Tuesday, April 12, 2005
Front end design headquarters..
..Back end execution site
Along the western coastline of the Caribbean island of Trinidad is a little town that goes by the name of Point Lisas. While Trinidad is usually associated with a throbbing nightlife and an engaging repertoire of calypso performers, limbo dancers and steel bands, Point Lisas is better known (to the few who do) for its port and the industries that surround it. Trinidad, incidentally is the bustling, populated and hectic sibling of Tobago (a 5-hour ferry ride away), a more relaxed place in general that boasts pristine beaches, ocean facing hotels and generally everything that represents a good time to be had.
Point Lisas lies 17 miles south of teeming capital Port of Spain and houses the country's oil and natural gas reserves. Speaking of which, Trinidad is just seven miles off the coast of oil-rich Venezuela. One identifiable landmark in this industrial town would perhaps be one of steel king L N Mittal's earliest acquisitions, Caribbean Ispat. Like most industrial estates, Point Lisas witnesses regular bouts of construction activity. Presently, its seeing the the building of a new methanol plant by the Caribbean Methanol Company. When production kicks off, this facility will house the largest methanol plant in the world.
What makes this effort in this West Indies' island perhaps a little more interesting is that the entire plant, while erected by an onsite Trinidad contractor, is being engineered and designed thousands of miles east in the dusty suburb of Kalina, in north east Mumbai. Here, quite oblivious to the potholed roads outside and the shanties that line them, hundreds of young engineers and draftsmen work day and night in the sterile offices of engineering services giant Kvaerner Powergas. As onsite work proceeds merrily halfway around the globe, engineers here work and re-work complex 3D industrial designs even as they fire them constantly over dedicated telecom links.
Point Lisas is one of Kvaerner Powergas India's many `remote' achievments; there are others, strewn around the globle. Young engineers, the average age at Kalina is 33, are designing a biotech plant that will make an anti-ageing food supplement for a Japanese company - in Houston, Texas though. Kvaerner's Bombay engineers are also designing a polyster plant for DuPont in South Carolina. This $92 million plant will make cloth for `non-woven' disposable coats used by surgeons during surgeries. The coats themselves will be made in China !
Perhaps the most exciting project will be Ormen Large, touted as Norway's largest development project. Some 120 engineers in Bombay are working on this mammoth gas processing plant in which gas from Norway will be sent sub-sea to the United Kingdom through a 1,800 km pipeline. This project, to be ready in late 2005, is close to Kvaerner India chief Dr S Rama Iyer's heart - after all Kvaerner is Norwegian and quite recently Norway's trade minister visited Kvaerner's offices in Mumbai, keen, quite possibly, to learn more about how the Indian subsidiary of a Norwegian company was making engineering outsourcing the next big thing.
A PhD in chemical engineering from IIT Bombay, Iyer is an old Kvaerner hand and has stayed with the company through its many avataars and owners..Cemindia, Trafalgar House and Davy Powergas, among others. Kvaerner's fortunes, like most infrastructure companies, swing with the economy, things are looking pretty good now and even better with work from all over the world flowing in and out. Iyer's smile, I have gathered over the years, is a reasonably effective forward looking economic barometer, since there is usually a healthy lag between project design and final output.
Grabbing global orders for a Kvaerner may appear simple but the process can be quite competitive. "For the biotech plant in Houston, our team knocked some $3million off the estimated project cost of $92 million," says Iyer. His team pulled off a similar feat in South Caronlina, saving $4 million for Dupont by shifting engineering to India. With corporations getting ever more tight-fisted with their budgets, Kvaerner's competitive advantage should stay, as it has all these years.
In close to a decade, Kvaerner India helped put up a polypropylene plant in New Jersey, US, a gas processing plant in Syria, a petrochemicals plant for Dow in the USA again, an ethyl acetate plant in South Africa, a butane-diol (a raw material for engineering plastics) project for BASF in Malaysia and other petrochemical and chemical industry projects in Holland and Belgium. Far the last many years, Kvaerner has ensured a 30% revenue stream from global projects. The balance and majority though is still driven by the major Indian contracts, for instance, constantly expanding companies like Reliance Industries.
Several factors are working in Kvaerner's favour when it comes to strong international orders and revenues. One is the average age of the engineers. Says Iyer, "The average age in an European engineering services firm is perhaps 55, while back home its around 30. That's a big advantage." Second, as he adds, technology in the form of high speed communication networks and cutting edge software with 3D engineering modelling allows complete designs to be created remotely, thus reducing the chances of error. And this is only getting better, the speeds and the software. Mind you, Iyer hastens to add, a fabricator working onsite in Europe, could cost $75 an hour so you dare not make a mistake and call for a fabrication change.
And the future looks bright. Iyer recounts a recent visit to alumunium giant Alcoa's Pittsburgh offices. "I met this lady there who said they were already outsourcing some business processes to Progeon (Infosys' BPO arm). They seemed happy that they were going to outsource some engineering work to India as well." Iyer's example, incidentally, points to another growing trend, of firms like TCS and Onward Novell, combining engineering services and software as a product offering to overseas clients. TCS is already doing over $100 million worth of revenues from its engineering services division, a good part of its $2 billion revenue figure and is working to increase it. But that's mostly product and systems design for aerospace, automotive companies and the like, not the kind of work Kvaerner does.
Experiencing is believing
Yet, for the sheer potential that outsourced engineering services offers, Iyer says that not all is hunky dory. There are several reasons for this. First, front-end design can be driven out of India but project management has to be entrusted to a local contractor. One attempt by Iyer's team to manage a project onsite in the Phillipines was a disaster of sorts, with a host of problems, an important one being cultural. Thus, to handle one part of the contract is not as fulfilling, nor perhaps, does it work that well for both parties, the onsite folks and their remote designers in India.
More importantly, engineers, Iyer says, want to see and experience the projects they are working on - not everyone likes being a backroom draftsman, condemned to imagining the heat and dust of the construction site rather than experiencing it. So quite likely that a young engineer, tough as he or she is to find nowadays will come looking for the scent of action and not willingly sign up for long term imprisonment in a vast room with large tables in a box-like, glass and steel building in suburban Bombay.
Iyer himself seems to reflect such an approach, he visits plants and plant sites quite regularly, all over the world. Sometimes it might be to monitor ongoing projects or to advise companies who want to buy entire plants. Its clear from his general demeanour that he would feel mighty itchy were he restrained from hitting the ground when he wanted to. These factors are critical enough to limit Iyer's ambitions when it comes to outsourcing. "We don't want to take outsourcing business to beyond 40% or so of our revenues," he says firmly. Kvaerner did over Rs 100 crore in revenues last year.
Iyer's story is indicative of what might well be a larger hurdle to `high value' outsourcing. While many argue that in a job scarce economy, aspirants would take the first thing that comes and remain wedded to it, the fact also remains that like in IT services and the rest, a back-end job, however well it compensates, can never hope to substitute or replicate the real thing, on the front-end. That's what keeps thousands of Indians heading west, or east, every year or at least wanting to. That's what could well ensure that the great Indian outsourcing story, remains a small chapter in the big book.
Coming soon...Can Back End Opportunity Match Front End Glamour - Real Stories !