Retention becoming a major issue

As the Indian IT Industry gains further momentum and comes closer to achieving its goal of US $50 billion the stakes are becoming high for the small and medium sized companies who are now finding it increasingly difficult to retain trained staff. As is evident from the statistics revealed by Nasscom, the IT industry body in India, the top 10 software companies are growing much faster than the rest and the number of professionals being added to their teams, every quarter, is phenomenal. Where are these people coming from? Whereas some are off course from the IITs, RECs and other training institutes, however, a significant portion are being poached from the smaller companies by promising better projects and a higher salary.

 

Just the other day I was in a meeting with the promoter of one such company, having around 200 employees across the world, who related an experience which corroborates this viewpoint. He had appointed a software engineer who was earlier drawing Rs 4 lacs per annum at a salary of Rs 6lacs. Within 15 days the employee was back saying that he had got an offer from one of the top 10 companies for Rs 8.5 lac per annum and he would be taking up the offer immediately. The Brand as well as the Salary offered by the Top 10 company won the day. How is the smaller company, as well as all the other such companies in the industry, supposed to tackle such situations?

 

Are we headed for a situation where most of the offshore work will consolidate behind the top companies and the smaller ones will either be bought out or close? OR is the Supply side going to change significantly in the near future to take care of this problem ?

Selling your Business

I guess all entrepreneurs have an emotional attachment to their business which prevents them from even contemplating selling the same until circumstances force them to. This is typically true of Indian Entrepreneurs.

Just yesterday I was in meeting where it was established that even though one of the business units of the family was making continuous losses, and there seems to be no way out, still the promoter who had started the same and nurtured it over the years was continuing to cross subsidise the same instead of looking to exit. There are many such similar situations where the promoter’s emotions have prevented the right solution being adopted.

This led me to try and pen down what are the top 5 errors that most entrepreneurs make while trying to divest their existing business.

1. In todays world the only thing constant is change. As such it is most important to decide right at the beginning of a venture as to when you would like to make an exit. It is like the stock market, you invest in a share with a certain return in mind and then stick to the plan or you might end up loosing your shirt. In any case, even in case one has not decided this in advance, one should try and give it enough lead time or else one will not do justice to the exit strategy and end up loosing in the final deal. Further, in most cases the Buyer would want the existing management to continue for a specified period so as to achieve a smooth transition and that time should be also be factored in by the Seller.

2. Selling a business is not like selling Real Estate, although, today, even selling real estate has become complex. Businesses are of various types and shapes and consist of elements which can have a different meaning for different people. As such it is advisable to take the assistance of someone who has handled such transactions and not try to do it yourself. In most cases you will come out ahead by getting a better price. I remember in one of the transactions that I was involved in from the buyers side, one was able to bring down the valuation by more than 50%. The impact ran into millions of dollars.

3. Competition drives up the price. As such it is of utmost importance to try and have more than one buyer or else you end up loosing by not getting the right price. This is true of every transaction in any sphere of life. This too can be achieved by taking the assistance of Investment Bankers/ Management Consultants who specialise in such deal making. It will be well worth the effort.

4. Identifying the right buyer is another important aspect which needs considerable attention. Typically a Strategic Buyer would see a strategic fit with their current line of business and be agreeable to pay a greater price as compared to a Financial Buyer who is primarily looking at it as a specific period investment and would like to see returns by way of Dividends and Appreciation in value over a defined period before exiting. they would not normally interfere with the management of the company except to ensure proper financial discipline and control. A Strategic Buyer would see longterm value as the acquisition would strengthen and add synergies to its main business.

5. Although I have touched upon this in an earlier point, however, I have found that most SME sector entrepreneurs do not know how to project their key strengths / assets that could influence value substantially. You need to identify all your value drivers, both tangible and intangible, more so in case you are in the Services Industry. These could be the credentials of the management, the brand recognition, unique process or process maturity, intellectual property etc.


In the end it is best to remember the Biblical saying “Where there is no vision, the people perish”

Blog Search Gets Easier and Better– with Google

The big daddy of search has recently launched its blog search and it works great ! I definitely like the clean interface and the way the results are shown.

Joel Cheeseman has an interesting take on the effect this could have on the online recruitment marketplace. We in the recruitment industry definitely need to give it a serious thought and, maybe, come up with ideas on how to leverage it.

What I will comment on is the crystal ball this offering seems to be for providing vertical search for other content. Say, oh, jobs for example.

Do a search and you'll see how the results are served. You'll notice results take you to actual blog entries and not homepages of blogs - just like they might take you directly to job listings. You'll notice results are incredibly timely.

You'll notice that results are ranked by relevancy. This is a big difference from most of the other blog search engines like Technorati, which default to a date-based sort.

This kind of ranking should be the secret weapon to Google’s blog search success. From limited testing, it appears to be a combination of timing, links, and keyword frequency.

And if you think of this in terms of job postings, the relevancy issue becomes very important. Here's an example: Do a search for online recruiting.

You'll notice that this very blog (Joel Cheesemans) owns a lot of real estate on page one. Am I the only one blogging about online recruitment? Of course not. But you may not know that looking at the results.

Could an employer leverage the same optimization tactics in a vertical search for jobs and push their competition down the ladder of results? You bet they can. And I think savvy employers will do just that.

You'll also notice the ability to get results via your favorite RSS feeder. Say goodbye to e-mail alerts.

For Monster, CareerBuilder, SimplyHired, Indeed, your local newspaper, etc., Google's move shouldn't be a surprise, but it should certainly be a wake-up call to what their futures may hold. In India Naukri, Timesjobs, Jobsahead, Newspapers would be equally affected as broadband becomes cheaper and easily available at low cost across the country. The 800-pound gorilla may soon be coming to their neighborhood too.

Manufacturing Sector – A loosing Battle ?

In the past few months I have had the occasion to work on a couple of assignments looking for HR cum IR professionals for top manufacturing companies in India. I must confess the whole exercise has clearly made me realise the truth in the GDP numbers – that the Service Sector now truly constitutes 51% of the Indian Economy and Manufacturing only 26%. The workforce has also consequently re-aligned and their preference has shifted to the Service Sector (which also paying more !). It has become increasingly difficult to find professionals for leading institutes who are still in the manufacturing sector. XLRI, whose name includes “labour”, seems to turn out graduates who are forsaking the manufacturing sector for the Service Sector. Very few are wanting to get down to the shop floor and ‘dirty’ their hands. At the end of the day, I think, it is a matter of disparity in compensation packages which is resulting in this mismatch.

I guess this is a challenge the Business Heads (alongwith their Strategic HR Heads) need to urgently tackle or else it is going to be a downhill battle.

Employee Recruiting and Retention Ranks as Top Priority - Accenture Study

Here's an interesting study by Accenture which finds that the Topmost priority of the Top Management today is “Attracting and retaining skilled staff”. People issues have dominated the Top 10 concerns of management. This is good news for Recruiters as with “Talent Acquisition” being centre stage their services would be in greater demand for locating high performing candidates through headhunting and their networks. The other Top 10 priorities too are an interesting read.

The study, which Accenture conducts annually, comprised interviews with 425 senior executives at leading organizations in North America, Europe and Asia to identify and prioritize the issues of greatest concern to senior management, understand how their priorities shift over time and identify key forces behind the issues.

Workforce improvement-issues dominated the top priorities, comprising 4 of the 10 most-selected concerns, including the top 2. For instance, the greatest number of respondents, 35 percent, selected "attracting and retaining skilled staff," followed by 33 percent who selected "changing organizational cultural and employee attitudes." Other workforce issues in the top 10 are "improving workforce performance" (selected by 28 percent to rank 7th) and "developing employees into capable leaders" (selected by 26 percent to rank 10th).

"The most powerful theme emerging this year is a strong and consistent focus on people," said Peter Cheese, global managing partner of Accenture's Human Performance practice. "Even though the business conversations have centered on global competition and the need for execution, business leaders are increasingly aware that nothing happens unless people-talent is engaged in the right way."

Customer-retention issues also occupy top spots on executive agendas. Both "acquiring new customers" (32 percent) and "increasing customer loyalty and retention" (29 percent) were popular responses across all countries surveyed.

Innovation also rose on the executive agenda, ranking relatively higher and making it back into the list of top 10 issues on executives' list. "Developing new processes and products to stay ahead of the competition" is the fourth-highest-ranked executive concern, selected by 29 percent of respondents. Another top 10 issue is "being flexible and adaptable to rapidly changing market conditions," selected by 26 percent.

"Innovation, like expansion, seems to be an issue that rises in importance when the economy improves. That may be natural, but it is also short-sighted," said Cheese. "Innovation should never be out of mind - possibly even more so in tough times."

The only IT issue in the top 10 is "using IT to reduce costs and create value," selected by 27 percent of respondents to rank 8th, a sharp decline from its number 2 ranking in each of the past two years. "Although ranked relatively lower, the use of IT continues to be a major focus, as businesses are becoming more demanding in driving value from IT in the form of improving employees' productivity, engagement and capabilities," said Cheese.


Top 10 current business issues for senior executives

1.Attracting and retaining skilled staff 35%
2.Changing organizational culture and employee attitudes 33%
3.Acquiring new customers 32%
4.Developing new processes and products to stay ahead of the competition 29%
5.Increasing customer loyalty and retention 29%
6.Managing risk 29%
7.Improving workforce performance 28%
8.Increasing shareholder value 27%
8.Using IT to reduce costs and create value 27%
10.Being flexible and adaptable to rapidly changing market
conditions 26%
10.Developing employees into capable leaders 26%

About the study
As part of an annual study to identify senior executives' top concerns, Accenture conducted a survey of 425 senior executives at many of the world's largest organizations across all major industries and the public sector in the United States, United Kingdom, Germany, France, Italy, Spain, Japan and Canada. Respondents included executives at the highest levels of senior management ("C-suite" executives) as well as heads of key functional areas, such as human resources. Fieldwork was conducted from October 2004 through January 2005.

The Hunters and the Hunted

Today’s Corporate Dossier in the Economic Times carries a story on the Recruitment Industry and how the war for talent is helping hunters make a killing. It does, however, lament the lack of talent availability resulting in the Hunters becoming the Hunted. I have been mooting the idea of an organized training program being conducted by our profession for quite sometime now and we have discussed the same in the association (NAESCON) too over the past few months, however, things are moving a bit slowly. I think this article reinforces the crying need for such a structured programme in India and I feel that all members of the fraternity who can contribute to help bring this idea to fruition should come forward and lets create a steady stream of fresh talent for the industry. This is starting to happen in the BPO Industry, so why not in this niche area ? Poaching from each other is definitely not the solution

Now even the WTO supports Offshore Outsourcing.

Till now it was NASSCOM and its head, Kiran Karnik, who was fighting the battle on behalf of India against “Offshoring” or “Offshore Outsourcing”. However, we now have a WTO Report that has downplayed the impact of Offshoring on production, employment and trade patterns. It has supported its analysis with statistics – the offshoring of IT Services constitutes on 10% (approx) of the total world export of business services. If we look at it in context, IT jobs in the US constitute only 2.3% of the job market of the US.

So what are we really talking about ?

Great Customer Service - through Ownership

WOW ! This experience, related by Jeff Blackman, really makes me envious and has got me thinking as to how one can implement a program to inculcate this ‘ownership’ feeling and consequently such excellent customer service qualities in ones organization. It should definitely be easier to implement in a smaller business organization.

The Ritz Rules!

Who consistently delivers great service?

That's an easy one. The Ritz Carlton. I've never had a bad experience at a Ritz. And if something unexpectedly goes awry, they fix it. Fast!

Three months ago, I stayed at The Ritz in Orlando. The Ritz does little things right. Like at check-in, they offer you a glass of fresh lemonade. (I've noticed that other hotels are implementing a similar service strategy, by offering at check-in, glasses of i.e., champagne, juice or bottled water.)

And when I asked where the elevator was, Dena at the front desk didn't merely point toward the elevator, she personally escorted me there.

Later, at 6:00 p.m., I called room service. The phone was cheerfully answered by Gloria. She took my order and then said, "Mr. Blackman, please let me recap, to make sure I've got it right." (Confirmation now, often eliminates problems later.) I then asked, "Gloria, would it be possible to have dinner arrive at 7:00 p.m., since I'm leaving now to run in the fitness center?" She replied, "Absolutely! We'll see you at 7. Enjoy your run!"

At exactly 7:00 p.m. I returned. I was there, but dinner wasn't. At 7:11 I called Gloria and said, "I'm lonely!" She immediately apologized and said a rush would be placed on my order. At 7:22 there was a knock at the door. It was Rupert from room service. He said, "Mr. Blackman, Gloria and I once again apologize that your dinner has arrived late. Tonight, your meal is compliments of the Ritz."

Whoa! Cool! (Especially since the bill would have been over $350! Chicken nuggets ain't a bargain at the Ritz! Just kidding!)

I thanked Rupert for his gracious hospitality with a generous tip. I also gave him a tip for Gloria. He was surprised, but grateful.

Then, I called Gloria to express my thanks. I said, "Gloria, that was very thoughtful of you to comp my dinner." To which she said something remarkable. It was only a one-word response, but it was unforgettable. She replied,
"Ownership." (Meaning, even if it wasn't her fault, she still owned the problem. And, the solution. She didn't assign blame. She delivered satisfaction.)

I asked, "Gloria, is that your word or are you trained to say that?" Her response, "Mr. Blackman, it's simply part of our Ritz ethics and commitment to our customers." Yikes! I wanted to know where I could buy her books!

Lessons to learn and things to consider:
• What little things are you doing that'll yield BIG results?
• How can you improve your customer's experience?
• How many moments of magic or touch-points do you have with a customer?
What subtleties will elevate their value?
• How do you get others to talk about you and your business with phrases
that begin with:
o You're not gonna believe...
o Wait till you hear what happened to me...
o Have I told you about the time...

Oil Price and Shortage of Jobs

Just the other day Business Today carried a story on Skyrocketing Salaries and things could not have been looking better. However, experts tell us that everytime there has been an oil price surge in the past it has been followed by a recession leading to a shortage of jobs. Should the Recruiting Industry be concerned - as the oil price has crossed US$ 60 and as per the Goldman Sachs warning, issued earlier this year, it could cross US $105. Experts have said that a small blip in the production could have a dramatic impact on oil prices as a small demand supply imbalance could heighten the actual effect.

Being an optimist and a believer in the fact that there are still some good and intelligent men and women at the helm of affairs of this world, I hope the situation will not go out of hand and we Recruiters will not be left chasing clients and consequently jobs, as well as the skyrocketing salaries, would not just vanish.

How are the others reading the future ?

Something’s phishy – Wakeup Call for Recruiters !

One of the leading lawyers of India, Diljeet Titus, has analysed, in the Economic Times, the landmark judgment in the case of National Association of Software and Service Companies vs Ajay Sood & Others, delivered in March, ‘05, wherein the Delhi High Court declared `phishing’ on the internet to be an illegal act, entailing an injunction and recovery of damages. The case involved a placement agency involved in head-hunting and recruitment.

Without reproducing the whole article, the operative part that is most relevant to our profession is given hereunder. Sourcing being and integral part of our profession, I would request comments from all as to what they are doing to adhere to such norms and what we could do, as a profession, to incorporate certain self-regulatory norms so that we do not end up like the telemarketing companies – who are now being regulated excessively the worldover.

The Delhi HC stated that even though there is no specific legislation in India to penalise phishing, it held phishing to be an illegal act by defining it under Indian law as “a misrepresentation made in the course of trade leading to confusion as to the source and origin of the e-mail causing immense harm not only to the consumer but even the person whose name, identity or password is misused.” The court held the act of phishing as passing off and tarnishing the plaintiff’s image. The plaintiff in this case was the National Association of Software and Service Companies (Nasscom), India’s premier software association.

The defendants were operating a placement agency involved in head-hunting and recruitment. In order to obtain personal data, which they could use for purposes of head-hunting, the defendants composed and sent e-mails to third parties in the name of Nasscom.

The high court recognised the trademark rights of the plaintiff and passed an ex-parte ad interim injunction restraining the defendants from using the trade name or any other name deceptively similar to Nasscom. The court further restrained the defendants from holding themselves out as being associates or a part of Nasscom According to the terms of compromise, the defendants agreed to pay a sum of Rs1.6 million to the plaintiff as damages for violation of the plaintiff’s trademark rights. The court also ordered the hard disks seized from the defendants’ premises to be handed over to the plaintiff who would be the owner of the hard disks.

This case achieves clear milestones: It brings the act of “phishing” into the ambit of Indian laws even in the absence of specific legislation; It clears the misconception that there is no “damages culture” in India for violation of IP rights; This case reaffirms IP owners’ faith in the Indian judicial system’s ability and willingness to protect intangible property rights and send a strong message to IP owners where they can do business in India without sacrificing their IP rights

Skyrocketing Salaries – Good times ahead !

Yesterday I was speaking to someone and found that he had missed this issue of Business Today which I feel all of us definitely need to go through as it has a number of great nuggets wrt our profession as well as the Industry at large. One thing is for sure, we cannot complain of inflation as it gets adequately taken care of when we get paid our fee on a percentage basis (specially on enhanced remuneration numbers !)

Other than talking in detail about some of the High Growth Sectors such as Aviation, Financial Services, Engineering/Manufacturing, IT-Enabled Services, IT Services, Pharmaceuticals, Real Estate, Retail, Telecom it also goes on to list the skill sets which are in demand and says that the professionals, with those skill sets, are commanding a premium as there are not enough of them there to meet the demand.

Indeed, execs at headhunting companies (some insist they be called HR consultants focussed on recruitment; others are happy with the more prosaic search firms) rattle off a list of executives who have recently moved jobs and the impressive salaries at which they have moved. R.S. Prasad moved from Dr Reddy's to head Chennai-based Orchid Chemicals and Pharmaceutical's formulations business at a salary of Rs 1.5 crore a year; Lloyd Mathias left Pepsi where (page 53) he was Executive Vice President (Marketing), to head the marketing function at Motorola India at a salary significantly higher than the Rs 50-60 lakh-a-year he was earning at the beverages major; Sanjay Viswanathan moved from igate (he was head of Europe) to GECIS as Managing Director, Europe, at a salary of $300,000 (Rs 1.32 crore); and Padma Ravichander signed on as head of Perot Systems India (from Oracle) at a salary of $325,000 (Rs 1.43 crore). "Indian salaries, especially for senior managers, is fast racing towards the $250,000 (Rs 1.1 crore) mark," says Venkatesh Shastry, Associate Director, Stanton Chase, a headhunting firm. "This is comparable to the compensation in the us for middle-to-senior-level positions." The Indian salaryman has arrived.

It's celebration time for salaried professionals with salaries nudging the magical Rs 1-crore-a-year mark. The good news - things can only get better.

Where is Online Recruitment headed ?

eBay Google Look to Lists

Here is an interesting article from Red Herring. Although it talks about eBay too, however, the moot question is - Where is the Online Recruitment business headed ? It would be interesting to see what would be the impact on online Portals such as monster, dice, hotjobs, naukri etc.

As revenue growth slows in other areas, big Internet companies take a lesson in success from sites like Craigslist. Internet companies have woken up to the fact that listings may be theroute to a larger audience and fatter profits.

While eBay has alreadywet its feet, Red Herring has learned from sources close to Google that the search giant plans to get into listings as early as next month.

Online and print classifieds make up a $100-billion global industry,according to estimates from Classifieds Intelligence, an interactiveadvertising consulting and research firm. It's a market thelarger search and e-commerce giants could easily tap.

"All these companies are trying to create new communities ofpeople who didn't advertise before," said Jim Townsend,editorial director at Classifieds Intelligence."You can argue `these are free,' butmost of them have schemes for up-selling to advertisers."

For Google, listings would be a natural progression, as it has single-handedly transformed online advertising into an integral part ofmarketing campaigns for small- and medium-sized businesses.Regardless of what kinds of listings it gets into, it would beanother stream of revenue. Google declined to comment on its plans.

Many newspapers have begun to offer certain categories of onlineadvertisements for free, in an attempt to draw the audience thatfound newspaper classifieds too expensive in the past (see TechSpin:Papers Fight Google).

Many Internet companies, hampered by a deceleration in revenuegrowth, are betting on listings, too. eBay, for one, has zeroed in onlistings as a new source of revenue to combat its slowing growth overthe past year.

eBay made its most aggressive foray last week when it boughtShopping.com for $620 million. But it had stepped into the field in2004 when it dished out $415 million for Rent.com and also took a 25percent stake in locally focused listings site Craiglist.org.

eBay also bought Dutch classifieds web site Marketplaats.nl for $290million and German vehicles listings site Mobile.de for $149 million.

In March, eBay launched Kijiji.com, a group of web sites carryingclassified listings across more than 90 cities outside the UnitedStates. It's a concept similar to Craigslist, but implementedabroad. Kijiji expanded last month, too, through its purchases ofclassifiedweb sites Gumtree.com and Loquo.com.When it announced its acquisition of Shopping.com, the online auctionhouse said it wanted to reach a wider audience. Shopping.com had 22.6million unique visitors in April, according to comScore Media Metrix.That might be a small number when compared to eBay's 63.8 millionin the same time frame, but it's a number that reflects anincrease of 15 percent over the past year, compared with eBay's6 percent.

When it announced its acquisition of Shopping.com, the online auctionhouse said it wanted to reach a wider audience. Shopping.com had 22.6million unique visitors in April, according to comScore Media Metrix.That might be a small number when compared to eBay's 63.8 millionin the same time frame, but it's a number that reflects anincrease of 15 percent over the past year, compared with eBay's6 percent.

Jobless Growth in todays Globalised World

Commenting on “Jobless Growth” The Finance Minister, Mr P Chidambaram, had this to say in his Budget Speech this year.

“In the last Budget, I had rejected the idea of jobless growth. As I unfold the vision of the UPA Government, Hon’ble Members will note that the central theme that runs through the various schemes and programmes is creation of jobs. Assured irrigation facilities to an additional 1 crore hectares of land over a period of five years will generate employment for an additional 1 crore people at the rate 1 person per hectare. The food processing industry is growing at a rate which generates 2.5 lakh jobs every year. The textile sector alone has the potential to create 1.2 crore jobs over the next 5 years. The information technology (IT) industry is expected to offer an additional 70 lakh jobs by 2009. Construction industry is also expected to throw up lakhs of jobs. Sectors with potential for generating employment will receive the highest attention of the Government.” This is what is called “reform with a human face”.

It is all very well to reject the idea of jobless growth, however, the ground realities need to be factored in. As per news reports, Mr Juan Somavia, director-general, International Labour Organisation (ILO), has said that the growing gap between wealth generation and job creation is becoming a serious threat to international security, development and democracy and needs to be addressed urgently. Further, the ILO chief said at the ILO’s 93rd International Labour Conference “This global jobs crisis is the most pressing political issue of our time,”. Illustrating the contrast between a healthy global growth rate of 5 pct and a disappointing expansion in employment of only 1.7 pct in 2004, Mr Somavia said, “World output increased by nearly $4 trillion, yet global unemployment was reduced by only 500,000.” The imbalance between globalisation and growth and job creation was illustrated by the fact that about 1.4 billion people are unemployed or considered working poor, with almost half the world’s labour force living on less than $2 per day.

In todays increasingly globalised world job growth is very much dependent upon external factors within each sector and cannot just be controlled by launching schemes within the national borders.

In the face of such challenges can India’s political and bureaucratic establishment rise up to the occasion and come up with innovative policies for the upliftment of the working class. We have to wait and see.

Strategic Alliances Part II

Strategies for the Small...

Having said this, the salvation of those third-party call centers that do not have sufficient working capital, lies in:

• Getting over the mindset of waiting for inbound support work and immediately taking on outbound telemarketing work for which there is no shortage. Essentially, they need to ensure that they keep the right kind of sales staff with good communications skills so as to achieve a reasonable sales per hour (SPH). This will make the center viable, or
• Entering into a build, operate, transfer (BOT) contract with a foreign customer so that they can transfer the whole unit to the outsourcing party after the completion of a pre-defined period, say in two to three years. Thereafter, the learnings from the BOT can be used to set up another venture.

... And for the Big

In case the call center firm has deep pockets, it can:

• Set up a marketing office in the US and start working on customer acquisition—this can be a long and strenuous process and cost a tidy sum
• Make a strategic investment in a call center outsourcing or service bureau in the US/UK so as to acquire the latter’s customers and migrate the processes offshore. This too can take time and considerable amount of financial resources
• Embark upon a plan to enter into a strategic alliance, maybe even a joint venture, with some outsourcing provider or end-user client in the US or Europe which helps them gain the customer relationships of the foreign partner as well as its knowledge of successful management and delivery of processes.

On a consulting assignment in the US and Europe, and met a number of companies there in the SME sector. There is tremendous immediate interest in the US in offshore outsourcing, and although Europe is a bit slow on offtake, there too is an active interest in exploring the possibility of going offshore with support services. In sum and substance, due to the enticing value proposition, the business opportunity is very much there and it’s just a matter of adopting the right strategy to tap it.

All in the Alliance

Before we go any further it is important to understand what a ‘strategic alliance’ is.

Strategic is something that ties up with the strategic plan/vision, and is relatively long-term—focusing on long-term goals and justifying a commitment of resources. Strategic also means that it’s not tactical in intent.

Alliance constitutes an interdependent activity with an emphasis on cooperation and collaboration that requires resource commitments from more than one company and often requires continuing parent/owner support.

A strategic alliance can take various shapes—it may or may not entail equity investments, and may or may not maintain independence, multi-product/service, or a full life cycle.

An increasing number of global organizations are finding that a strategic alliance is a fast and flexible way of accessing complementary resources and skills that reside in other companies and an organization’s ability to enter into and effectively manage strategic alliances can provide a sustainable competitive advantage to it.

For a successful alliance it is very important to ensure that the top management acts as the champion and has full commitment to the alliance. But before that, it should be committed to the process and allocate the time required to enter into a successful relationship. It should show the ability to internally communicate the mission/rationale for the alliance, have the ability to obtain, and later ensure, the continued maintenance of the internal team’s commitment, and last but not the least, stay closely involved with the post-closing implementation stages.

Although a detailed roadmap for structuring an alliance is beyond the scope of this article, it is important that a well laid-out process is followed. It all starts with, first, getting internal approval from the owners/top management/stakeholders and conducting a due diligence for the possible conflicts and overlaps. After identifying the probable alliance partner, it is important to check upon its track record, the tenure of its existence, and its financial health over the period of existence so as to be assured of its stability. Initially, it is also better to establish the partner’s exact fit and determine whether it would complement the activities of the call center and help gain a foothold in both onsite and offshore spaces. One also needs to identify areas of conflict and competition as these could even lead to a collapse of the alliance later. Finally, it is very important to ensure that the alliance is equally important and strategic for the alliance partner as well, or else all the efforts will go waste.

For a successful negotiation it is critical that extensive meetings are held internally to identify major issues in advance, establish achievable targets, prepare business openings and even identify the deal breakers.

Once an alliance is in place, it is important to manage the same and ensure that all tasks have owners and deadlines, that the team takes out the time and allocates enough time to focus on overseeing the alliance. Even though alliances cannot be said to be risk-free, if managed well, they offer a very good option to other expensive, time consuming and less efficient options. Today, ‘alliance management’ is increasingly being considered as a ‘competency’ and can deliver rich rewards for an organization that effectively leverages the same.

Recruitment Firms - limited only by their Vision and Resources

Looking at today's robust economic environment and the fact that the real action, on the economic front, over the next few decades is going to be in the Asia Pacific region, I believe that the Recruitment Outsourcing business is headed for good growth and the winners will be the ones who have the vision and the resources to implement the same.

Janaki Krishnan writes in the Business Standard that even as India emerges as a hub for critical talent, not only in software but also other sectors, recruitment and placement agencies are gearing up to meet this challenge. In the recruitment space, managed services is seen as the next big wave.

Managed services essentially refer to recruitment process outsourcing, where companies will be outsourcing their entire process recruitment which will essentially be a mix of on-site recruitment, temp staffing and managed services.

Tarun Bali, managing director of ABC Consultants, among the largest placement agencies in the country, is extremely bullish about the recruitment scene in India.

“With the economic environment so robust, the recruitment industry will grow even faster.” He however cautioned that the only impediments to growth would be in the quality and volume of recruiters.

Job seekers can take heart from the fact that compensation levels will approach client standards.

Clients themselves will go back to working with a few partners which means that recruitment and placement firms will have to increase their delivery capability. “Only these kinds of firms will grow,” Bali said.

At present, delivery is a big issue with clients. Working with multiple partners - as many as 30 in some cases - client organisations are forced into this situation owing to lack of concern for quality, time lines and weak candidate management by recruitment partners.

There is shortage of quality recruiters which is still not considered an attractive industry to work in.

Industry watchers said that another turned which would emerge is that recruitment firms will have to tap into emerging employment sectors such as retail, Information Technology and IT enables services.

Bali estimates that retail is expecting 20 lakh new jobs in six years. While in the case of IT and related sectors there will be gaps in specific areas.

“Therefore recruiting partners need to work with the industry in identifying potential sources and partner with them in training and workforce management,” Bali said.

Multinational recruitment agencies are already in India and the result of this is that staffing will approach western standards in three years, while level of employees “deputed” to employers will move up, more and more senior executives will begin to work “flexi”.

“Recruiting firms in India will have greater opportunity of working with clients overseas in their quest for Indian talent, as India becomes hub for critical talent,” said Bali.

For niche segments such as biotech, animation, IT product development, research and development in auto sectors there is not enough talent available in India.

Here the recruiting challenge will be the ability to attract critical talent from overseas. Thus both client brand and recruitment firm brand will determine who will get the talent first. This will require firms to work on building their employer brand.

The challenge will be to tap talent in B and C class towns especially for sectors like retail, insurance, call centers and so on.

Bali pointed out that recruitment agencies will be limited only by their own vision and resources. “This is the time to think Big,” he said.

What Could Bring Globalization Down?

Here's an interesting interview of Harvard professor Niall Ferguson by Cynthia Churchwell. With our reliance on Offshore Outsourcing revnues going up day by day, and our economy rapidly integrating into the World Economy, a reversal of globalisation could mean bad news for India and its citizens.

Cynthia Churchwell: What drew you to seek historical parallels with our current state of globalization?

Niall Ferguson: I am an historian who has long been preoccupied by the similarities between our own time and the pre-1914 period. That the years 1880–1914 were the "first age of globalization" is now quite a widely accepted idea among economic historians. The data on trade, capital flows, and migration certainly bear that out.

Q: When was the first age of globalization? Do you see the sinking of the Lusitania in 1915 as a benchmark for the beginning of the end of this first age of globalization?

A: To be absolutely precise about dating, I'd say it was from the moment the transatlantic cable was laid, which was in 1866, until the cutting of the cables to Germany, after war broke out in 1914. The Lusitania (which was sunk on May 7, 1915) is simply a good symbol for the end of this first age because so much had previously depended on safe navigation between New York and Europe.

Q: You suggest that "The possibility is as real today as it was in 1915 that globalization, like the Lusitania, could be sunk." What do you mean by "sinking globalization"?

A: I mean that we could just as easily find ourselves swept into economic "de-globalization" by an international political crisis as our great-grandfathers were in 1914. Like the Lusitania, globalization could be sunk by great-power conflict.

Q: What are the five major points you identify as contributing to the impending decline in the globalization of our present-day economy?

A: I don't say it's impending. I just say it's possible. Like the outbreak of the First World War, a crisis of globalization today is a low-probability worst-case scenario. The key causes of the 1914 crisis were:

The overstretch of the hegemonic empire (Britain).
The escalation of rivalry between great powers (Britain and Germany in particular, but also Germany and Russia).
The destabilization of the alliance system (unreliability of Austria in German eyes, of Britain in French eyes).
The existence of a rogue regime sponsoring terror (Serbia).
The rise of a revolutionary organization hostile to global capitalism (Bolshevism).

To see my point, just change the words in parenthesis to:

(the United States)
(the United States and China)
(unreliability of the Europeans in American eyes, unreliability of the Americans in Japanese, South Korean, and Taiwanese eyes)
(Syria, Iran, etc.)
(Al Qaeda)

Q: Are there any actions or events that could accelerate or forestall another decline of globalization? Which ones do you believe to be the most significant?

We could find ourselves swept into economic "de-globalization" by an international political crisis as our great-grandfathers were in 1914.

A: It would be a very good idea if the United States were to act now to avert the danger of a clash with China over the future of Taiwan. There is a real danger that Taiwan could be what Belgium was in 1914: the small state over which two great powers went to war without either quite meaning to.

Q: Do you think globalization will continue to come and go in waves?

A: I am not sure waves are the right natural-world image here. I would prefer to think of events such as forest fires or earthquakes—sudden crises arising from the advent of what scientists call "criticality."

Q: What other business-related research currently interests you?

A: I am writing a book about the banker Siegmund Warburg, who was a key proponent of globalization after 1945 and deserves much of the credit for the emergence of the Eurobond market, among other things. More generally, I am continuing to do research on the international bond market before and after the First World War.

Women outnumber men in Recruitment Firms

Running my own Recruitment Frim and being the founder member and Treasurer of NAESCON (National Assciation of Executive Search Consultants) I wholeheartedly agree with the insights brought out by Barkha Shah in this news item, however, I would like to differ somewhat when it comes to the gender equation vis-a- vis the leadership of the Recruiter Firms. We seem to have more 'men' owners than 'women' owners.

Barkha says that this is one industry where women beat men hands down. Not only in terms of sheer numbers, but also in terms of quality of work that they provide. The recruitment firms hiring talent for companies across various sectors is another area where women better men.

The "boom" in the job scenario across verticals like information technology, retailing, banking, insurance and financial sectors has led to a spurt in the number of recruitment firms being set up in the country.

If estimates are to be believed, there are more than 10,000 such firms today. While some have a nation wide presence, others are basically run as a one-man or, shall we say, a one-woman show.

However, the one similarity among all such companies is that men are a minority in this industry. So much so, that Bangalore-based TeamLease Services Private Limited, is into recruiting, training and "temping" across industry verticals, is now planning to recruit more men than women to bridge the "gender-gap".

Says Nirupama V G, associate director, TeamLease, "Within the next six months, we will be setting up centres in another four cities and will, therefore, be recruiting internally in good numbers." TeamLease hires 400-odd people across its 14 centres, which includes a centre at Hyderabad too.

"Earlier, around 90 per cent of our total employee numbers comprised females. Now, it is around 70 per cent and we are trying to reduce this gap in the male-female ratio further," Nirupama adds. At present, TeamLease hires 100 people internally, every quarter. So what makes this sector a women's domain? According to Shyam Suryanarayanan, director, S2 Management Consulting, a manpower consultant, women are more people-oriented and have better soft skills than men. "Besides, women have patience, which is an essential requirement in this job," adds Praveen Singh, also a director with S2. The Bangalore-based firm has around 25 employees working for it with 19 out of them being women.

Sushmita, a recruiter with Hyderabad-based Goose Technologies, that has clients like Microsoft, Virtusa and Oracle among others, feels that men are basically restless and that's why are generally not preferred for such jobs.

"This job requires concentration and women fare better in this regard," she adds. Stability is another reason why women are being banked upon in this industry. "Women tend to stick around with an organisation for a longer period. Some men use this kind of a job as a stepping stone to get into the corporate world," Shyam says.

Incidentally, this job promises good "moolah" as it offers target-based incentives. While the basic salary for an executive is Rs 10,000-Rs 12,000, according to Nirupama, there have been executives in her company who have earned even Rs 100,000 as incentives in a quarter.
"Besides, we also offer overseas trips and star performer awards as other add-ons," she says.

So what does a recruitment firm look for while hiring internally? For some companies, although an MBA is a requirement, there are some who do not mind taking in raw graduates as well."We just look for firebrands with people-skills," says Shyam. "It is communication skills that is the real deciding factor," adds Sushmita

'Phone calls will be free by 2015'

Voice over IP will force traditional telephone companies to stop charging for voice calls and ensure emergency services update their use of technology, according to Skype CEO Niklas Zennström.

Speaking at the VON Europe 2005 conference today in Stockholm, Zennström said the fact telephony has morphed from a network to a software application "is a game changer".
One rule of the game it changes is economics. Given that VoIP applications such as Skype have no customer acquisition costs and no real cost for calls, "we cannot charge for phone calls in the future," Zennström said.

This means phone companies will have to change their business models, Zennström said: "If you fast forward 10 years, all [telcos'] revenue will come from internet access and none from voice minutes or line rental." Telcos will need to change their phone lines to broadband lines but they will not go out of business, according to the Skype boss. "They will always be competitive because they are the ones that have the cables," he said.

Zennström cited BT and TeliaSonera as two European phone companies which are already looking to move to all-IP networks.

James Enck, European telecom analyst at Daiwa Securities, agreed the telcos are finally facing the IP telephony threat. "The period of incumbent complacency is over," he said. While two years ago telcos did not appear concerned about VoIP, "there is now a sense of urgency and openness and a sense of crisis that wasn't there before", Enck said.

Zennström also turned the tables on both US and European regulators who aim to require IP telephony providers to give customers access to emergency services and to provide the emergency services suppliers with a location for the caller - something that's essentially impossible on IP networks.

He proposed that along with ensuring VoIP companies offer access to 999, regulators should make sure emergency services can receive communications not only from the phone but also via text messages and email. "Let's make sure we're enabling emergency services on all devices," he said.

Skype is working with emergency services organisations to come up with such a solution, Zennström explained, and emphasised the need to develop a way to map geographical locations over IP networks. "It's important as an industry we take initiative on this so politicians don't force legacy rules onto us," he said.

While Skype now has 150,000 new users a day and 1.4 million paying customers for its SkypeOut service - and hopes to increase those numbers further through its new affiliate programme - many believe it's still a company in search of a realistic business model.
Zennström stressed he's happy with the model they have, though. "We don't need to charge a lot," he said, because they have such low costs. When looking at Skype's average revenue per user, the company doesn't compare itself to Vodafone or BT but to Google and Yahoo!. "We're in the nickel and dime business. A few nickels, a few dimes but a lot of users."
Zennström also confirmed the company is developing Skype for mobile operating systems such as embedded Linux, Symbian and Windows Mobile but said no release dates are available at this time.

Legal outsourcing makes its case

With KPO catching up the Legal profession has also got into the act. Legal Outsourcing is expected to be a US $163 billion pie and India is aptly positioned to take a sizeable share.

It didn't take much for University of Pennsylvania law school friends David Perla and Sanjay Kamlani to become entrepreneurs. After working as corporate counsels for years in the US, they wanted to make an impact on the legal market.

Last May, they set up legal services firm -- Pangea 3 -- with five US lawyers and two clients. Today, they have a dozen clients, and 15 professionals. And in the next three years, they hope to have about 200 lawyers and 100 clients.

Their clients -- US law firms and legal departments of corporates -- may be American and British, but they are serviced from Mumbai, thousands of miles away.

With offices in New York and India, the duo, both 35, are part of the fast growing legal process outsourcing (LPO) tableau which has hit India in the past one year.

So what's new? Not to be left behind, traditional business process outsourcing (BPO) units are frenetically hiring lawyers to take on this business. And practically every homegrown Indian law firm is building up its case.

Last year, Mumbai-based ALMT Legal, which has been providing LPO services since 2003, spun of this business. The LPO arm -- ALMT Synergies -- is now headed by Mathew Banks, who left behind a lucrative law practice back home in Britain.

“Our work encapsulates a whole range of tasks. It is like a low hanging fruit ready to be eaten,” says Banks.

So today, on offer is online research, reviewing and reporting documents, drafting, litigation support, corporate due diligence support, mortgage processing and intellectual property researching, drafting and applications of patents.

A far cry from the the traditional BPO activity of a voice-based, transaction-oriented model, law firm Nishith Desai & Associates set up its patents practice in 1999. Last year, Desai tied up with old friend, technocrat Sam Pitroda, and transferred his patents business to the newly set up IP-PRO.

Industry sources claim that more than a dozen dedicated patents lawyers are assigned to the business.

Then there is AZB & Partners, the erstwhile Zia Mody's Chambers. A flourishing corporate law firm, Mody claims she is seriously thinking about courting this business.

“It is an interesting proposition and can provide an alternate revenue stream for us,” she says.

Typically, those into it claims they are providing high-end legal work. But clients say that it is mostly back-end, low-profile, labour-intensive para-legal work which is being outsourced.

This is something that the law firms are not worried about. “The work may not be too high-end but we can make up with sheer volume,” adds Mody.

Almost all the big players from Office Tiger to Evalueserve to Integreon, which began as traditional BPOs, are focusing on LPO. And most of their business is coming from two constituencies -- law firms and corporate legal departments.

Says Jason Brennan, director of legal services at Office Tiger, “As the global marketplace becomes increasingly competitive, corporations are being forced to streamline operations and cut costs in order to maintain profitability. Law firms are subject to increasing pressure from their clients to reduce costs and maintain profits per partner. These factors have given them an incentive to look at alternative sourcing methods.”

Or take Evalueserve, the BPO which has hired three lawyers and plans to hire seven more immediately. “Fortunately, the area is still nascent,” says Alok Agarwal, chairman, Evalueserve.

In fact, American conglomerate General Electric was one of the first to set up its captive BPO Gecis in India, which included LPO. Other technology companies, too, farmed out work to their Indian captive units.

That's because like other BPO activities, Indian lawyers come cheap. An associate lawyer in the US comes with a $225 per hour tag in the first year.

By the eighth year, it goes up to $450 an hour. In India, the rates are barely 10 per cent to 15 per cent of that. It isn't cost alone. With the time lag between India and the US and the UK, the turnaround time is 24 hours.

And now, with Indian law firms, too, donning their robes, it is a different case altogether. As Mody says, “We can bring more credibility to the business.”

Six on 10, surely you`re joking?

I have been discussing this with my colleagues for the past number of days and I was glad to see this article by Sunil Jain in the Business Standard -

Set your sights low enough, and any progress made looks meaningful. And so it is with the score of six out of 10 that Prime Minister Manmohan Singh has given the UPA government on its completion of a year in office. Use any other criterion, certainly by the standards set by Singh himself, and the performance is well below even a passing grade.

At this point, apologists and the spin-masters hired by the UPA will come out and tout the major achievements in the aviation sector and the opening up of banking, but it would be foolish to get caught up in the detail, especially since the NDA can rightfully claim that it had set the ball rolling on each of these initiatives........

Clearly a 60 per cent score today doesn’t mean what it used to in the old days.

Alliances: The Right Choice

'Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat' —Sun Tzu

Having interacted with a number of call centres in India and abroad, it has become clear to me that a strategic alliance is the most likely route to success for the third-party outsourcing call centers in India.

Most of the third-party call centers set up over the past few years were established by entrepreneurs who had been sold the dream by equipment/solution vendors—whose primary aim was to essentially sell their solution/equipment—that one had to just set up the call center and inbound business would come pouring in. There could be nothing farther from truth.

Why?

One, more than 90 percent of the business being done by third-party call centers is ‘outbound’ or ‘telemarketing’ and not ‘inbound’. Many of the call center entrepreneurs were not even aware that they would essentially become telemarketers, or else they would not have taken the plunge. Two, most of the entrants to this field were not from the services industry and opted for the route more as a diversification from their existing manufacturing activity where they were seeing a stagnation. By not being from a similar industry they did not appreciate the need to develop a customer acquisition strategy. So they faltered, soon after commencing their services. Their ‘delivery capability’ fell woefully short, mainly because they did not focus on this aspect of the business and took it for granted.

Dreams are now turning sour very fast and are seeing a major consolidation happening. The smaller players, who did not conceptualize the project well and did not take care of the working capital needs at the start, assuming that the business and cash inflows would start rolling from the first month, will either end up being taken over by larger players or just down their shutters. So what are the options?

At this juncture, it is important to understand that the adoption of a strategic perspective on outsourcing is today regarded as one of the most useful and important business methodologies, giving organizations world over the opportunity to liberate their full potential for profitability, efficiency and cost-effectiveness, and allowing them maximum flexibility in terms of retaining and broadening their customer base. Most of the organizations in the developed world have fully understood and adopted this approach towards business, resulting in a phenomenal growth in outsourcing (it’s a $600-billion segment), which is now increasingly leading to ‘offshore outsourcing’ primarily because of its enticing ‘value’ proposition (price/performance)—India’s delivery capabilities have now been validated over the years. To be cont .........

State of Indian Politics

For once, in my opinion, Vinod Mehta of Outlook has had a change of heart and decided to call a spade a spade when it comes to the Congress and its strongest ally Sarvshri Lalu Prasad Yadav. It was nice of him to acknowledge that he has been a great supporter of LPY when he says this about Lalu

“When he made his simple-minded wife the chief minister, we said, "Poor man, who else can he trust?" Meanwhile, Bihar fell off the map of India and its galloping anarchy did not merit discussion because, in a sense, Bihar was not part of India. Bihar was Bihar. I don't absolve myself or Outlook from spreading the aforementioned logic. In the last 15 years, consequently, we have allowed Laloo a very easy ride.”

Now that Lalu is a Central Minister and responsible for the budget of a mammoth organization such as the Railways who is going to ensure that the kind of incidents that took place during his regime in Bihar are not replicated in the Centre - specially the Railways ? In case our leaders keep on citing “compulsions of coalition politics” and continue in the same vain – GOD Bless Us !

MSN Desktop Search Launched

Microsoft has launched its Desktop Search Tool to take on Google, Yahoo, Copernic, x1 etc under the name MSN Search Toolbar with Windows Desktop Search. There are mixed reviews of the same, however, it is much better than the Beta Version. Like all Microsoft products, it is bound to improve over time, as such I plan to run it in parallel for sometime.

Till now, however, I have found the same to be delivering the desired results. One drawback is that in the Preview pane it does not show the results duly ‘highlighted’ in some colour such as yellow or green for one to be able to zero onto the same quickly. Either I am missing something or this needs to be taken care of.

Comments and views from others who are using such tools are most welcome as they would be a great help.

Fringe Benefits Tax – FAQs

What is the meaning of Fringe Benefit Tax ?

A new Chapter XII-H is being introduced in the Income Tax Act, 1961 containing sections 115W to 115WL and Fringe Benefit Tax is the tax chargeable u/s 115WA of the Act. It has been introduced by the FM as he was of the opinion that there are benefits being provided, or are deemed to be provided to employees, by the employers that are escaping taxation. However, the way the provisions are currently structured it is obvious that it is not just the Fringe Benefit which is being brought under the tax net but genuine business expenditure is also being taxed under the garb of FBT.

Which entities are liable to pay FBT ?

Thank god for small mercies, as the FM has deleted i) Individuals, ii) HUFs and iii) registered funds or trusts from the ambit of FBT during the discussion in Parliament. The Central and State Govts were in any case out of the ambit of FBT from the beginning.

Thus all companies, partnership firms, AOPs, local authority and every judicial person not falling under any of the above sub clauses is covered under FBT.

What are Fringe Benefits ?

As per Sec 115WB (1) of the Act, “Fringe Benefits” means any consideration for employment provided by way of

a) any privilege, service, facility or amenity, directly or indirectly, provided by an employer whether by way of reimbursement or otherwise to his employees (including former employee or employees) or

b) any free or concessional ticket provided by the employer for private journeys of the employees and their family members; and

c) any contribution by the employer to an approved superannuation fund for employees.


What are Deemed Fringe Benefits ?

As per Sec 115WB (1) of the Act, fringe benefits shall be deemed to have been provided by the employer to the employees if the employer has, in the course of his business or profession (including any activity whether or not such activity is carried on with the object of deriving income, profits or gains), incurred any expense on or made any payment for, the following purposes, namely:—

(A) entertainment;

Service Tax implications for Recruiters - Budget 2005

Service Tax implications for Recruiters - Budget 2005

Well it’s a mixed bag for the Recruitment Industry. Lets take up the relevant points one by one:

Service Tax Notification No. 6/2005 exempts taxable services of aggregate value not exceeding four lakh rupees in any financial year from the whole of the service tax leviable thereon under section 66 of the said Finance Act:

Provided that nothing contained in this notification shall apply to,-

(i) taxable services provided by a person under a brand name or trade name, whether registered or not, of another person; or
(ii) such value of taxable services in respect of which service tax shall be paid by such person and in such manner as specified under sub-section (2) of section 68 of the said Finance Act read with Service Tax Rules,1994.

The exemption contained in the said notification shall apply subject to certain conditions laid out therein, one of which is noteworthy i:e

(viii) the aggregate value of taxable services rendered by a provider of taxable service from one or more premises, does not exceed rupees four lakhs in the preceding financial year.

Further an Explanation to the said notification clarifies as under:

Explanation.- For the purposes of this notification,-

(A) “brand name” or “trade name” means a brand name or a trade name, whether registered or not, that is to say, a name or a mark, such as symbol, monogram, logo, label, signature, or invented word or writing which is used in relation to such specified services for the purpose of indicating, or so as to indicate a connection in the course of trade between such specified services and some person using such name or mark with or without any indication of the identity of that person;
(B) “aggregate value not exceeding four lakh rupees” means the sum total of first consecutive payments received during a financial year towards the gross amount, as prescribed under section 67 of the said Finance Act, charged by the service provider towards taxable services till the aggregate amount of such payments is equal to four lakh rupees but does not include payments received towards such gross amount which are exempt from whole of service tax leviable thereon under section 66 of the said Finance Act under any other notification.

This notification shall come into force on the 1st day of April, 2005.

Service Tax Notification No. 7/2005 has made some amendments to the Service Tax Rules, 1994, whereby all invoices are to be issued not later than fourteen days from the date of completion of such taxable service or receipt of any payment towards the value of such taxable service, whichever is earlier.

This is fine so far as raising invoices for services rendered is concerned, however, this could create an issue where the payment is received as an ‘advance’ against the services to be rendered. An Invoice would still have to be issued within 14 days of the receipt of the advance and Service Tax paid thereon. In case later, for some reason, the service is not rendered it would create an anomaly where the Tax would have been paid but no service rendered.

· Further, the same Notification provides that where an assessee is providing a taxable service from more than one premises or offices and has centralized billing systems or centralized accounting systems in respect of such service, and such centralized billing or centralized accounting systems are located in one or more offices or premises, he may, at his option, register such premises or offices from where such centralized billing or centralized accounting systems are located. This is definitely going to ease the process and paperwork at the Service Provider’s end.

· The Rules for payment of Service Tax have been amended so as to give the following effect, namely:-

The service tax shall be paid to the credit of the Central Government by the 5th of the month immediately following the calendar month in which the payments are received, towards the value of taxable services:

Provided that where the assessee is an individual or proprietary firm or partnership firm, the service tax shall be paid to the credit of the Central Government by the 5th of the month immediately following the quarter in which the payments are received, towards the value of taxable services:

Provided also that the service tax on the value of taxable services received during the month of March, or the quarter ending in March, as the case may be, shall be paid to
the credit of the Central Government by the 31st day of March of the calendar year.”.


The scope of certain services has been extended and one them is wrt manpower recruitment services which would now include the supply of manpower, temporary or otherwise.

Services Export Promotion Council (SEPC) gets off the ground

Last year, in August, the government unveiled a five-year Foreign Trade Policy aimed at doubling India’s share of global merchandise trade by 2009 with the thrust on employment generation in semi-urban and rural areas through enhanced export-oriented activities.

The Foreign Trade Policy (2004-09), unveiled by the Commerce and Industry Minister, contained a host of new packages and schemes pertaining to agriculture, services and bio-technology export besides some rationalisation measures to reduce transaction costs. Amongst these was an exclusive Services Export Promotion Council (SEPC) that would be set up in order to map opportunities in key services in major markets and develop strategic market access programmes, including brand building in coordination with players in specific sectors and recognised nodal bodies of the services industry.

Mr Kamal Nath had said that the government would promote the establishment of common facility centres for use by home-based service providers, particularly in areas such as engineering and architectural design, multi-media operations and software developers in state and district-level towns.

In pursuance of the same the Commerce Ministry has now taken the first step towards operationalising the Services Export Promotion Council (SEPC) by appointing Mr L.B. Singhal as its Executive Director. Mr Singhal is currently the Director-General of the Export Promotion Council for EoUs and SEZs and will hold the additional responsibility of ED at SEPC.

When contacted, Mr Singhal told Business Line that the SEPC would be registered as a society under the Societies Registration Act. The council would formulate policies and work out strategies to enhance exports of all major services. "The SEPC would cover all major services including entertainment, health, tourism, education, hospital, consultancy, legal and accountancy services," he said. The council would cover all the 160-odd services notified by the World Trade Organisation except that of computer software services and hotels, which have separate export promotion councils.

Since services account for about 50 per cent of the country's gross domestic product, an export promotion council for this sector was first proposed in the five-year Foreign Trade Policy 2004-09, announced in August last year.

The Commerce Minister had set up an inter-ministerial taskforce headed by the Director-General of Foreign Trade, Mr K.T. Chacko, to work out the modalities for setting up the SEPC including its scope of work and composition. The taskforce has submitted its report.
Meanwhile, a Parliamentary Standing Committee on Commerce has recommended that the Directorate-General of Commercial Intelligence and Statistics (DGCI&S) should strive to compile data on export of services also.

In its report tabled in Parliament recently, the Committee highlighted that compilation of data on export of services would enable grant of help under the Assistance to States for Infrastructure Development for Exports (ASIDE) scheme on the basis of their performance in the export of services. Currently, the data compiled by the DGCI&S do not capture services exports and only reports on foreign trade in goods. The allocation of assistance under the ASIDE scheme was based on export of goods alone and export of services was not taken into account.

Note: With inputs from The Hindu Business Line

“Networking & Capacity Building”

Vinay Talwar’s Beat

A couple of days ago I attended a Seminar organised by the Institute Of Chartered Accountants of India on “Networking & Capacity Building”. I had more gone there for the heck of it and to also see what the CA community is doing wrt ‘Networking’.

I must say that I was pleasantly surprised to find around 400 attendees for a topic that I thought was alien to this staid profession. One of the speakers turned out to be an old friend of mine, Vinod Jain, who has been very active in the affairs of the Institute and has played an active role in the Regional Council as well as the Central Council. Vinod made a very powerful presentation on the various aspects of Networking & Capacity Building and most of all on the “need” for the same. I feel the most important take away for me, and for most of the participants that I spoke to, was for us to get out of the thought process of the past ( ekla chalo re ) and the urgency to adopt this collaborative approach for ‘survival’ let alone growth. Vinod’s story telling style, he gave an excellent example from Mahabharat, aptly got the message home to the participants.

Amal Ganguly, who retired as the head of PwC in 2003 was the Guest of Honour and he did a good job of answering the doubts and queries of the participating CAs. His clear message wrt partnerships and their longterm survival was – forget this ‘goodwill’ business and the only claim that an exiting partner should have should be to his/ her share of ‘Capital’ and nothing else, only then will partnerships thrive and survive !

Roy, Dy Secretary of the Institute, took the participants through the various provisions of the Guidelines framed by the Institute wrt Networking as well Mergers & Demergers between its members.

Having been in business for most of my active working life, for once, I came away with the impression that the Institute of Chartered Accountants is taking a proactive interest in furthering the cause of their members by helping them keep pace with the times. With the GATS discussions rapidly moving forward this topic has assumed much greater importance. I am sure there are a number of issues that still need to be thrashed out, both legal and cultural, but as it is said – a job well begun is half done.

Formation of an NGO

An NGO can either be a registered or an unregistered
body and, in case it is to be a registered body, then it
can be formed in any of the following three ways:

1)As a Trust
2)As a Society
3)As a Company u/s 25 of the Companies Act, 1956

In case the NGO is looking for external funding then it
would be a good idea to register it as it would give some
comfort to the donors - be they National or International.
Even for Income Tax purposes it would be good idea to
create an instrument and register the same. Similarly
for FC (R) Act. It should be noted that all NGOs
with an Income in excess of Rs 50,000 are required to
get their accounts audited as per the conditions stipulated
by the Tax Department while granting exemption.

As regards collections, once one has an entity one
can open an Bank account and take donations by
cheque. In case one intends not to register then one can
be treated as an Association of Persons (AOP) by the
Bank and it can open a Bank account in the AOP’s
name.

The Recruitment Function

‘HR needs to play a Strategic Role’ or ‘HR should be
a business Driver’ in any company has been a case
of more ‘talk the talk’ than ‘walk the talk’.

All these shortcomings of HR(perceived or otherwise)
need to be delinked from the Recruitment function and
this can be achieved by forming a separate department
for Recruitment which, I am sure, will find immediate
recognition and acceptance from the line managers –
as their own success depends upon finding the right
candidate for the job within their department..

As Human Capital actually becomes the core of every
organisation - and the main differentiator between
competitors which has the potential of creating and
sustaining competitive advantage- the importance of the
Recruitment Function rises manifold. Now the
Recruitment function needs to become part of the various
business processes that the company relies upon to
successfully and consistently deliver quality output,
competitively. Consequently, it has to start taking
responsibility, like any other line function, and stop
playing a supporting role.

Having said that, can we outsource such a Strategic
or ‘Core’ Function ? Outsourcing has increasingly become
Strategic and more and more companies are Outsourcing
different processes today than ever before, however, what
is being outsourced are non-core functions only and nothing
that forms the core activity of the Company.

The benefits of outsourcing I don’t think need to be
repeated here and it need only be said that some part
of the Recruitment process can definitely be outsourced
effectively and advantageously.

I believe that the way forward is in segregating the
sub-functions of ‘Search’ and ‘Selection’ within the Recruitment
process and further segmenting the hiring basket and adopting
a different approach, as well as hiring sources, for backend
or support staff and a different approach and sources for top/
critical/ strategic positions.

Who is liable to pay Service Tax ? and be Penalised for Default ?

The occurrence of a “Taxable event” triggers the imposition of Tax.

It is the act of ‘import’ that triggers the levy of Customs Duty.
It is the act of ‘manufacture’ that triggers the levy of Excise Duty
It is the act of ‘Sale’ that triggers the levy of Sales Tax
It is the act of ‘providing service’ that triggers the levy of Service Tax.

The liability to pay Service Tax is upon the Service Provider, just
like the other Acts mentioned above. Against imports it is the Importer
who has to pay the Customs Duty, it is the Manufacturer who is
liable to pay the Excise Duty and similarly it is the Trader who has
to pay the Sales Tax to the government – whether they include the
said duties/ levies in their price charged to the customer or not.

Thus, in case the Service Provider does not stipulate that the Service
Tax would be charged separately, at the rate applicable, then the
Price charged for the ‘service provided’ will be deemed to be inclusive
of the Service Tax component and the Service provider would be liable
to pay the same proportionately. It has been clarified by the govt that
it is not necessary to show the Service Tax charged separately in the
Invoice. In case of default it would be liable to be penalized as per law.

With the services sector now constituting more than 50% of the GDP
it is but natural that the govt look towards it to raise taxes and not just
rely on the manufacturing, trading and agriculture sectors.