global services-19-20 prof. tarun das

8/9/2019 Global Services-19-20 Prof. Tarun Das

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8/27/2010 Global Sercvices- Tarun Das 1

Global Services- Lectures 19-20-21Demographic Transition, Services

Trade & business Process OutsourcingProf. Tarun Das, IILM, New DelhiFormerly, Economic Adviser, Ministry of Finance


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Contents of this presentation

1. Importance of offshoring for India2. Dimensions of offshoring

3. Demographic transition4. Implications for offshoring5. Policy Issues


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1.1 New Growth Dynamics throughIT-ITES, Offshoring and BPO

1.Significant growth in R&D, IT-ITES andoffshoring activities leading to explosivegrowth in knowledge-based industries.

2.Foreign affiliates established in automobiles,

food processing, electronics, IT, transport,communications and financial services.Outsourcing increased in IT, distribution,contact centres, back office, R&D and

manufacturing.3. India emerged as a major player in IT-ITESand outsourcing hub due to high quality,skilled manpower, and low operations cost.


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1.2 Significant Progress of India inIT-enabled services and BPO

1. Indian IT-ITES-BPO exports recorded agrowth of 38% in 2005-06 on top of 45% in2004-05 driven by increased off-shoring byfirms from US and Europe.

2. India emerged as the 18th largest serviceexporter & increased its share in world serviceexports from 0.6% in 1990 to 1.8% in 2004.

3. These exports were led by rapid rise of travelbusiness, professional, and software services.

4. Indian software exports increased from only

$0.7 billion in 1995 to $23.6 billion in 2005-06and accounted for 39% of total servicesexports. Globally, India ranks Second only toIreland in software and IT exports.


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2.1 Dimensions of offshoring

Front office services-Customer services Back office operations- book keeping,

accounting, auditing IT/Software operations

Finance and balance sheet recording Human resource development Knowledge servicesThese services in general have high share of

wage cost.


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2.2 Sources of BPOs Countries like India, Brazil, China, Dominica,

Israel, Philippines, Rumania, RussianFederation have witnessed a surge ofBusiness Process Outsourcing catering to theneeds of developed countries.

FDI from developed countries in the BPO

sectors of these countries are also growing. India remains an important source because

of low operations cost, high quality ofproducts and services, skilled manpower.

Favorable time zone difference also helpBPOs run round the clock operations andbetter customer services.


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2.3 Benefits of BPOs A study made by Helios Innovations (2004)

indicate that reduction of operating costs isthe main factor for outsourcing.

Survey Results:1. Reduce operating costs- 48%

2. Focus on core business- 32%3. Increase speed to market-5%4. Improve quality- 5%5. Conserve capital- 5%

6. Foster innovation- 3%7. Increase revenue- 2%

___Total- 100%


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3.1 Unfolding Demographic Transition

1. At present, India is undergoing a favorabledemographic transition.

2. According to the population projections madeby the United Nations, rapidly falling fertility

rates in most developing countries have ledto a "youth bulge".

3. Another study by Jimenez and Murthi(2006) of the IMF indicates that In manymiddle-income countries and transitioneconomies, the fertility transition is fairlyadvanced and the number of young people isactually declining (as in China and Thailand).


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4. In others, such as Brazil and Vietnam,numbers are reaching to a peak or aplateau.

5. In still others, which are less advanced in this

transition (as in India and the Philippines),the number of young people will reach thepeak level in the next one to two decades.

6. In yet others (as in Niger and Sierra Leone),

the number of young is expected to growcontinuously into the foreseeable future.


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7. The study further indicates that even manymiddle-income countries, where youngpeople are adequately educated, facechallenges to meet the demand for workerswith higher skills in the global economy withexpansion of investment, output and trade.

8. The share of working age in the totalpopulation will rise in India till 2025, whereasin much ofAsia it will peak around 2010.

9. The UN puts the populations median age at

around 24.3 years in India, compared to 32.6in China and 35.1 in Korea. At present, morethan 50% of Indias population is under 25.


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3.4 Demographic Dynamics

Population of Europe, Japan andAustralia is already aged.

Population of China, Hong Kong,Russian Federation, Singapore is aging

very rapidly. Population of India, Bangladesh,

Indonesia, Pakistan, Malaysia is stillyoung and growing slowly.


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3.5 Migration

India, Bangladesh, Pakistan, SriLanka, Thailand, Indonesia andViet Nam serve as a pool ofmigrant workers to labour shortage

countries. The number of migrant workers

from these countries to othercountries in Asia have increasedfrom 1 million in 1990 to 5.5million in 2004.


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3.6 Share 60+ population in

total population2000 2050

World 10.0 21

Asia-Pacific 8.8 23

China 10.1 30

India 7.6 21Indonesia 7.6 22

Japan 23.2 42


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3.7 Share of 65+ population inworld 65+ population

Region/ Country 2000 2050

China 20.9 22.8

Indonesia 2.4 3.5India 12.0 16.0

Russian Federation 4.3 2.0

Japan 5.2 2.7Rest of Asia Pacific 11.7 16.0

Rest of world 43.5 37.1


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3.8 Share of 80+ population inworld 80+ population

Region/ Country 2000 2050

China 16.6 26.2

Indonesia 1.6 2.7India 8.8 12.7

Russian Federation 4.2 2.0

Japan 6.9 4.4Rest of Asia Pacific 12.4 11.6

Rest of world 49.5 40.4


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3.9 Rising share of female in aged

Figure VI

Share of male and female population aged 65+ to total

population in ESCAP countries 1950-2050

Male

Female

0

2

4

6

8

10

12

1950 1975 2000 2025 2050

Years

Percenta

eoftotal

o

ulation

Share of male and female population aged 80+ to total

population in ESCAP countries 1950-2050

Male

Female

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

1950 1975 2000 2025 2050Years

Percenta

eoftotal

o

ulation


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3.10 Ratio of Working Population

Figure VIII: Dynamics of working age population in selected economies

Population aged 15-59 for selected Asia-Pacific economies 1950-2050

China

Asia

Pacific

Japan

Republic of Korea

India

40

45

50

55

60

65

70

1950 1975 2000 2025 2050

Years

Percentage


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3.11 Demographic Transition inIndia

The UN puts the median age of population at24.3 years in India, compared to 32.6 in Chinaand 35.1 in Korea. At present, more than 50%of Indias population is under 25.

Over next 15 years, rich worlds population willfall slightly, while developing world will acquire2 billion extra people. Over that period,working population (age group 15 59) in USAwill have a shortfall of 17 million, Japan 9

million, Europe 10 million (counting UK = 2mn, France = 3 mn, Germany = 3 mn and Italy= 2 mn), Russia 6 million and China 10 million.In 2020, India will face a surplus of 47 million,

almost equal to the total world shortage.


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4.1 Demographic dividends for stillyoung economies

Increasing labour force could be an impetusto higher gro wth in large developingcountries such as India and Indonesia, ashigher work force will enhance savings,

leadingtomore investmentand output. There willbe increasingopportunitiesto

exportlabour torapidly ageingeconomies. Itwillenhance remittancesand service exports.

There will be more opportunities andacceleration in offshoring in services andmanufacturing due to availability of skilledwork fore.


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4.2 Impact on Health, Education,Insurance and Housing

More Consumption dividend t han i n t herapidly ageing economies such asJapan.

Higher return to capital in young economiescouldattractFDI andother foreigncapital.

There will be increasing demand for healthand education services leading to growth offoreign investment in these sectors.

There will be need for eff icient pension,

provident, insurance and housing fundsencouraging further liberalization of FDIpolicies in these sectors.


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4.3 Implications forMigration Policy

Immigration worker flows have alreadyproven important in Malaysia and Thailand.For example, foreign workers account for 25per cent of Malaysias labour force.

With the rapid ageing, economies such asJapan, Republic of Korea and Singaporewould experience severe shortages in laboursupply in the coming decades.

In most of the ageing economies labourmarkets are not sufficiently flexible to absorbmigrant workers and to offer the requisitetraining on a large scale.


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4.4 Impact on Offshoring All these developments will lead to a pressure

on wage rise at a faster speed. If wages of skilled labour in both developing

and developed countries are equalized infuture, offshoring may become a victim of its

own success. Developed countries may also take

protectionist measures against migration andtrade in services.

Many federal states in USA have tries to putup legal barriers against awarding statecontracts to non-US companies.


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5.1 Concluding Observations

No longer capital, cheap labour and naturalresources are regarded as the main sources ofglobal competitive advantage. Knowledge andinformation technology (IT) have emerged asthe principal drivers of growth and comparative

advantage. Higher education helps to achievethis excellence in IT and other knowledgebased industries.

According to a recent study by McKinsey andNASSCOM (also by the Dept. of Commerce),

the total potential global offshoring market isaround US$ 300 billion, of which US$ 110billion will be offshored by 2010.


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5.2 Concluding Observations

India can capture about 50% of this marketand create direct employment for 2.3 millionpeople and indirect employment for 6.5 millionpeople. However, high quality manpower

would be required for such jobs. Various professional and industry associations

hold the opinion that significant expansion inhigher education is required to meet the

growing demand for technical andmanagement personnel in future.


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6.1 Policy Issues-1

India has gained significantly from offshoringand the WTO General Agreement on Trade inServices (GATS).

There is a need to have a fresh look at Mode-4

(movement of natural persons) under GATS. India's focus area in WTO negotiations on

GATS should be to provide effective marketaccess to its professionals and skilled labour

force in many sectors and to bring about asymmetry in the movement of capital (Mode-2)and movement of labour (Mode-4).


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6.2 Policy Issues-2

India has comparative advantages in healthcare, software, construction and engineering,technical education, legal and accountancy,and it would be advisable to negotiategreater market access for its professionals in

these sectors. The availability of market access alone would

not be fruitful if the qualifications to providethese services from Indian Institutions and

Universities are not recognized abroad. At negotiations, it needs to be ensured that

standardization of these qualifications aresorted out to protect our interest.


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6.3 Policy Issues-3

For effective market access to professionals,India should negotiate for the following:

a) Economic Needs Test should be eliminated.b) Social security contributions required for

temporary persons needs to be corrected.

c) Administration of visa regimes may be mademore transparent.

d) Specific sectoral commitments in line withrequirements of developing countries.


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7.1 Review Questions

1. Discuss the impact of demographic changeon Indias services exports andopportunities for Business ProcessOutsourcing.

2. Indicate major demographic dividends India

is likely to have in the next one or twodecades. What would be their impact onoverall growth and development.

3. What would be the impact of demographictransition in India on health, higher

education and migration, and contractualsavings such as pensions, insurance andprovident funds?


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Thank you

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global services-19-20 prof. tarun das

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