McKinsey Quarterly May 2006 : Beyond Labor Cost Savings
Waltzing or Leaping
I am looking forward to reading the Mckinsey Report called "Pharma Leaps Offshore" due out in June 2006. Since we are specialist is medical writing it will be helpful to see what is happening in India. In the mean time I found a recent short McKinsey Report that provides a very positive outlook for India. In my opinion - India has come a long way fast. If this trend continues then India will become known for a lot more than just cost savings. Here is a clip from the Mckinsey Report.
Most global executives know by now that offshoring can deliver more than just labor cost savings. A good offshore strategy should also generate new revenues, increase capital productivity, and manage risk in ways that would be unaffordable in home markets. (For a look at how offshoring plays out in the pharmaceutical industry, see "Pharma leaps offshore," available in late June.)
But in many sectors, relatively few executives are acting on this knowledge, even though leading companies are showing where the gains can be made. One reason for the lag is that many executives don't fully recognize the potential for generating revenues and cutting costs through offshoring?or through broader strategies that combine it holistically with other restructuring initiatives.
Yes, but all this is possible because of labor cost savings. It is just not going to be that easy for India to waltz into competing in other areas like quality and inovation. Cost saving is an easier step but it is not sustainable for much longer. For example Apple is no longer interested in Bangalore. Steve Jobs thinks it is too expensive and there is too much attrition.
Now is a bad time to be starting in Bangalore. How can you run a company when 1/2 your people jump ship for a slightly better opportunity. And if they have not jumped then mentally they are thinking about it. Without long term vision, planning and commitment Indian companies will never be competitive in quality and innovation.
Once global salaries flatten out then Bangalore will become more stable and everyone will be forced to compete on quality and innovation rather than low wages. That is why I say it will not be a waltz. The big opportunity in India right now is retail. I will get into that next time.
I am looking forward to reading the Mckinsey Report called "Pharma Leaps Offshore" due out in June 2006. Since we are specialist is medical writing it will be helpful to see what is happening in India. In the mean time I found a recent short McKinsey Report that provides a very positive outlook for India. In my opinion - India has come a long way fast. If this trend continues then India will become known for a lot more than just cost savings. Here is a clip from the Mckinsey Report.
Most global executives know by now that offshoring can deliver more than just labor cost savings. A good offshore strategy should also generate new revenues, increase capital productivity, and manage risk in ways that would be unaffordable in home markets. (For a look at how offshoring plays out in the pharmaceutical industry, see "Pharma leaps offshore," available in late June.)
But in many sectors, relatively few executives are acting on this knowledge, even though leading companies are showing where the gains can be made. One reason for the lag is that many executives don't fully recognize the potential for generating revenues and cutting costs through offshoring?or through broader strategies that combine it holistically with other restructuring initiatives.
Yes, but all this is possible because of labor cost savings. It is just not going to be that easy for India to waltz into competing in other areas like quality and inovation. Cost saving is an easier step but it is not sustainable for much longer. For example Apple is no longer interested in Bangalore. Steve Jobs thinks it is too expensive and there is too much attrition.
Now is a bad time to be starting in Bangalore. How can you run a company when 1/2 your people jump ship for a slightly better opportunity. And if they have not jumped then mentally they are thinking about it. Without long term vision, planning and commitment Indian companies will never be competitive in quality and innovation.
Once global salaries flatten out then Bangalore will become more stable and everyone will be forced to compete on quality and innovation rather than low wages. That is why I say it will not be a waltz. The big opportunity in India right now is retail. I will get into that next time.
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