Monday, January 26, 2004		Feature

Viewpoint
Enormous potential remains untapped while…
Nitin Kapila

As large and now medium organisations, move operations to Asia and South America through captive, dedicated operations and outsourced structures, clusters of regional competence are competing for a share of the global economy. Although some regions such as Bangalore and Gurgaon are already staking their claim as such clusters of competence, there lies enormous potential for Tier 2 regions like Chandigarh to develop domain expertise and a global brand in niches that fit with the regions competence.

Tier 1 cities are the cities that are well-known global names for supporting a business process while Tier 2 cities are those that are not a well-known global name for supporting a business process.

Time for relocation

Senior executives from the US and Western Europe are flocking India, China and even Latin America to leverage ‘offshore’ as it is one of the few paradigms that can provide organisations cost savings up to 50 per cent on select activities as well as a platform for entry into emerging markets for both earnings and valuation growth. Organisations, large and small, are relocating processes such as payroll, benefits administration (including medical claims, billing, coding), accounts receivable, accounts payable, payment processing and telemarketing across borders and time zones.

Corporate leaders in the financial and back office areas in the US and Western Europe are in a situation where they have to do more with fewer local resources. Offshore operations bring much needed relief to the finance and back-office departments. Relocating operations, such as accounts payable, accounts receivable and cash management to the Philippines, India and even Ireland is often the only way out for these departments to economically and profitably keep up with volume growth.

In the customer relationship management department, managers, especially in telecommunications services, financial services and consumer products have been familiar with leveraging offshore operations.

Similar to the emergence of contract manufacturing in Singapore, Hong Kong, South Korea, Taiwan and now China, geographic clusters of offshore expertise to support business processes will emerge in countries such as India, China, the Philippines, Malaysia, and Thailand.

Charm of cities

As the investment in the IT, financial and back office as well as customer relationship management gets relocated across the globe, there will be winners and losers. Organisations will invest in geographic clusters of competence that combine domain expertise in a process with low labour rates. Some regions will lose jobs and others will gain, even in the developing economies like India. For any region to first attract and, more importantly, retain jobs, there needs to be a well orchestrated focus to develop domain expertise and create a worldwide brand around a few key processes to be competitive in a global economy as no single region can specialise in all processes.

For example, software companies now regard Bangalore to be the ‘Silicon Valley of India’ with the associated advantages and disadvantages. Software company executives while making location decisions, recognise Bangalore’s advantages including the availability of experienced personnel, temperate weather, an international airport, world-class hotels and a multicultural work environment. However, similar to Silicon Valley, recruitment, retention, traffic and loyalty can be very challenging and costly in Bangalore.

In financial and back-office functions, executives making location decisions associate Mumbai with New York, including concomitant advantages and disadvantages. These executives while making location decisions recognise Mumbai’s availability of financial services talent, international connections, world-class hotels and multicultural work environment. However, similar to New York, the cost of living and daily commuting can add risk to the operation.

In customer relationship management, Delhi, Chennai and Hyderabad were early movers, and call-centre executives regard these cities to be relatively mature and dependable for supporting offshore customer relationship management.

Chandigarh beckons

For corporations making location decisions, Chandigarh is not known as a cluster of competence for any specific business process. For the region to win a sustainable share of any offshore business process opportunities (IT, financial, back-office or customer relationship management), Chandigarh needs to proactively develop domain expertise in appropriate processes and ensure that executives making location decisions recognise its competence in the targeted process through a campaign aimed at marketing the region..

A ‘me-too’ strategy of trying to compete with Bangalore, Hyderabad, and Delhi and woo giants such as Microsoft, Convergys, and Infosys may result in some sporadic job growth in the region. This growth, however, will not be sustainable, or scalable due to the critical mass that other regions have already achieved in IT.

Back-office niches in newer areas such as benefits management (medical, payroll etc.), legal services, accounts receivable, and accounts payable hold the most promise for sustainable development of regions like Chandigarh.

For example, in the healthcare value chain in the US, there are unprecedented consumer, provider and legislative pressures to reduce the cost of back-office processing. Although Chennai, Bangalore, Mumbai and Delhi all have a few focused providers in this niche, they are not dominant. Additionally, there are a few small projects that have been executed from Chandigarh in this area that can be showcased and scaled.

To make this vision a reality, it will be necessary to overcome stakeholder inertia, have a fragmented focus and create corridors of physical and infrastructure connectivity with regions from which the processes will relocate.

Coordination between private, public, government and overseas stakeholders can identify a few appropriate niches and thereby reshape the economic landscape, and competitiveness of Chandigarh in a global economy. But there is a sense of urgency since and the time to act is now, as this window of opportunity will not last forever in a keenly competitive world.