An opportunity for India and the US to come together

Steve Hamm

India faces a slew of business challenges, including its infrastructure deficit, salary inflation in the IT sector, and high attrition rates in IT and BPO. But perhaps its biggest HR challenge is developing and deploying the next generation of middle managers. With the top Indian IT companies growing into sprawling global behemoths with 60,000 to 80,000 employees, large numbers of middle managers are needed to keep these huge organizations running efficiently. Right now, most of these managers are grown on the job. But, for the industry to continue to flourish, India will need to graduate far more high-quality MBAs than it does now.

To get a street-level view of the situation for Indian tech companies, I talked to Sarath Sura, managing director for Indian operations of Sierra Atlantic, a software services outfit based in Fremont, Calif., but with most of its 1200 employees in Hyderabad. “It’s a big issue for us. It’s slippery,” he said. In an industry where the annual turnover rate is about 17%, the rate for middle managers is 20% to 25%. The middle management ranks are primarily made up of people from ages 26 to 35. That’s a volatile period for many Indians. They have become established in their jobs and are thinking about getting married—so their focus is on promotions and raises rather than long term career planning and stability. “A lot of people are shifting jobs,” says Sarath. Average wage increases in the Indian IT industry are15% per year, but the best of the middle managers can switch companies and expect to get 50% raises.

They have plenty of leverage to ask for and get higher salaries because they’re in such short supply. All added together, the well-respected Indian School of Management campuses graduate fewer than 1,500 MBAs per year. There are hundreds of private business schools in India, but they tend to be of low quality. India School of Business, a private institution in Hyderbad that was created by top Indian business leaders, has grown rapidly in just five years to produce more than 400 graduates per year. But this is just a drop in the bucket compared to the need. “We need hundreds of top-tier institutions. The government should open the doors and windows and let higher education grow,” says Ajit Rangnekar, deputy dean at ISB. He applauds word from India’s central government earlier this week that it will open the country to foreign academic institutions, but he’s concerned that the government may still put regulatory barriers in their way. “The Indian tech industry is ramping up at 30%, yet the universities have been growing at just 3%. It’s not enough,” says Rangnekar.

I toured the ISB campus and talked to a handful of students and came away impressed. This is a one-year program (no vacations) aimed at people with an average of five years of work experience. The students I talked to were mainly folks with tech backgrounds who wanted to step into operations management, marketing, or M&A. ISB is an unusual place. Most of the students are Indian, and so are most of the faculty members, but many faculty are professors at top-ranked American and European B-schools who teach short stints at ISB. It’s reverse outsourcing, in a sense.

There’s a great opportunity here for the US and India to work together. The US has a great higher education system. India has a fast-growing private sector hungry for young managers. It’s a true win-win—but only if the barriers come down and the American institutions make bold moves into the Indian market.