Chinese whispers
News
by
Noella Pio Kivlehan
Future trends Is the bubble set to burst in India’s lucrative outsourcing market? If so, what will be the effect of this on India’s property market? Noella Pio Kivlehan travelled to Mumbai to find out first hand
All good things must come to an end. And this seems to be happening to India’s business outsourcing market.
Offshore Business Process Outsourcing – globalisation’s next wave? a report by GVA Grimley says that “there is a small but growing body of evidence that UK companies have been disappointed with the outsourcing of work to India, many to the extent that offshore operations have been scaled back or even cancelled”.
While the report is, on the whole, positive about the future of the Indian outsourcing market, it does add that: “For both the offshore providers and the companies that have chosen to take the plunge and move operations abroad, reveals that offshoring is perhaps not the panacea it once seemed.”
GVA Grimley partner Jeremy Brookes, head of the specialist call centre team, says India still retains its position as the most attractive place for companies to relocate back offices, but he warns that, over the next few years, its percentage of share will decline.
“China is going to develop its skill base for UK and US companies,” says Brookes. At the moment, the UK is India’s second-largest user of offshore operations, totalling 20% of its business. The US is the biggest, at 70%.
There is also concern about India’s own skill base. “Software company NASCOM goes on about millions of skilled people being in India, but what we find is that, while they have a highly skilled population, it is not unlimited,” says Brookes.
“We have heard rumours that, in some extreme circumstances, some companies have recently been suffering up to 70% staff turn-over in Mumbai.”
Growth in prices
Agents and developers in India’s property market see no problems ahead. When asked about the possibility of the market slowing down, Niranjan Hiranandani, managing director of Hiranandani Constructions, offers a metaphor: “When you’re standing at the altar about to be married, do you think of divorce?” He adds that his mixed-use development at Powai, on the outskirts of Mumbai, has seen a rise in prices.
“We have increased values by 15% year-on-year. All businesses want to expand,” he says.
And as for the China threat, Chan Chakravarti, joint managing director of Cushman & Wakefield in Mumbai, is not concerned. “China is about 20 years behind India as faras becoming an office location is concerned,” he says. “They are aspiring to be India, but we still have the lead.”
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Mills and boom
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Imagine if almost 600 acres of central London was put up for sale. Agents and developers all over the capital would not be able to contain themselves with excitement at the prospect of redeveloping the city.
This is a dream in London but a reality in Mumbai. Over the past few years, textile mills in the centre of the city have closed down because businesses have been relocating to cheaper areas outside the city.
Over the past 12 years, the government has taken over 25 of the mills. Of these, 17 are under the jurisdiction of the National Textile Corporation South Maharastra (Maharastra is the state that has Mumbai as its largest city), and the rest under the NTC North Maharastra.
Some will be modernised, but around 50% of NTC (SM) mills are up for sale. The government’s insistence on a degree of social housing and open land for the sites has not dampened developers’ eagerness to pay large sums of money to gain possession of the mills.
So much money, in fact, that some sales, all at auction, have shattered agents’ expectations. The 800,000 sq ft Jupiter Mill was snapped up in March by financial services company IndiaBull for £34m. “It was a shock to the market,” says Pranay Vikal, chairman of Knight Frank’s Mumbai office, who adds: “We expected it to sell for more like £20m-£25m.”
Sitting in his spacious office in Apollo Mill, surrounded by examples of the mill’s produce, VK Tripathi, managing director of the NTC (SM), who also runs the mill, says that once the land is sold to the buyers, it is up to them what to do with it.
However, he adds: “The government has to adopt a realistic approach. There has to be a balance between developers’ demands and the needs and demands of the people. But the development of the mills will change the face of Mumbai, and the whole county is brimming with excitement.”
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Retailers queue up
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There is no doubt about it – internationally, India is a retail virgin just waiting to be deflowered by global retail conglomerates. And, given the statistics, there is a lot to be reaped.
In a county with 1.03bn people, there were only three malls for the whole country four years ago. Today, that has risen to 25, covering roughly 5m sq ft. They are, however, concentrated in the major cities of Bangalore, Delhi and Mumbai.
Matalan and Tesco – the latter frequently quoted in the Indian press – are just two major retailers desperate to get a piece of the action.
But there is a major barrier to companies entering India – the government, which blocks foreign direct investment in the retail sector.
Some foreign retailers have opened. Marks & Spencer and Debenhams are two, but only via affiliation or franchises with Indian firms.
However, with pressure from big companies on the Indian government rising, market commentators expect it is only a matter of time until the government allows foreign direct investment in the sector.
“If you resist change, then you will perish. We should move with the times,” says Vinod Rohira, director of sales and marketing for the K Raheja Corporation, which has built the 450,000 sq ft InOrbit Mall at its 8m sq ft Mindspace mixed-use development on the outskirts of Mumbai.
Figures from Knight Frank in India estimate that, by 2007, around 75m sq ft of mall space will be available across the country. In the Mumbai metropolitan region alone, 46 malls are under construction, with a further 10 proposed – several on land that formerly accommodated textile mills (see Mills and boom, above). Throughout India, 220 malls are either proposed or in planning.
Bela Gupta, retail adviser and managing director of Spink Marketing, which describes the mall phenomenon as a “gold rush”, does not believe all the malls will actually be completed. “About 30% to 40% of the proposals will get built. The rest will falter.”
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Calling India
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India’s outsourcing market could be slowing down but, for the moment, terms such as “phenomenon” and “massive growth” are still being used freely to describe the sector.
Ankur Srivastava, managing director of DTZ in India, says: “India has massive growth potential. At the end of 2004, there were around 1m IT professionals. Based on various forecasts, this is expected to grow to 3m by 2010.” He adds: “A simple calculation would indicate that, at an average of 75 sq ft per person (including shift churn), there would be a demand for almost 150m sq ft of commercial office space in the next five years just to cater for the occupancy needs of the IT sector. This growth will be a nationwide phenomenon, and will certainly percolate to the secondary/tertiary cities in the next few years.”
Knight Frank’s chairman in Mumbai, Pranay Vikal, agrees: “There is still demand for call centres, except this demand is shifting from major metros to sub metros. Companies are moving to save costs.” This is shown by developers such as the K Raheja Corp, which is expanding its Mindspace developments in Mumbai and Hyderabad.In terms of leases, James Knowles, Jones Lang LaSalle’s head of western India offices, says Indian landlords are finally delivering the leases and agreements US and UK firms need.
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Future trends Is the bubble set to burst in India’s lucrative outsourcing market? If so, what will be the effect of this on India’s property market? Noella Pio Kivlehan travelled to Mumbai to find out first hand
All good things must come to an end. And this seems to be happening to India’s business outsourcing market.
Offshore Business Process Outsourcing – globalisation’s next wave? a report by GVA Grimley says that “there is a small but growing body of evidence that UK companies have been disappointed with the outsourcing of work to India, many to the extent that offshore operations have been scaled back or even cancelled”.
While the report is, on the whole, positive about the future of the Indian outsourcing market, it does add that: “For both the offshore providers and the companies that have chosen to take the plunge and move operations abroad, reveals that offshoring is perhaps not the panacea it once seemed.”
GVA Grimley partner Jeremy Brookes, head of the specialist call centre team, says India still retains its position as the most attractive place for companies to relocate back offices, but he warns that, over the next few years, its percentage of share will decline.
“China is going to develop its skill base for UK and US companies,” says Brookes. At the moment, the UK is India’s second-largest user of offshore operations, totalling 20% of its business. The US is the biggest, at 70%.
There is also concern about India’s own skill base. “Software company NASCOM goes on about millions of skilled people being in India, but what we find is that, while they have a highly skilled population, it is not unlimited,” says Brookes.
“We have heard rumours that, in some extreme circumstances, some companies have recently been suffering up to 70% staff turn-over in Mumbai.”
Growth in prices
Agents and developers in India’s property market see no problems ahead. When asked about the possibility of the market slowing down, Niranjan Hiranandani, managing director of Hiranandani Constructions, offers a metaphor: “When you’re standing at the altar about to be married, do you think of divorce?” He adds that his mixed-use development at Powai, on the outskirts of Mumbai, has seen a rise in prices.
“We have increased values by 15% year-on-year. All businesses want to expand,” he says.
And as for the China threat, Chan Chakravarti, joint managing director of Cushman & Wakefield in Mumbai, is not concerned. “China is about 20 years behind India as faras becoming an office location is concerned,” he says. “They are aspiring to be India, but we still have the lead.”
Mills and boom
Imagine if almost 600 acres of central London was put up for sale. Agents and developers all over the capital would not be able to contain themselves with excitement at the prospect of redeveloping the city.
This is a dream in London but a reality in Mumbai. Over the past few years, textile mills in the centre of the city have closed down because businesses have been relocating to cheaper areas outside the city.
Over the past 12 years, the government has taken over 25 of the mills. Of these, 17 are under the jurisdiction of the National Textile Corporation South Maharastra (Maharastra is the state that has Mumbai as its largest city), and the rest under the NTC North Maharastra.
Some will be modernised, but around 50% of NTC (SM) mills are up for sale. The government’s insistence on a degree of social housing and open land for the sites has not dampened developers’ eagerness to pay large sums of money to gain possession of the mills.
So much money, in fact, that some sales, all at auction, have shattered agents’ expectations. The 800,000 sq ft Jupiter Mill was snapped up in March by financial services company IndiaBull for £34m. “It was a shock to the market,” says Pranay Vikal, chairman of Knight Frank’s Mumbai office, who adds: “We expected it to sell for more like £20m-£25m.”
Sitting in his spacious office in Apollo Mill, surrounded by examples of the mill’s produce, VK Tripathi, managing director of the NTC (SM), who also runs the mill, says that once the land is sold to the buyers, it is up to them what to do with it.
However, he adds: “The government has to adopt a realistic approach. There has to be a balance between developers’ demands and the needs and demands of the people. But the development of the mills will change the face of Mumbai, and the whole county is brimming with excitement.”
Retailers queue up
There is no doubt about it – internationally, India is a retail virgin just waiting to be deflowered by global retail conglomerates. And, given the statistics, there is a lot to be reaped.
In a county with 1.03bn people, there were only three malls for the whole country four years ago. Today, that has risen to 25, covering roughly 5m sq ft. They are, however, concentrated in the major cities of Bangalore, Delhi and Mumbai.
Matalan and Tesco – the latter frequently quoted in the Indian press – are just two major retailers desperate to get a piece of the action.
But there is a major barrier to companies entering India – the government, which blocks foreign direct investment in the retail sector.
Some foreign retailers have opened. Marks & Spencer and Debenhams are two, but only via affiliation or franchises with Indian firms.
However, with pressure from big companies on the Indian government rising, market commentators expect it is only a matter of time until the government allows foreign direct investment in the sector.
“If you resist change, then you will perish. We should move with the times,” says Vinod Rohira, director of sales and marketing for the K Raheja Corporation, which has built the 450,000 sq ft InOrbit Mall at its 8m sq ft Mindspace mixed-use development on the outskirts of Mumbai.
Figures from Knight Frank in India estimate that, by 2007, around 75m sq ft of mall space will be available across the country. In the Mumbai metropolitan region alone, 46 malls are under construction, with a further 10 proposed – several on land that formerly accommodated textile mills (see Mills and boom, above). Throughout India, 220 malls are either proposed or in planning.
Bela Gupta, retail adviser and managing director of Spink Marketing, which describes the mall phenomenon as a “gold rush”, does not believe all the malls will actually be completed. “About 30% to 40% of the proposals will get built. The rest will falter.”
Calling India
India’s outsourcing market could be slowing down but, for the moment, terms such as “phenomenon” and “massive growth” are still being used freely to describe the sector.
Ankur Srivastava, managing director of DTZ in India, says: “India has massive growth potential. At the end of 2004, there were around 1m IT professionals. Based on various forecasts, this is expected to grow to 3m by 2010.” He adds: “A simple calculation would indicate that, at an average of 75 sq ft per person (including shift churn), there would be a demand for almost 150m sq ft of commercial office space in the next five years just to cater for the occupancy needs of the IT sector. This growth will be a nationwide phenomenon, and will certainly percolate to the secondary/tertiary cities in the next few years.”
Knight Frank’s chairman in Mumbai, Pranay Vikal, agrees: “There is still demand for call centres, except this demand is shifting from major metros to sub metros. Companies are moving to save costs.” This is shown by developers such as the K Raheja Corp, which is expanding its Mindspace developments in Mumbai and Hyderabad.In terms of leases, James Knowles, Jones Lang LaSalle’s head of western India offices, says Indian landlords are finally delivering the leases and agreements US and UK firms need.
