Nov 26, 2012

Humanoids, Robots, IPSoft and IT Jobs

Okay, this is going to be long. So brace for it. 

There were two news items recently, and I am going to draw heavily from them for this blog. 

1. Today's mint front page article on IT exporters adding revenue with fewer new employees. 
2. A robotic threat to outsourcing model, here

The first one talks about how our IT exporters added more revenue without adding too many employees this year, basically moving towards more earning from higher end projects. The ratio of people with less than three years experience in the IT giants like Wipro, Infosys etc is decreasing, the article no. 1 points out. 

The second one is from the last week, and talks about how....wait a sec...let me quote 

"Robots and humanoids that automate and deliver information technology (IT) projects at a cost that is less than one-fourth the billing rates of engineers from Tata Consultancy Services Ltd (TCS) and Infosys Ltd are the latest threat to India’s $100 billion (Rs.5.5 trillion) IT services business."

Okay, that says it. So there are companies like US based IPSoft (very interesting company website, check it out! Don't miss the Turing centennial post by Chetan Dube, the CEO), who are working on software robots and humanoids that can automate many mundane software development jobs. These IT robots are going to revolutionize the process of software development as we know today. If you are thinking it's fantasy, let me quote this:

"Software robots or algorithms automate the entire workflow, offer solutions in a fraction of the time and at a cost that cannot be rivalled by engineers, based in cheaper, offshore locations such as India and the Philippines. For instance, if a US bank faces issues in running a particular software application, an algorithm or software robot can solve it by sifting through the entire IT infrastructure of the bank within seconds, identifying the cause and fixing the problem. A human engineer would take at least few minutes to identify the problem and another few minutes to offer solutions."

“The economics are eye-popping: while an onshore FTE (full time equivalent) costing $80K ($80,000) can be replaced by an offshore FTE for $30K, a robot developed with the Blue Prism/IPSoft tool kit can perform the same function for $15K or less—without the drawbacks of managing and training offshore labour,”James R. Slaby, research director at HfS Research, said in his October report titled Robotic Automation Emerges as a Threat to Traditional Low-Cost Outsourcing.

So that sums it up. And what are our IT giants doing? Let me quote again:

Already, senior executives at Wipro Ltd, Infosys and Cognizant Technology Solutions Corp. are scrambling to partner with IPsoft instead of losing some existing and even potential projects to the new model. Officials at these companies confirmed they are in talks with IPsoft for a potential alliance, but asked not to be identified citing non-disclosure norms.

So that's one part of the story. The second part relates to the first article. IT companies earning from high end projects. Now let's relate both and do some crystal gazing. What I see is not pleasant. I see a loss of job creation in IT sector. People would like to have more experienced IT professionals, doing high end work, and leaving the mundane software development, which forms the bulk of software development jobs today (ask me, I worked with Wipro and Infy), to the IT robots. And that would effectively mean, higher entry barrier to the new IT engineers/professionals, especially the ones that pass out from not elite institutions. 
What about data/voice and other low end outsourcing jobs? They should be the prime target once algorithms starts passing Turing tests, and trust me, it seems closer than ever, going by what I am reading/hearing. 

Is it all doom now, with bots killing humans? Not exactly. But one has to brace for what might come. The strategists at our IT giants need to look into the future, and think about how to adapt. The current model of being a global provider of services using low wage human workers, has served them well, but they need to move into product development to stay relevant in future. They have tried, but the results are yet to show significantly. It's time our IT sector grows up, into products and solutions that go beyond what can be done by IT robots or low skilled employees. I am sure, the IT strategists (in the IT sector, not the Govt.) know it.  It would be nice to watch this sector in next couple of decades. We sure live in interesting times!

PS: Blame the informal language on beer! Will correct it some other day and remove this PS

Nov 24, 2012

e-BRC, one small step for trade, one giant leap for the tradekind

Electronic Bank Realization Certificate (e-BRC) is an initiative towards trade facilitation. It was introduced in the current foreign trade policy (FTP) this year. You can read the detailed circular on e-BRC here
As the blog is for general public, let me clarify a few things. One of the objectives of FTP is to provide incentives for increasing foreign trade of India in desired direction. Trade facilitation is another objective. Most of the incentive schemes need proof of conducting foreign trade (say exports), and that the foreign trade proceeds were 'actually' realized. (Ok, in simple English, to take incentives under FTP, one needs to prove that he exported, and got the money back for it.) The physical part of movement is captured by what we call as shipping bill, and the money movement part is captured by, to keep it simple, a bank realization certificate, which the banker issues after the proceeds are realized. More about these things here.

Incentives are given after physical verification of these two documents and after matching the details therein. DGFT is the organization that does this work. And it's a mundane, manual work. Lakhs of shipping bills are verified against lakhs of physical BRCs. It was a case fit for automation. Customs had already moved on to e-shipping bills. The banks were a challenge. There are multiple banks, and to get all of them on board, to comply with the laid down formats, was a big effort. I realized the magnitude of effort only when I spoke to the in-charge of the team that developed the system. It has been done now, with the highest level of coordination between DGFT, MoF, Banks and RBI. Of course, the system is developed by NIC! For once, I must appreciate them for this one. The 'FAQs' and the 'Help' actually helps by using some common English. That itself is a change. See here in the link, under ECOM (read me first)

The advantages of doing this are many. One, it removes the huge workload on the DGFT organization, of physically verifying details on two sets of documents. Two, the transaction cost involved for traders, to go to the bank to get the physical BRCs, is eliminated. The cost of getting each BRC was (unofficially) between Rs 400 to Rs 1500 per BRC. Three, Banks were employing personnel to cater to this specific function of generating BRCs for the clients. This overhead is now reduced and the resource can be deployed elsewhere. Fourth, it drastically reduces the processing time, as what could take days, would now be done instantly. Lastly, it removes transaction costs of trading community of making visits to DGFT offices and trying to push the files faster. 

Paperwork has hidden transaction costs in terms of monetary and time penalties. Easing paperwork through automation, especially the ones that involve straightforward filing or checking of numbers, should be taken up on a mission mode. In years to come, I envision many such moves that would totally eliminate the need of paperwork (using trees) in international trade. The trickle has started. ICEgate of Customs and DGFT's E-initiatives are on the forefront for trading community. Banks have now hopped on-board. The blog welcomes the change. 

Nov 3, 2012

TPP, Regulatory Coherence, and India

 "On November 12, 2011, the Leaders of the nine Trans-Pacific Partnership countries – Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, Vietnam, and the United States – announced the achievement of the broad outlines of an ambitious, 21st-century Trans-Pacific Partnership (TPP) agreement that will enhance trade and investment among the TPP partner countries, promote innovation, economic growth and development, and support the creation and retention of jobs."... from USTR website

Now, what's so special about an agreement that US is going to have with few other nations across pacific? 
A reading of the same USTR page would tell you this too:

"The United States, along with Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam are working to craft a high-standard agreement that addresses new and emerging trade issues and 21st-century challenges. The agreement will include:

• Core issues traditionally included in trade agreements, including industrial goods, agriculture, and textiles as well as rules on intellectual property, technical barriers to trade, labor, and environment.

• Cross-cutting issues not previously in trade agreements, such as making the "regulatory systems" (emphasis added) of TPP countries more compatible so U.S. companies can operate more seamlessly in TPP markets, and helping innovative, job-creating small- and medium-sized enterprises participate more actively in international trade.

• New emerging trade issues such as addressing trade and investment in innovative products and services, including digital technologies, and ensuring state-owned enterprises compete fairly with private companies and do not distort competition in ways that put U.S. companies and workers at a disadvantage." 

Those three bullet points above, are the major points of TPP. The key lies in the world "Regulatory Systems" in the second bullet point. 

When I was working with Infosys in Bangalore, way back in 2007/2008, I used to work on projects outsourced by Boeing. My job was to prepare structural repair manuals for Boeing 787. I used to read a lot of technical manuals written by Boeing, and invariably, those documents contained the IP clauses on the bottom of each page, that said that the information is covered under Boeing/US Defence Intellectual Property (IP) laws, and cannot be divulged without permissions/approvals. Infosys, had signed the agreement to protect the 'Intellectual Property' of Boeing in all possible ways. In fact, the access to the 'Boeing area' in Infosys was restricted to only those employees whose IDs were given access, after necessary approvals, and 'only' such employees could unlock the doors to the Boeing work area. It was the same with Johnson controls, Airbus, or other such sensitive projects, that were bagged by Infosys, with an assurance that all IPs will be protected fully. Infosys did a commendable job, to the best of my knowledge, to adhere to what it had signed on paper. US firms such as Boeing, had to go that extra length to sign such IP/regulatory related agreements with 'each' of the firms that they worked with. Random audits, to ensure that such firms confirmed to the regulatory requirements, were a common feature when I worked. I believe that it is still the same, when it comes to Indian firms that undertake such projects. 

US, or for that matter any other country, that generates such sensitive IP, is wary of outsourcing work to any random vendor, who might copy or leak the data outside. That applies not only to firms but to the countries too. US is extremely wary of China, rightly or wrongly, as US suspects China of stealing data or IP protected stuff. 

US firms lead the global supply chains that crisscross multiple countries, each having it's own version of IP law implementation. The regulatory framework might be dictated by TRIPS and such agreements, but in the end, the level of implementation, is a function of how much the individual country gets serious about implementing such IP related laws on the ground. 

US has tried to push for stricter IP protection laws at the WTO for some years now, and US has been successfully stonewalled by developing countries, mainly due to differences arising from Pharma industry experience. 

US firms would ideally like to have an environment where they can operate without the fear of IP theft, while taking the advantage of outsourcing/local comparative advantage in various aspects of product development.  It is not easy to have such a secure environment across countries. At TPP, this effort, to have a coherent regulatory environment,  is being undertaken, and that's why they hail it as a 21st century agreement. 

If the agreement comes through as desired by US, the US firms would have flexibility of operating in TPP countries without bothering about special US legal/regulatory permissions or agreements for each and every project that they execute in collaboration with TPP countries, as these countries would have 'regulatory coherence'. Regulatory coherence would mean that the countries would converge on IP and related regulatory structures. 

So, where does that leave us, that is, Indian firms? 

It's a challenge in the sense that India won't get into any such agreement, with US, or at WTO level anytime soon. So, the set of countries that fall in the 'regulatory coherence' ambit of TPP (or such similar agreements that might crop up in future) would have an advantage. However, Indian firms, such as Infosys and others, have been quite open to adhere to US regulatory requirements. So, I don't see any reason as to why they should get affected. When it comes to manufacturing, we are not getting too much of 'sensitive' projects, except for the ones that come through defence offset clauses of Indian defence procurement policy. So, that area too is safe, for the time being. 

The TPP type of 'regulatory coherence' would start hurting when this type of  regional agreement clauses would start becoming the norm. US couldn't push it through WTO, so it's pushing it into TPP. Once this comes through, the ambit might widen, with more countries showing interest to join TPP. And the TPP document might become benchmark for future regional agreements with US and other countries, and ultimately coming into multilateral agreements of WTO. This might happen sooner than later. Are we gearing up for that? 

I think it's time we start analyzing TPP seriously in our policy circles, without minding that it is happening far away from us. It's indeed a 21st century challenge, for a 21st century agreement.

PS: I have kept the focus narrow in this post, and have omitted larger issue of technical barriers to trade (TBTs). My intention is only to draw the attention. The bigger debate is for another day