Covid 19: No Time for Schadenfreude

Covid 19 has hit China deeply already. Even if it makes a quick recovery in the next quarter, a valuable lesson has been learnt by global companies. They can’t put all their manufacturing eggs in one basket. While India should make every effort to gain from this reset, there’s one risk we can ill-afford to ignore. We are the IT and BPO hub of the world. Will companies limit their review of dependence to manufacturing? Or, will they question all single points of failure including their dependence on India for services? We know the answer. We should be working on a coordinated national response right now to limit the fallout.

Global Value Chains in Goods & Services

The global delivery model was the single biggest disruption in supply chain in the 21st century. In manufacturing this meant an intricate network of Global Value Chain (GVC) was built up with China at its heart. China had the scale, resources and an authoritarian state that used debt to fuel its ambition of a ‘peaceful rise’ in the global order. It succeeded spectacularly. Interestingly, a similar reinvention of the delivery model worked in services too. A handful of Indian companies showed global companies they could run their IT and back office functions from India at significantly lower costs. The world followed and India became the global backoffice accounting for almost 60% of global offshored business. In both these models, companies had business continuity and disaster recovery plans to manage their risks. But no model was stress tested for a black swan event like Covid 19. We are now in midst of it.

Scenarios for India

The impact on China and therefore the world is for everyone to see. About 0.5% of world’s GDP will be shaved off this year. Bloomberg estimates a US $ 2.7 trillion lost in output. The world has learnt its lessons on being overdependent on a single country. India should be worried on two counts based on this.

Firstly, let’s hope our containment efforts, the weather and our emergency response mechanism all restrict the impact of the virus to a minimum. This will still mean when global companies sit down and draw lessons from this pandemic, they will question their over-reliance on India for running their IT and backoffice functions. They will look for a more diversified portfolio of centers across countries.

That’s the best case. In the event India is singed even mildly by the virus and our IT and BPO hubs shut down for a week or so, we will have more to contend with. Services unlike goods don’t have inventory. A disruption of a day equals a 100 per cent loss of productivity. There’s no breathing space of having unsold inventory lying around to tide over for some time. The nature of the work we do in services (client specific and with confidential data) is also of the kind where work-from-home options won’t be feasible. There’s a need for a secure network to access client’s IT systems which is difficult to provide at homes. The scale and the expertise needed for doing what we do is such it will be difficult to direct the load to other centers quickly. There will be pain for global companies in case of a disruption in India. Again, when things settle down, companies will look for alternatives.

Make haste now

Our relative low incidence rate of Covid 19 still gives us an opportunity to stay ahead of this. We should be stepping up information, detection and containment efforts at all our IT hubs across the country. The government and NASSCOM should be proactively coordinating among the big tech players and global captive centers on how to minimize disruptions to clients in case they have to shut down their campuses. This could include ways to cooperate between companies and their centers across the country and outside, using spare capacity in locations outside of the 5 key hubs and finding ways in which work from home options can be activated wherever possible. These should be tested for various scenarios and a national level contingency planning committee should be set up to see how we could minimize the impact on global companies if things unfortunately turn bad. We should be testing various scenarios of business continuity plans – not restricted to an office building or a company but at an IT campus, ecosystem and a city level. Everyday.

The IT and BPO sectors have driven growth and employment in our economy over the last 2 decades. We have built a reputation for our ability to deliver good quality, low cost services predictably. We can’t afford to have our pie split among other countries. It will be huge loss for us.

We need to think across the boundaries of companies, cities and states. We should be working on a national emergency response mechanism that mitigates the impact of a short to medium term disruption in running the large hubs across country. We will earn renewed respect and confidence of the world about our agility and customer-centricity if we are able to manage this crisis. The ball is in our court.

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