PaGuX Blogs

Lots of companies in some parts of world depends on simple model :  labor arbitrage , get cheap low cost labor in production or services sector to get price advantage (around 20 to 30% ) .While this model has been established as path to economic prosperity in these countries but few people are realizing this model is bound to fail

generic Indian business model that is labor arbitrage leaves no scope for innovation as our prime USP is cheaper manpower . Since our pricing model is FTE (manpower) based any process improvement other than visibility and customer desired quality certification (paper work and documentation) which can optimize the processes and reduce headcount of a people of processes leads to loss in revenue rather than increased profits (due to lower costs ) because lesser FTE billing (FTE based billing model) . So innovation/automation will be not viable to business and will not get approval/buy in from higher management .Even though this will continue to get some minimum revenue for some time but this approach will not sustainable revenue stream in future and we will keep on getting diminishing returns . This is because our prime cost (marginal cost) is labor . Early mover advantage will be helpful initially in influencing market , but once market has been established opportunity costs will attract other players and established MNC (once a portion of their revenue is affected) Now due more companies coming in long term, prime cost (labor ) will see a movement to companies offering higher salaries and companies and new entrants facing more competition will decrease prices further which lead to decreased MR (marginal revenue) hence in will reach point of diminishing returns in each cycle. When this actually happens depends on number players , manpower pool size , total market and potential market .Since there is no increase in productivity (since system prevents innovation /automation) and manpower pool increases very slowly compared demand and constant movement in IT labor market pushing labor prices up . Even if acquire tools from market their very high costs and implementation time might be not be attractive and may not help is in increasing MR (marginal revenue). Case scenario would be BPO industry where per hour billing is continuing fall (initially as much as 20$ to 6 to 2 $ per hour) Visibility and ticking systems are helpful in increasing SLA and but have limited impact on in increasing productivity and does not reduce headcount (hence manpower costs ) Automated expert systems combined with autonomic agents, distributed systems can have big impact on reducing people dependency, also where real automation company and can easily replace most L1 and L2 operation and reduce dependency L3 (as more knowledge is put into expert systems) . Therefore more big companies like IBM , Google & HP are employing this .

Only process based companies with focus on superior service and automation will service in long run