TECH TALK: India Trends: Outsourced Services

The other big development of the year has been in offshoring and outsourcing. One look at the financial results and recruitment plans of the Indian companies in this space is enough to give an indication of the solidity of the growth that is happening. Whats interesting is that the bigger software companies seem to be growing faster (in percentage terms) than the mid-tier ones. Also, the global IT majors are stepping up their hiring in India. In IT-enabled services (business process outsourcing), companies are also starting to look beyond just call centre services. The BPO outfits are increasingly becoming more focused on building out expertise and scale in a few business processes. A refrain heard often is to be the ADP (Automatic Data Processing, Inc.) of the process implying that just like ADP has standardized and dominated the outsourced payroll business in the US, they want to do the same for the specific process. This is where labour arbitrage combined with on-demand computing platforms can bring significant benefits going ahead.

The Economist has more:

India’s IT industry is growing at a vertiginous rate. Last year the industry notched up sales of $16 billion, three-quarters of which went abroad, according to NASSCOM, the lobby group. By 2008, says NASSCOM, annual sales are likely to surpass $50 billion. The big firms are hiring about 1,000 graduates a month straight from Indian technical colleges.

India’s BPO industry is younger and smaller, but growing even faster. Last year its sales were $3.6 billion; by 2008 they are expected to reach $21 billion-24 billion, says NASSCOM. About 70% of the BPO industry’s revenue comes from call-centres; 20% from high-volume, low-value data work, such as transcribing health-insurance claims; and the remaining 10% from higher-value information work, such as dealing with insurance claims. But the BPO industry is more fragmented than the IT business, and could change shape rapidly.

The best Indian IT and BPO companies are aiming not only to lower the cost of western white-collar work, from software programming to insurance underwriting, but to improve its quality as well. Firms such as Wipro, EXL Service and WNS are applying the same management disciplines to the way they provide services that GE applies to its industrial businesses. Tasks are broken into modules, examined and reworked to reduce errors, improve consistency and speed things up.

In the longer term, India’s success at winning global white-collar work will depend on two things: the supply of high-quality technical and business graduates; and, more distantly, an improvement in India’s awful infrastructure.

India is increasing part of not just the IT but also the services value chain of global organisations. Indian companies have demonstrated that they can not just start but also scale. Indias share of the global pie is still miniscule leaving plenty of room for growth. Provided, we can, as the Economist points out, improve our education system and infrastructure.

Tomorrow: Computing, Internet and Broadband

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Rajesh Jain

An Entrepreneur based in Mumbai, India.