Outsourcing: A global Phenomenon

India has made a strong niche for itself in the Information Technology - Enabled Services and Business Process Outsourcing (ITES - BPO). The outsourcing industry in India has emerged as the single biggest employment generator in recent years.

Outsourcing is an old phenomenon. It has been happening for at least the last hundred years. At every stage of the industrial revolution, human labor was outsourced to machines. The outsourcing of jobs to lower-cost locations is not new, but it turned more professional.

Advances in new technologies and improved business strategies displace jobs. For example, automobiles workers replaced buggy makers, and ATMs, voice mail and voice recognition software eliminated bank tellers, receptionists and medical transcription jobs. The list goes on. Displacement of labor by labor is not new and has been a long-running theme in the American economy.

Much recent interest has been given to "offshoring" - referring to outsourcing abroad in computer services, call center services, and business processes. With the U.S. economy stagnant, there is fear that good jobs are drifting to India and elsewhere.

The outsourcing boom in India is opening doors for boosting the growth of other industries as well, with the major beneficiary being the retail sector.

The Rs 9,00,000-crore Indian retail market is currently growing at a rate of 8.5 per cent annually. India also has the highest number of retail outlets per capita in the world.

Experts attribute this phenomenal growth in the retail market to rising income levels, a large segment of young population and a rapidly expanding middle class.

Because of India's status as an outsourcing hub, more and more organizations in the US and Europe are relying on India not only for IT Infrastructure Management services but also for R&D, telecom, banking, diagnostic, pharmaceuticals and automotive outsourcing.

According to apex software industry body NASSCOM, the BPO sector has been growing at 60-70 per cent annually and its turnover in 2002-03 reached 2.4 billion dollars from 565 million dollars in 1999-00.

Moreover, the BPO sector is projected to increase to 4 billion dollars in 2004 to 12.3 billion dollars by 2006 and provide employment to about a million people from its current level of 200,000, says NASSCOM.

By 2012, all U.S. computer-related occupations are estimated to grow by 15 to 57 percent. Lower-tech jobs prone to outsourcing, such as bookkeeping and customer service, also are projected to increase.

US companies are expected to ship more than 200,000 service jobs to countries like India every year for the foreseeable future.

From the US perspective, it was brought out that American workers are feeling the pinch due to the loss of some jobs that are now being filled by call center personnel in India and the Philippines.

The Indians' point of view was more complex and, on occasion, even contradictory. There is outsourcing boom because it gives well-paying jobs to some 300,000 middle-class youths in India.

Also revealing that Indians were paid only about one-fourth what their US counterparts were getting. So, the "boom" was not as beneficial as it has been described to be.

National Outsourcing Association (NOA), predicts great change in the Indian outsourcing market

The landscape of the Indian offshore outsourcing market is set to change, according to predictions by the National Outsourcing Association (NOA), the dedicated outsourcing trade association and lobbying group. Consolidation, specialization and the growth of training companies are some of the key areas that India will be embracing in order to hone their offering and stay ahead of the game in an increasingly competitive market.



According to NOA sources, the Indian market is set to split in the following ways:
Consolidation: Indian companies are currently going through a "wheat and chaff" process - larger, specialist companies are snapping up the smaller outfits in a bid to emerge head and shoulders above the burgeoning competition in the global market. Recent deals that support this strategy are IBM's estimated £80 million purchase of Indian call centre firm, Daksh, one of the first BPO companies to emerge from India's offshoring landscape. Tata Consultamcy Services' acquisition of Phoenix Global Solutions is also further evidence of this trend.

Specialisation: whereas in the past, Indian BPO suppliers tried to diversify in order to cater for every offshoring requirement (e.g. call centres, back office processes etc.) there is evidence that businesses in this region are recognising that specialisation and expertise will help to keep them ahead of the field - for example Indian companies are starting to run business processes rather than just call centre work.

Training specialists: with the trend for specialisation, Indian companies are more intent on training to push their people to the top of their chosen fields. This along with the recent fright stories in the media about UK companies withdrawing business from India due to a lack of well-trained staff, means that there are specialist training companies springing up in India to train staff in particular areas- for example, the high number of call centres in India means there is a proliferation of voice training specialists who sell their services to the Indian call centre giants.

Indian companies outsourcing to the domestic market: with the Indian economy growing strongly, Indian BPOs are realising the domestic outsourcing business is also a potential attractive area to enter. Indian companies understand that there are economies of scale to be made in outsourcing parts of their business function to other Indian companies. For example, if they can outsource payroll to a local payroll specialist rather than do it themselves.

Indian Companies see other offshore locations as an opportunity as part of a full service that it provides clients : countries like China are now targets for Indian companies. There is evidence that in the future, with the tremendous demand for skills and with economic home growth, Indian companies may see India and China as their predominate markets. In fact. Daksh has set up a call centre in the Philippines this year.

A NOA board member and part of a recent fact finding delegation to the sub continent, commented: "There is no doubt there is significant change afoot in the Indian outsourcing market. Until now, many companies have been jumping on the offshoring bandwagon and scrabbling for market share. But as the market is maturing, companies are realising "consolidation" and "specialisation" are the real opportunities. They are intent on reacting to threats, such as questions about quality of service, by broaching the matter with sensible business solutions, such as better training."

The chairman of the NOA agreed: "The last few years has seen the Indian economy forging ahead; GDP growth has been at 7 per cent over the last year alone. Offshoring has been one of the drivers in this development. Where many other offshoring destinations are in the kindergarten stages of offshoring, India has graduated high school. They now have to use this experience to shape the market and stay on top."

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