Global Services-21 Prof. Tarun Das, IILM, New Delhi

8/9/2019 Global Services-21 Prof. Tarun Das, IILM, New Delhi

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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 Unfolding Demographic Transition


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5. In still others, which are less advanced in thistransition (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.7. The study further indicates that even many

middle-income countries, where youngpeople are adequately educated, face

challenges to meet the demand for workerswith higher skills in the global economy withexpansion of investment, output and trade.


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

9. The UN puts the populations median age ataround 24.3 years in India, compared to 32.6

in China and 35.1 in Korea. At present, morethan 50% of Indias population is under 25.10. Population of Europe, Japan and Australia is

already aged. Population of China, HongKong, Russian Federation, and Singapore is

aging very rapidly.11. Population of India, Bangladesh, Indonesia,

Pakistan, and Malaysia is still young andgrowing slowly.


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12. India, Bangladesh, Pakistan, Sri Lanka,Thailand, Indonesia and Viet Nam serve as apool of migrant workers to labour shortagecountries. The number of migrant workersfrom these countries to other countries in

Asia has increased from 1 million in 1990 to5.5 million in 2004.


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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 Demographic Dynamics1. At present, India is undergoing a favorable demographic

transition.2. According to the population projections made by the

UN, rapidly falling fertility rates in most developingcountries have led to a "youth bulge".

3. Another study by Jimenez and Murthi (2006) of the

IMF indicates that in many middle-income countriesand transition economies, the fertility transition isfairly advanced and the number of young people isactually declining (as in China and Thailand).

4. In others, such as Brazil and Vietnam, numbers arereaching to a peak or a plateau.


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3.1 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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3.2 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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3.3 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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3.4 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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3.5 Share of80+ 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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3.6 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

Percent

a

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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3.7 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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3.8 Demographic Transition in India

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.

More Consumption dividend than in the

rapidly ageingeconomies such asJapan. Higher return to capital in young economies

could attract FDI and other foreign capital.

Increasingopportunitiestoexportlabour to

rapidly ageingeconomies. More opportunities and acceleration in

offshoring in services and manufacturing.


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4.2 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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4.3 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 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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5.2 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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5.3 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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Global Services-21 Prof. Tarun Das, IILM, New Delhi