I was at Barcamp Bangalore 3 held at IIM-B during March 31st and April 1st (2007). One can clearly see the interest growing from the first event then to the second and now to the third. The turnout has been doubling every event and on Saturday there were 320 participants.
There was an interesting topic later in the evening on Saturday, delivered by Savita Kini. She asked ‘Are we ready to move from IT services to product making companies?’ And of course, this is a topic of my interest. Soon, it turned into a small debate with different kinds of views being aired.
I want to talk about some of my observations from this debate. First, I want to compliment Thomas Friedman, Nandan Nilekani, and all those analysts, writers and industry experts who have created a good myth surrounding our IT industry. They have done an excellent job. Because, there were some quite experienced industry folks in that debate who vouched that when work is outsourced to Indian IT companies or when MNCs set up offshore units in
I want to dispel this myth here.
How do offshore MNCs and IT services companies create wealth?
When a IT services company such as TCS gets a job from company ABC, it pulls up N number of engineers, and what TCS gets in revenues is N times a certain fixed amount per year. Therefore calculating the revenues of any IT industry thus becomes very easy. The average $ per person is usually known – and it hovers between $30,000 and $40,000 (for top IT services companies). So, if Infosys has 60,000 employees, then its revenues should be $1.8 to $2.4 Billion. The same rule applies to almost every company. A good services company with 3000 people would be making approximately $90 Million. No additional revenues come from the actual sale of the product. Say, the product is sold 10 times or a 100,000 times, the TCS would still only get its revenues from the number of employees it contributes to servicing that product. None of the profits from actual sale of the products ever reach the Indian shores. The revenues (and the profits) from the sale of actual products go those countries where these companies are housed. (To US in case of Intel and Microsoft, or
When a typical MNC puts its offshore unit here in
To think or believe that we are creating the wealth the same way those product making companies are creating is a myth that needs to be shattered.
In the colonial times, Indian babus were used by British to act as middle managers to the British bosses. The British, by paying a good salary to Indian babus, above that of the slaves or the natives, were able to keep these Indian babus happy, while they continued to reap the benefits of the toil of the workers. That’s why Indians were taken to
Second, a lady asked if NOW is the right time to start product-making companies, especially since Savita listed so many challenges on her discussion board.
Shouldn’t we wait for the opportune time before we start product-making companies in
Frankly, I believe that any kind of analysis should be left to consultants, advisors, bankers and VCs. Entrepreneurs should just stick to DOING it. There’s no opportune time for doing anything, not even for war. By the time we in
According to one observer there is no market for products in
According to some people participating in the debate,
Third, when I said that one of the Indians attitudes is not going all the way, which I call last-meter problem, someone suggested it was the same with Microsoft.
What is the last-meter problem of
Look at an Indian road, the last-meter is usually left unpaved, and this seems to cause lot of damage to the road. That last meter produces all the dust, and is also the culprit during the rainy season. The erosion will eat into the paved road itself and very soon we need repairs. This seems to be the perpetual state of affairs in
However, to say that this is the same with Microsoft is far-fetched. Agreed, most engineers seem to detest Microsoft for their monopoly. But, we have to admit that their products are definitely superior (to a layman user) in comparison to anything out there in the market. While an engineer may marvel at the open source and other competing products, Microsoft, by pursuing the common layman as its user has made excellent contribution to penetration of PC and hence Internet, and hence to dissemination of knowledge to every corner of the planet. For an idealist or an expert engineer, Microsoft may seem to be flawed or not perfect, but to an ordinary user its closest to getting the simplest software to deal with an otherwise complicated PC. The last-meter problem of
Overall, this barcamp was great. I got to meet some interesting people and its always fun talking about some of the topics that interest us the most.