve talent supply, strengthen local infrastructure and drive operational excellence, it said.
India, it said, must work with its trading partners through the World Trade Organisation and other trade promotion agencies, to streamline trade in professional services. India should also request source countries to further strengthen their wage insurance and labour market programmes to cushion the impact of offshoring job losses.
India also needs to deliver on both basic (power, public transport and international connectivity) as well as business infrastructure (office and retail space and security services), the report said.
The report estimated that by 2010, the IT and BPO industries would have to employ an additional workforce of about one million workers near five Tier-I cities including New Delhi, Bangalore, Hyderabad, Chennai and Mumbai and about 600,000 workers across other towns in India.
The urban infrastructure demands required breakthrough private-public partnerships and 'innovative financing' and the current infrastructure development process would have to be dramatically streamlined, it said.
Stressing that India-based players need to continue to drive down total costs and improve quality, it said they should focus on enhancing customer interaction and solution delivery, improve resource management and upgrade support processes like accurate and quick financial reporting to facilitate decision making.