India’s IT and Outsourcing Industries

The Economist writes:

Optimism about India’s prospects in these businesses is based, firstly, on the sheer range of work now encompassed by the IT and BPO industries and, second, on its potential for further expansion. The business that started it alloffshore software developmentstill has plenty of room to grow. The world becomes more dependent on IT by the day. Even as new applications are churned out, old ones need maintaining and even newer ones developing.

The youthful BPO business, meanwhile, is still defining itself. At one end, say at 24/7 Customer, it involves telephone marketing to hapless British householders unaware they need a new credit card; or fielding a call from a nice lady in a bank in Exeter in western England, who wants to send a credit card by courier to Antigua, and is presumably unaware that the efficient, London-accented courier executive she deals with is sitting in Bangalore.

Such call-centres are the best-known and biggest part of BPO. At the other end of the spectrum, even high-end research-and-development work is being outsourced. The Bangalore offices of HCL Technologies, for example, is designing a back-up navigation system for Airbus.

In between, the range of business processes that can be outsourced is constantly expanding: processing insurance claims; desktop publishing; the remote management and maintenance of IT networks; compiling audits; completing tax returns; transcribing medical records; financial research and analysis. The list of possible activities is almost endless. We have barely scratched the surface, says Stefan Spohr of A.T. Kearney, a consultancy.

The biggest constraint on the growth of India’s service industries may be the available talent pool. Nevertheless, the bullish projections for Indian IT and IT-enabled services produced in 2002 by NASSCOM and McKinsey seem within reach. They forecast that the combined industries would, by 2008, employ 4m people (up from fewer than 900,000 in 2004), earn $57 billion-65 billion from exports (compared with $17 billion in 2004), and account for 7% of GDP (compared with 4%).

The challenge this poses for the firms leading the boom is how to expand fast enough to meet demand without jeopardising quality. For quality, as much as cost, is what is driving the demand. It is in this context that Bangalore’s troubles have to be seen: as the acute growing pains of a still-infant industry. It is a worry not because the difficulties are insuperable, but because some can be solved only by the government. India’s IT industry has thrived in part because, unlike most other sectors of the economy, it has largely kept the government out of its business. That period is coming to an end. Neglect, the industry is learning, is not always benign.

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Rajesh Jain

An Entrepreneur based in Mumbai, India.