OPINION

Outsourcing And The Indian Quality Control Chasm

June 05, 2006
Vikas Chowdhry

The business practice of outsourcing has been under fire for some time now. There was never any dearth of jingoistic and xenophobic people like Lou Dobbs who think that rise of any other country means fall of the United States, but lately, many mainstream business analysts have been giving a closer scrutiny to the benefits of outsourcing, and predictably, they have been finding that outsourcing is not a panacea to all your technology and logistics requirements, which is ironic because for a long time, these very same business analysts whispered the mantra that "nobody ever got fired for outsourcing" into the ears of CEOs and CTOs. For these analysts, it is time to move on to the next fad which they claim is disciplined multisourcing.

However, a bigger danger to the Indian off shoring operations emanate from another source - the apparent incompetence and sub par level of work being done at many places which tends to stereotype the entire industry and has led to a backlash with many US companies cutting back on their outsourcing. The latest company to join this bandwagon was Apple Computer. In the past, Dellwas forced to do the same after repeated complaints of bad support from its call centers in India. Now, I have not worked with any of the off shoring companies so I cannot personally vouch for their quality or lack thereof. However, as a user, I have borne the brunt of the incompetence and "chalta-hai" attitude of many of the Indian businesses. Here are a couple of vignettes:

I have an account with Citibank NRI. Navigating their website to get anything done is a horrible ordeal of multiple pop-ups and non-intuitive menus. Well, that is only a website and I can still deal with it (so much for the IT powerhouse). The letters that they send me has my zip code labeled as "Pin" - which got my post office confused. Moreover, their letter size is not the standard A4 used for filing systems in the US - but an awkward size that is narrower and longer and does not fit nicely in my filing system. Now, if their customer service had done even a little bit of research, they could have easily avoided all these issues but now they have an irate customer (this is exactly the kind of thing that would put off someone like Steve Jobs, who is a stickler for getting this small stuff right).

Another one. I am a big fan of Indian Express - but every night, when I try to log on to their website to read their epaper - invariably I get the message "Database server overloaded". Day after day after day. I have written to them, called them but things just don't improve.

Equifax, Dell, AT&T, Rediff Shopping, Times Shopping - I could go on and on about horrible products and horrible customer service and pathetic websites. Does that make every Indian have a chalta hai attitude? Obviously not! But I simply fail to understand that despite all this talk about India being an IT powerhouse and hordes of software developers in Bangalore and myriad other places, why can't I still read a damned newspaper reliably every single day or do e-shopping without having to plod through multiple "credit card authorization server busy" messages?

I am not sure if my experience is broad enough to be generalized to say that most Indian companies still do not excel at quality but these companies are some of the leading companies in their field in India and if the people working at these places provide such sub par service, can things be very different at other places?

The world is catching up real fast on the so called cost benefits of outsourcing and it is turning out that they have been saving money at the cost of quality. I think it is time for many of these off shoring operations to stop believing their own hype and start working on improving quality.

We can't all be heroes because somebody has to sit on the curb and clap as they go by. We can't all be villains because somebody has to sit on the curb and heckle as they go by. I am the one who claps and heckles.
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#1
Arun
URL
June 5, 2006
12:10 PM

I'd like to put a few points out for discussion here if possible. I work in one of these outfits that have been set up for the sole purpose of outsourcing work from a foreign office. From what I've seen so far, there's a bunch of factors that contribute to the quality (or the lack thereof) of the software produced in India:

1. About 90% of the technical institutes that churn out "software engineers" in India are subpar as far as education is concerned. In a typical software house in Bangalor, Hyderabad or Gurgaon you'll find that about 60% of any team is made up of people who graduate from an NIIT or an Apple institute (nothing to do with the iPod maker) or some equally unknown training shop. At the risk of ruffling a few feathers, I'd like to make it clear that I've seen the quality of people these places produce and they generally compare pretty poorly to people coming out of the better universities or institutes (IITs, RECs et al).

2. While problem 1 gets fixed as people pick up experience they also begin demanding more money for the years they've put in. The result is that they get promoted to team leaders, module leaders or whatever and get another mixed batch of people to lord over. In other countries, a typical software engineer will write code for upto 10 years before moving upto a management position. In India, partly because we have so many people and partly because the job market is growing so fast it can take anything from 2-4 years. The result of this is that we've got ameteur managers who over-promise all the time and ameteur programmers (I hate the term software engineer, too nebulous) who almost always under-deliver.

3. That is not to say that there aren't good people out there. There are, and these people are at least as competent as their western counterparts. Its just that these are the people who are the first to get brain drained or body shopped to the west. People like that also get very frustrated when the company HR department will hire absolutely anybody who shows up because they claim to know a certain software tool and maybe have read a book or two about it.

4. Finally, there's the problem of salaries. As of this time, you can hire about 10 programmers in India for the price of a programmer in the UK/US. This is exactly what management in India end up doing. Every time they're in trouble, the quick fix is to throw more people at the problem. These people are hired in a hurry and you almost always end up with a team that performs below expectations. Some companies will also routinely get rid of the highest paid (and the best) talent to bring in fresh graduates and then tell clients they've got 10 people on a project.

Blame also lies with the parent companies/clients for believing that more people mean things get done faster. Besides, they also begin thinking of outsourcing as the be all and end all of their business. I've seen companies outsource development as well as testing of a product, wait a year, and then end up with something they absolutely could not use. That sort of thing must stop and we must raise the caliber of people that get hired. Thats what NASSCOM should be doing, but they're too busy sucking up to every minor software CEO/CTO who gets on a flight to India. Oh, and just in case you though CMM/ISO/Six Sigma made a difference, forget about it. All it takes to get these certifications is a bunch of cleverly produced documents and some innovative management lies.

All these points are open to discussion of course. Just don't start a flame war please :)

#2
Vikas Chowdhry
URL
June 5, 2006
01:00 PM

Excellent points Arun. Thanks for bringing them over here from the email discussion that we were having earlier on Yahoo groups.

#3
balaji
June 5, 2006
03:55 PM

I agree with most of the concerns that Vikas shared in the post.

And some of the issues raised by Arun.

However, it is important to see things in perspective.

Organizations which are new to outsourcing need to learn a thing or two about outsourcing.

Do they look at it in a strategic way or a tactical way?

Those who see it in a strategic perspective, would understand that there would be lot of glitches, like you would have when you launch a new product, and see it as a worthwhile exercise and spend the time and resources to make it successful.

Tactical outsourcing is KJRM - Knee Jerk Reaction Management. It is like firing your middle management and discovering that your knowledge base has disappeared overnight!

Good, and large companies have the ability to manage the complexity of outsourcing.

When you cut corners you have issues.

Like most certifications, whether ISO, CMM or engineering degrees or NIIT or APPLE (india), they are certificates.

An engineering graduate may not have an engineering mindset. As a Ph.D, may not have any clue about research.

NIIT/APPLE are no longer the issues in most significant Indian IT organizations. There is an over supply of CSE and other engineering folks, I would be surprised if any company is recruiting from only NIIT types.

Many engineering college students go to NIIT for additional competences or a supplement to their poor faculty or training.

you can't blame the companies alone. Any software professional (how professional one is, you can make your own judgments), who has put in a few years things that he/she needs to be promoted or should be eligible for higher C&B.

There are delivery issues. No doubt about it.

Hence, it is both an opportunity and a challenge.

While the number of engineering colleges has been growing at a steep rate, can we produce the teachers who can manage it??

Very few large IT companies invest in academics.

Not to mention NASSCOM.

Indian industry needs to learn t invest in academics. There lies their future. Profits and growth.

#4
Arun
URL
June 5, 2006
04:19 PM

Agreed balaji. I do differ with you on the point of hiring people off of training shops though. These outfits are unregulated and the standard of training is abysmal. I see people from these places getting jobs in Indian IT shops everyday. Again, one's level of competence does not necessarily stay the same throughout their career. Its just that the level people from these places start out with is extremely low.

As an Indian citizen, the other big problem I see is that both Indian software houses and NASSCOM are hellbent on ignoring the local market. This lust for dollars/pounds will end up costing home grown programmers their jobs when the outsourcing boom ends. Make no mistake, end it will. When I started working in software the typical ratio between a US programmer's salary and an Indian one was 20:1. Now its down to 10:1. This is what happened in 4 years. I'll leave the rest to imagination. When the global markets starts buying software from China/Phillipines/Thailand we'll only have the local market and our quality to go on. Both of these things are conspicious by their absence.

Sure, some of the moaning about lack of quality can be blamed on xenophobia. But speaking from the inside, I can assure you that not all of it is made up. There are serious issues we (Indians) need to fix here and the US isn't going to come to our aid.

#5
Nachiketa
June 5, 2006
05:29 PM

One of the sanest blogs about IT outsourcing I have seen in a long time...well done Vikas.

One thing we Indians have learned very well from the Americans is the art of Marketing. We are so good at it that we have started believing our own hype.

I saw the animated movie 'Hanuman', which was a huge success and got tremendous publicity. Frankly, I couldn't believe the kind of shit that got passed as animation in that movie.

I use Indian legal and accounting firms to do work for my India business. Guess what...I get charged dollar rates and the work quality is marginal compared to similar work in India.

At this rate we Indians will price ourselves out of the global market. Hopefully the recent stock market correction will bring people back to earth and make them think rationally.

#6
Nachiketa
June 5, 2006
05:30 PM

"I use Indian legal and accounting firms to do work for my India business. Guess what...I get charged dollar rates and the work quality is marginal compared to similar work in India."

...should read "similar work in the US"

#7
Gaurav Sood
URL
June 5, 2006
05:35 PM

The simple fact is that Indian businesses don't have the money to hire top Indian tech. consulting firms to do their websites. They are all there serving the big money needs while Indian companies are left wanting.

#8
Vikas Chowdhry
URL
June 5, 2006
07:03 PM

Rajiv R


Microsoft on the other is a totally different story - they thrive on chalta hai"

haha.. Its so easy to make allegations & statements! (and we blame our politicians) You have no clue what goes inside MS be it India or US !

I dont want to trigger a anti/pro MS discussion but I couldn't hold back when somebody made a out of context unwanted casual statement.

My comment regarding Microsoft was not out of context. Compared to Apple, Microsoft indeed comes out as a company having a "Chalta hai" attitude. They are infamous for shipping products that should have been in beta, and most of their products are not stable enough until second, third or fourth iterations.
Just a very simple example - even after 10 versions, Microsoft has not been able to get it right with the Media Player - while iTunes was a much more polished product right from the beginning.

#9
Lakshmikanth
URL
June 5, 2006
09:13 PM

Vikas,
I agree with many things here. I worked in an MNC for a couple of years and our teams were known and appreciated thoughout, so much that half of the entire integrated-chip development and testing part was packaged to India from Japan. It is one thing that most of us were not from top notch institutes (like the IITs, NITs et al), but we really did quality work here.

Any venture has some uncertainty involved in it, the quantified form of that uncertainty is called risk. Rational risk is the real probability of failure. Since there is no way of knowing what exactly the risk is, we estimate risk. When risk is hyped up or played down, its called irrational risk. Thats exactly what happens when someone shouts, "The Indians are coming to take away all your jobs!". The risk gets hyped and an unknown fear is generated about "super" intelligent and "super" cheap Indians stealing away their jobs. Thats called Xenophobia!

Irrational risk assesment is the reason for many things, the 1999-2000 internet bubble for example, and one of them is Xenophobia, which is the point that I wanted to mention. That is the irrational risk estimation from the part of the western nations.

Another aspect that came to my notice far back, and what Arun and you have rightly pointed out is the irrational risk estimation from OUR part! One thing that a company should know is that unless the quality of its products are good, then it wont sell. And unless the employees are good the products wont be good. So we should minimize the risk of selecting a person who cannot deliver quality. Thats where the interview policy and the selection(rejection) procedure comes in. The interview procedure is the risk minimization from the employers part. Now if that HR policy is lapsed and then u have irrational methods to select people, then you have an irrational risk estimate of your product quality. This is a potentially risky situation. And i think its to clean this mess, that Apple decided to push off!

It is clear that by selecting low quality 'engineers' our company are PLAYING DOWN the risk on the product of the quality. That means, the estimated value of the Indian software Industry is lower than it should be. I guess its time to pull out my stocks from the hi-tech market and run! We can safely call it the "outsourcing bubble"!!!

So in short, taking the points from You and Arun here and Shanti from the mailing list, we can state that while the offshore risk is played down, the risk in the US is hyped up. It was balanced sometime back, and the market was effecient (though irrational). Now I guess the risk in quality is much much higher than the actual risk, and even the HYPED UP risk (hyped by xenophobia). So we indeed are staring at our own bubble in the backyard!!!! Time to take the money and run, or think about re-investment in more quality centric industries.
From another POV, (imperfecct) Xenophobia and (imperfect) incompetence is GOOD if the market becomes rational (thus effecient) estimator of risk. The question is, how?

Xenophobia causes the percieved risk to be higher, and reduces the number of opportunities in the outsourcing industry. Incompetence causes the actual risk to be higher than that of the percieved risk, which causes a bubble due to hyping up of the value. When the bubble bursts we would have a very very reduced number of outsourcing opportunities left. Since the incompetence is imperfect (i.e. there are SOME competent people) the competent people would probably be the only ones not to be fired (this is arguable, since the incompetent people were selected by the VERY HR vpeople who are going to fire them once there are reduced opportunities:: however lets assume that they do indeed fire the incompetent people). Since the Xenophobia is also imperfect (which means that there are SOME people here who are ready to outsource) there would be someone who is ready to outsource. Now obviously this deal will be completely dealt by the offshorer by all the quality that it requires. This means the rational market is back in place. And the next wave of outsourcing (after the bubble that is) will pro'lly be more cautious and more rational in their risk assesment [i.e. both by the outsourcer (by selecting the quality offshorer) and by the offshorer (by selecting a quality employee)]

I think i should be posting this as a separate post on the nature of the outsourcing bubble!

Think about it!

#10
Vikas Chowdhry
URL
June 5, 2006
09:54 PM

Lakshmikanth: I think your points would make a great post. In fact, we did see bursting of the first round of outsourcing bubble when Y2K work dried up. Taking your pov of xenophobia and incompetence, at that time, there was not much of xenophobia in the US because it was perceived that only low level, manual and cut-and-paste (all true) work was being outsourced to India while the brains were all still in the west.

Some Indian companies used the money earned from that round very wisely and built up this second round of outsourcing - however, this time India is in for a double whammy. Not only is the xenophobia much more, it seems that offshoring units might have bitten off much more than they could chew. So now, the xenophobists in the US have a chance to say "we said so! These companies are good enough for Y2K stuff only" - which of course is entirely untrue.

#11
Victim
URL
June 5, 2006
10:03 PM

[deleted]

#12
balaji
June 5, 2006
11:39 PM

I guess Lakshmikanth brought the issues beautifully.

While there is no major issues, there are issues! Sounds like an oxymoron.

Some of the large companies seem to beieve in their own marketing hype. How true. But they also keep getting a knock on their knuckles once in a while. Overhyping is the bane. Increases expectations beyond rational levels, and leaves a sense of disappointment or disillusionment.

I wd agree with the need to cultivate the Indian market. But given the price-differentials, and given that most of the IT companies have a significant FII participation, they wd not be able to explore the Indian market. That is a self-made fix they are into. Excepting for TCS probably, who have been in the Indian business for years.

Indian business is left to smaller and aspiring companies on the rise. There is some space there.

Apart from these, I do believe a newer, high-quality, non-factory approach, niche firms would emerge. Already there are quite a few who are silently doing better and exciting work than the large ones.

That could be one important trend.

If we take the auto industry metaphor, we would have GMs, Fords, Toyotas, probably Hondas too on one side (large, mass manufacturing model) - and BMWs, Hondas,Volvos, Toyotas (Lexus variety) - high quality narrow market sizes, and niche and speciaity ones like - Ferraris, Austen, Lotus, subaru's etc.

I guess more than a bubble, I believe it is going to be differentiation, depth and delivery quality, specialization, super-specialization which will mark the change. Apple would fall in somwhere between specialization and super-specialization band, I guess.

And there is phenomena, on the rational side (xenophobia i consider on the emotional side), of maturing customers - who know what to demand and to expect from Indian outsourcers. Whenever there is a difference between demand/expectations and delivery which is bound to be, since the demand and supply are two actors both maturing at differing paces, there are bound to be issues.

Interesting to see history evolve.

#13
SRI RAM
June 5, 2006
11:59 PM

[deleted]

#14
anon
June 6, 2006
12:19 AM

boldbold

#15
anon
June 6, 2006
12:25 AM

indian

#16
anon
June 6, 2006
12:27 AM

INDIAN

#17
anon
June 6, 2006
12:27 AM

indian

#18
Lakshmikanth
URL
June 6, 2006
01:29 AM

Can we ever beat China, i guess unfortunately not

look at this.

#19
SRI RAM
June 6, 2006
01:54 AM



It did hurt u isnt it ..u pseudoindians.
VIK it's not fair.


#20
Lakshmikanth
URL
June 6, 2006
02:01 AM

Update on apple is here

#21
mayank
URL
June 6, 2006
02:36 AM

Vikas, I somehow don't agree with your analysis at all. Not that I believe Indian IT has no challenges facing it. But the reasons are completely different. The reason you have given are at best, irrelevant to the IT industry.

Be it Citibank NRI or Indian Express, neither of them are Mainstream software companies,nor are they outsourcing services to US. The pin and paper sizes have nothing to do with IT, though i agree abt the non-intuitive GUI part. Yes, these companies shud be more customer oriented. But Indian Express only makes ad revenue from its site, which is peanuts compared to the main sources of revenue, and as some one said, for peanuts, u get monkeys.

If you look at the mainstream IT companies, there are quality systems in place to ensure that the product that reaches their customers is perfect. These Companies do not hire anyone without a formal engg. degree, and they are hired from some of the better engg. colleges in India, if not the IITs/NITs. The IT Cos have their certifications in place, and as a former employee of one of the more well known Indian IT Cos, I know that these qualitiy standards are applied to every project.

However, threats to Indian IT Cos lie elsewhere. The Attrition rates have be well covered as a threat, but the biggest threat is the rate at which salaries in IT are rising. India has the fastest growth of salaries in the world, and if the upward trend continues, Indian IT may not provide a cost advantage anymore.

#22
SRI RAM
June 6, 2006
02:39 AM

agree with mayank...very much indian view.

#23
Aaman
URL
June 6, 2006
03:29 AM

Excellent article and interesting counter-points in the comments

#24
balaji
June 6, 2006
08:03 AM

Interesting point of views.

I wd agree with Mayank not because it is an Indian view :-)

We needn't be scared, especially the Indian IT companies when confronted with a reality that is still shaping and still there are possibilities.

While the time is not for being complacent like it was in the dizzy days of growth of y2k, Indian companies need learn many competences which are not available in India - even as models for copying.

1. They need to learn to manage large ness. That demands systems and processes that do not stymie creative juices people have significantly. They need to guard from bureaucratic tendencies which would kill initiative, which was one of major forces which help the cos grow.

2. They need to manage diversity, as one grows it is important to know that all the talent that you need would not be available within your country. Just like the Lala who starts a company recruits from his family and relatives. As he grows he needs to get talent from outside.

3. They need to learn to grow inorganically. That is a different kettle of fish. It requires smart strategic abilities, fine HR capabilities for integrating and great negotiating competences. And keen integrating capabilities.

4. They need to spot trends and quickly move and invest in them.

5. They need to build symbiotic relationships beyond rhetoric of conferences and seminars - with academic institutions.

6. If they want to be long term players, they need to urgently focus on building teaching capabilities at the tier II colleges.

7. If some of them can manage, help some of their bright, experienced people to spawn smaller companies and work at the cutting edge of technology - which they could reap.

8. Obviously they need to increase their depth of functional competence. At least in the next 5-10 years each of the companies should be able to tell the CEO how tech can help re-shape their business. not piecemeal projects with familiarity of functional knowledge thrown in.

9. They should stop celebrating and hyping and go back to the drawing board and see if they can to begin with a. re-define the components of the value chain b. innovate newer business models (ala outsourcing) which could be lurking in the darkness of yonder.

These are not prescriptions but tendencies thatI see possibly happening. But not as neatly as I mentioned :-)

#25
Vikas Chowdhry
URL
June 6, 2006
08:21 AM

Mayank I am not talking only about IT companies, I am talking about business processes and quality in general - after all a lot of these companies are gunning for much more than simply the IT slice. Like I mentioned in my article, my experience is only limited to companies that provide direct service to end users and they include a broad swathe of companies and my experience with them has universally been bad. However, there are many other people here who have commented and they have both managed and worked with outsourcing units and their perception is not positive either.

Finally, you say "Indian IT may not provide a cost advantage anymore." and I think that is the biggest problem. Why should Indian IT companies continue to compete on cost advantage alone. Look at what is happening to Dell - it tried to compete on cost and cost alone without any innovation. Its product is now commoditized and even though their revenue is increasing, profits are rapidly shrinking.

#26
balaji
June 6, 2006
09:13 AM

In the case of Dell, if one were to believe Michael Porter - it seems to have taken the low cost approach. Other alternative is to focus on differentiation.

By itself there is nothing wrong. It's like McDonald's and gourmet food.

Dell's innovation is his technologically-leveraged business model. to keep the costs low. That's how it is growing.

I do not think it is question of 'or' but of an and.

Profitability and Profits. Both are legitimate.

Nothing illegimate I think in chosing market share or low cost strategy.

But blessed are those who can manage Market Share and Profitability.

cheers.

#27
Vikas Chowdhry
URL
June 6, 2006
10:59 PM

Balaji You are right that there is place in the market for both low cost providers and premium service providers. But there is no place in the market for non-innovators, premium or non-premium.

Even McDonald's could not forever depend upon its strategy of Big Macs and had to innovate in the face of constant onslaught of Wendy's and other gourmet fast food stores like Panera Bread etc. Hence their new found emphasis on salads and better sandwiches.

Dell thought that it could remain profitable forever by competing on price alone and churning out dull boxes. Well it was wrong and therin lies a lesson for Indian offshoring operations.

#28
balaji
June 7, 2006
11:14 AM

Vikas

Fotunately history of developed countries is ahead of us. An oxymoron? probably a sweet reality.

Hence, Indian companies could see the writing on other's wall and benefit.

Like it went ahead in mobile technology adoption.

thanks for the insights. I hope some strategists of Indian IT and ITES companies are reading this :-)

#29
Pratim
July 1, 2006
10:22 PM

Vikas
i cannot agree with you more on this .
There are many instances where we fail to deliver. It is only because of people like Krishnamurthy,Shiv Nadar, Azim Premji and many many others who made their vision turn in to reality, we have this gift called Outsourcing.
They knew exactly what to do when IT was really unheard of in India. We owe this outsourcing boom to these IT gurus. They say too much of a good thing is bad. Exactly!. People are misusing this good thing called outsourcing and hiring incompetent people in their ranks (mainly BPOs and IT companies) to save money. I must say that alongwith the BPO industry the software industry has its good share of incompetent (harsh but true) people too. Some of these guys are not that good and wouldnt be able to speak English to save their lives. They get H1B visas and go to US. I am sure there are more good IT engineers than bad who get onsite opportunities but Managers should be very selective about who they send to meet a foreign client. Work ethics is another subject we should be careful about. The chalta-hai attitude only should be left to Govt institutions. The Private sector has no place for this.

Many a times i had to sit and write code for people who didnt have a clue or the basic intellect to search for a solution. But i am proud that i had worked with some amazing guys too.

and then again i should not put the blame on the people who are not competent enough. It is the responsibility of these companies to make these guys competent or make them adhere to standards. They should use tools, such as training, articles, books. I am sure it is possible.

About me: I did my Bachelors in Comp.Sc from Delhi Univ and while i was working as a developer, i completed my Masters in Comp. Science. I co- authored a book on ColdFusion Web Application Development.


You would be surprised abt the quality of education these institutes impart. Small learning institutes (such as LCC) has faculties who have not even completed Full time graduation but they teach students Post Grad courses. What do you expect these kind of institutes to churn out? Bill Gates, Steve Jobs.
Hardly !
As balaji said, IT Strategists should now have a look at what could really cause the downfall of the Outsourcing boom.

#30
Pratim
July 1, 2006
10:44 PM

Mayank has a very good point here. Salaries could also be a big threat to the sofware outsourcing bonanza. Though i would differ from him that only IITs or REC's produce the cream of IT companies. I had few guys with me who had only done their diploma but were very talented.
Another thing,Mayank do you know that even Mainstream IT companies have their back doors open for letting people in. I have seen all kinds of people being allowed in our team.

One of the top notch companies i worked for hired about 20-30 freshers in a day for a project they bagged. The project got scrapped and these guys were transported to the comp's BPO operations. What do you say to that?

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