India’s Outsourcing BusinessByHarsha [email protected] term paper submitted to the Graduate Faculty of IndianaUniversity of PennsylvaniaIndiana, PennsylvaniaDecember 2017 ContentsTitle PageNo.1. Abstract 32. Introduction 43. Two Main Domain of Outsourcingin India 5 4.
Outsourcing in India: Timeline 7 5. CurrentOutsourcing Trend in India 9 6. Outsourcing Effects in India 10 7. India and Brain Drain 11 8. Future of Outsourcing 12 9.
Conclusion 13 10. Recommendation 14 11. References 15 12. Appendix 16 AbstractTheaim of the paper is to discuss the trends of outsourcing in, especially withrespect to India and further more to address the future issues of the country.Though the practicing of outsourcing is not new and one can readily findhistorical example of firms choosing to purchase products and services insteadof producing them in house, the prevalence of this trend and the fact that itis outsourcing on a global scale are just two of the factors that distinguishthe current wave of outsourcing from the previous forms of outsourcing. Howeveroutsourcing in India is so widespread today that it can potentially affectevery aspect of the business process. Businesses in India are no longeroutsourcing specific tasks but entire business.Keywords IntroductionTogeneralize in business outsourcing would roughly be an agreement in which acompany contracts out a part of their existing activity, business process,operational and non-core functions.
We already know quite a few examples ofoutsourcing in all fields like manufacturing, processing, and development andeven supply chain. Outsourcing takes youback to Romania if you ask about its origins; where romans used to outsourcetheir tax collections to its neighboring countries. Although there wasn’t muchdevelopment in this area, early 1980’s showed a drastic shift in businessstrategies where they focused on cutting down the number of activities tooptimize their quality and or cost.
“Dowhat you to best and outsource the rest” (Nicole, Erica: Business Insider, Aug2011) seems to be the current slogan of the companies that look to gaincompetitive advantage by outsourcing. Not only they get to cut down their costand processes, they also get a lot of options to choose from. Reducing costs,increasing shareholder value, sales, cash-flow, IT benefits and all otherdevelopment options are all the reasons why businesses outsource. (Craig 2004) Outsourcingcan be a solution sometimes or nowadays can be the only option for business tooperate. Businesses target cheaper markets, better qualities or to reduce thetime factor. A major growth in the logistics industry and the IT industry isrevolutionizing the term ‘outsource’ at present.
Boeing as an example, with thehelp of excellent logistics can now import and assemble thousands of parts fromaround the world reducing time and improving efficiencies. Companies now targetquality as the primary concern and the reason to outsource in areas likemanufacturing. Apple’s iPhone production demands top notch quality andperfection to deliver to its customers worldwide.Indiahas become one of the largest developing countries; one of the leading factorswould be the growth in the IT, R&D and development sectors due tooutsourcing of jobs from software firms across the globe during the 1980’s.Micro-electronics productions in India took a new turn. Major cities likeBangalore and Delhi saw an increasing level of changes, followed by Chennai andHyderabad. Bangalore, also known as the Silicon Valley is now a leading sitefor development and information processing. The cost advantage comparativelywas more in India and also the country offered a younger population ofengineers and research students.
Proficiency in English also proved to be apoint to improve their service qualities. Other factors like skilled workers,accessibility, technology senses and other related demographics are factorsthat cannot be missed. Twomain domains of Outsourcing in India:ITO and BPO:InformationTechnology Services (ITO): This involves the provision of some or allinformation systems by one or more service providers and the typical functionsoutsourced under an ITO includes data conversion, database administration, helpdesk, content development, application development, systems administration,network management, and other development functions. ITO: Softwaredevelopment and implementation services, data processing and database services,IT support Services, Application Development and Maintenance , BusinessIntelligence and data warehousing, procurement, content analysis, systemsanalysis and implementation, SAP, ERP, Enterprise applications, Web Services,Web hosting and application service providers(ASP’s)BPO: Customer Interaction Services: Sales support, Membershipmanagement, claims, Subscription handling, Customer Services, Billing, Accounting and TelemarketingResearch Services. BackOffice Operations: Data entryand handling, Data processing and database services, Medical Transcription,Payment Services, Financial Processing, Human Resource Processing, Warehousing,Logistics, E Commerce, Inventory management, Supply chain services, Insuranceclaims and tracking, Data Security services, Network management.MoreIndependent Professional or Business Services: Human resource services,payroll, finance and accounting, auditing, taxation, marketing services,product design and development.
Source: Mattoo, Aadita, and Wunsch, Sacha. (2004). “PreemptingProtectionism in services: The GATS andOutsourcing”. Journal of International Economic Law, 2004, vol.7, issue 4.BusinessProcess Outsourcing (BPO): Is when an organization turns over the managementand optimization of a business process to a third party that conducts theactivity based on a predefined performance standard. Software Development andImplement Outsourcingin India: TimelineFromthe 1980’s till date, India has been a host to thousands of businesses.
European airlines started using Delhi as a base for back office operations.Silicon valleys and Salt Lake cities are all developed in India that seesoutsourcing activities around the world. The governments in India have realizedthe importance of building and developing infrastructure’s to make aid for thedevelopment of the country. The availability of skilled workers and the costfactor attracted businesses to operate in India. It mainly started with the ITindustry; BPO industry grew by 73% during 2001-2 and it kept growingthereafter.
(Sharma 2005). More than half of the IT services from America arenow outsourced to India. The service sector adds to half of India’s’ Gross Domestic Product – (GDP)(Economywatch.com).
India saw an increase in exports, signed aGeneral Agreement on Trade in Services (WTO-1995) and is now the one of the topdeveloping countries. Indian call centers are well known, such as HP, Dell,American Express and many others. When you assess the competitive factor ofemerging nations, India stands at the low cost and high quality developmentslab.
Vendor sophistication and people sophistication all stands high forbusinesses in India. Other countrieslike china, Philippines, Russia, Brazil and Africa are few other developmentoptions for businesses to outsource. IT sector has been the prime area and hasmaintained its position amidst growing competitions from China. Philippines have become the next destinationfor call centers. India is seeing a dip in the call center industry and a hugerise in the IT development and research centers.Softwaredevelopments, testing and automation, backend processes are all on the rise.The growth of technology has made knowledge transfers easy, thereby increasingoutsourcing efficiencies for businesses in India.
Indian Universities withtheir IT courses produce more than 100000 engineers annually; this coupled withthe growing infrastructure methods in the country has led to a career boom inthe employment sector in India. The country ranks third in Knowledge andInformation based jobs in the 2002 Global Tech Index research by METAgroup. The following is a roughchronology of Indian Outsourcing:GeneralElectric 1990’s: They started a back office at Gurgaon at the GE CapitalInternational Services and were later spun off as Genpact. Third-partyBPO’s: HP, Dell, American Express and many other businesses outsourced Callcenter’s in India. Entryof IT Majors: Development, Testing, Engineering, Automation, Networking, Accountingand all other IT domains created a boom of employment in India during the2000’s.
Infosys HCL, Satyam, Microsoft, Wipro etc. are all such examples. Present:Development and logistics companies like Amazon, DreamWorks, Pixar Studios,Disney, Google, Facebook, Target, eBay and hundreds of the Fortune 500companies have multiple bases in India. CurrentOutsourcing Trends in India:ATKearney’s 2016 Global Services Location Index (GSLI) rated India as the numberone out of the total 55 countries for outsourcing destinations in terms offinancial attractiveness and environments. Automation to jobs would be one ofthe major factors to displace the country in outsourcing. Foreign DirectInvestment in India is expected to decline due to automation of jobs, but thecountry holds a lot of opportunities to improve in many factors. IT services and solutions for Social, Mobile, Analytics, and Cloud relateddevelopments and maintenance is the segment that sees a major growth in therecent years.
Data and information security is another area where outsourcingplays a major role. Logistics and ecommerce companies like Amazon and e-bayhave created major employment opportunities and scope for Information securityrelated fields. Corevisual developments for major animation corps like Pixar and DreamWorks havenow bases in Bangalore and much of the visualizations are done in India. Localgovernment plays a huge role for the businesses to operate and succeed. Indiasees a rise in FDI and the governmental policies that attract multinationalsacross various sectors.
Cyber security poses a new threat in areas of dataprocessing and information processing. India offers security solutions for suchissues that provide a boost in security engineers that has a potential demand. Wiprodevelopers now design GPS systems for European cars. 3Reengineeringand transformation of outsourcing tasks are making processes more streamlinedand automated. For example, the robotic industry saw a rise in automaticprocessing systems that mapped the existing systems to achieve betterefficiency and quality. OutsourcingEffects in India:Theresult of outsourcing mentions that is still ahead in overall performance butnow faces serious competitions by other developing countries like South Africaand Philippines. According to NASSCOM- McKinsey report of 2005, the IT sectorin India’s offshore Information Technology Business Process will still facechallenges that must be addressed and well managed to overcome othercompetencies. Changing businesses SOP’s and process to accommodate largeworkforces or to incorporate high levels of quality is leading to an activereengineering mode for all companies.
The study also identifies many otherchallenges like skilled workforce and urban infrastructure. There is a constantdevelopment of these two factors through the government but is not enough atthis point. India’s heavily populated demographics require higher levels ofinnovation and problem solving scenarios to avoid bottlenecks and such relatedissues. Positiveeffects of Outsourcing include arrival of ecommerce giants like amazon andeBay.
Logistics has seen a significant improvement that helps and adds to theoutsourcing values of the country. Boeing now plans to manufacture FA-18 combataircrafts to modernize military equipment’s by the next decade, and has nowsigned framework agreements with TATA Advanced Systems to collaborate. 1 Governmentshave played an important role in for businesses with mergers, allocations andinfrastructures.
Initiatives from the Karnataka State Government, bought a lotof businesses to operate in Bangalore providing them with infrastructures,connectivity’s and certain other demographics. The recent Make in Indiainitiative has also helped raise FDI’s to the country. Indiaand Brain DrainConflictsregarding brain drain, i.e. a situation when a lot of engineers, techniciansand knowledge people migrating to a foreign country to continue its career andresulting in losing out a hand in the home country.
There was an uptrend inIndia’s brain drain scenario, and more than 85% of the people migrated to theforeign nationals especially United States. Outsourcing and reshoring has madethis possible. TheGDP and economy of a country can play an important role behind the brain drainof skilled labors. The development and infrastructures with other factorendowments make up the GDP of a country. This plays an important role with anyskilled labor to make a decision to work abroad. Controllingbrain in India or any country is to have a lot of investments and moreindustrial opportunities to work for any business that leads to employmentopportunities.
Again employment is the main reason for brain drains in anycountry in a general sense. The brain drain can indeed be seen as a negativeexternality on the population left in the source country. 2Theeconomic attractiveness appendix,and lifestyle in foreign nationals made the skilled labors look up to foreignemployment opportunities. Onemain factor resulting in brain drains is the population of the country,especially in India where there exists at least 10 people to do the same job.This makes it possible to be one of the main reasons to attract businesses fromabroad to India. Outsourcingand reshoring has doubled chances of brain drain in India.
Prioritizing theemployment to the skilled local candidates can also result in overallemployment in the nation and hence leading to lesser brain drain. Futureof Outsourcing:Whenit comes to India and its future in outsourcing, currently the Development rateseems to be fortunate enough and can expect many more investments in India thatleads to higher employment rates in India where it is more feasible in Indiathan abroad. Costof labor of the country still remains the same till the overall development andeconomic development happens in India for Outsourcing to reduce. On thecontrary, the literacy rate of the outsourcing country also matters for its ownGDP issues and the reason to outsource. Henceto maintain a long run stability of having outsourcing into the country and tomaintain skilled labors in the nation, depends on how sustainable developmenthas been well practiced in that particular country as the resources plays animportant role for our future generations.
Globalizationhas both pro’s and con’s in a particular country as it can play with theoutsourcing and brain drain rates both ways but it still depends on thatcountry to address the above mentioned points and gain the benefits ofglobalization. Again globalization can be one of the main factors to diminishor increase outsourcing effects. Sincethe quality of a process or a product has gained more importance in thusbusiness world, played like a solution to gain quality through outsourcing. ConclusionFromthis paper we deduce that outsourcing in India was heavily encouraged over thelast decade and it created a lot of development and employment opportunities inIndia and abroad.
Indian demographics and factor endowment were one of the mainreasons to create higher levels of attractiveness for any business to performoutsourcing. This paper also talks about the future of outsourcing in Indiawith respect to factors like Brain Drain, Political Stability and nationaldevelopment. RecommendationsGiganticvolumes of work, tight deadlines, Language barriers, cultural barriers, alongwith low cost issues altogether makes outsourcing very hard. Businesses mustperform in such a way that it beats all those barriers. Recognizingissues with respect to company’s development and also the country’s developmentall concerns and risks can be effectively managed and diminished, thus giving aflexible and strategic outsourcing model. Firmsmust aim at sustainability issues with respect to outsourcing and development througheffective strategies to maintain positive transition. References1FRPT Software Industry Snapshot 2 Habibullah Khanand Omar K M R Bashar, “DOES GLOBALIZATION CREATE A ‘LEVELPLAYING FIELD’ THROUGHOUTSOURCING AND BRAIN DRAIN IN THE GLOBAL ECONOMY?” April 20163 Pete Engardio andBruce Einhorn, “Outsourcing”.
BusinessWeek March 21, 2005 4 Bianca Piachaud, “OUTSOURCINGTECHNOLOGY”. 2005 Industrial Research Institute. Inc. 5 Ehsan Elahi1, MehdiSheikhzadeh and Narasimha Lamba. “An Integrated Outsourcing Framework: AnalyzingBoeing’s Outsourcing Program for Dreamliner (B787). 2014 Mattoo,Aadita, and Wunsch, Sacha.
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