Tuesday, April 14, 2015

India - Beyond The Back Office

I am in India, and one conversation that I notice is the aspiration to grow beyond the Back Office. More specifically, I am in Bangalore as I write this, the city which indeed built itself being the global back office, and one could perhaps both see the idealistic and pragmatic logic why India should grow beyond the back office.

The idealist rationale is about capturing a greater portion of the value that is created, as evident in the aspirations of the start-up networks here in Bangalore. These new entrepreneurs, unlike the generation before them, are not content building Development Centres, which will do the jobs of the Western clients. One hears conversations about building software applications that will potentially change the way things are done, here in India but also abroad. The confidence deficit that defined the Indian businesses in previous decades seemed to have lifted, and the talk of taking on the established global brands and players have started in all earnestness.

The pragmatic side of growth beyond Back Office is well understood by established businesses and policy-makers, for two different, perhaps opposite, reasons. As the established businesses compete globally - some of them rather reluctantly as their home turf gets exposed to global competition, and others with more strategic intent - they see that the rising cost structures in India, an inescapable result of globalisation that drives equalisation of input costs over time, erode their cost competitiveness.  Like China wanting to move from Made in China to Designed in China, they want to move up the value chain as an essential survival strategy. These companies see the rising incomes and consumer sophistication in India driving them into world class products and practices, and want to leverage this home-grown capability, often acquired through partnership with global players eager to enter India, in the global market eventually.

On the other hand, politicians are driven not by rising costs - they see rising lifestyle and ascendant asset costs as good things - or by scarcity of skilled manpower. Rather, they are concerned about the abundance of manpower, that 10 million people will look for non-farm employment every year, and believe service industries can not create adequate number of opportunities that will be required to gainfully employ this huge number. Their plan is not necessarily to move up the value chain, but rather move horizontally into manufacturing and infrastructure development, activities which, in theory, create more jobs than Back Offices. 

Whether this is about an entrepreneurial wave, efforts to move up the value chain on the back of domestic demand, or a more simple-minded pursuit of expansion of economic activity, the resulting consensus is the need to move beyond the Back Office economy that India has distinguished itself to be. However, India has been a Back Office economy for much longer than one could remember. This is certainly not a recent phenomenon ushered in by globalisation and Internet, but rather a trend going back a century and half, when India lost its manufacturing prowess (which made India interesting to Western traders in the early modern era, and gave it a significant share of World GDP) and was bequeathed with an education system designed to create a conforming Middle Class. India produced the officials, lawyers, accountants, doctors and engineers which serviced the British Raj all over the world, effectively being the workhorse of the most successful imperial administration in History.

While the political and economic structure may have evolved in India, the social attitudes and the educational approach of the Indian middle class remained firmly rooted in this past. This, indeed, creates enormous difficulties for any effort to move beyond the Back Office - the entrepreneurial ambitions, the big company strategy or the Government rhetoric can not really shake up the deeply held preference for a clerkship as the meaning and purpose of education! And, yet, the dead-end, the broken reality of middle class life, is only too apparent to all concerned, just that not many are ready to accept the changing nature of reality.

So, in the end, it is - education, education, education! Einstein reportedly said that the greatest form of stupidity is to do the same thing again and again and expect different results. Moving beyond back offices need, therefore, to start at the root - in the classroom! And, we have learned the sobering lesson from our Colonial masters - one can change a nation, including its politics and economy, by changing how its children are educated.


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