Trends in Outsourcing to India: Finding the Future

chillibreeze writer — Swarna

The two hot terms, ‘Offshoring’ and ‘Bangalored’ were added to IT and business jargon after the turn of the century. Y2K not only was shoved offstage but also became history. Midway into the first decade is a good time to crystal-gaze down the path ahead, take note of the bumps and the milestones and catch a glimpse of what lies beyond the visual range.

Outsourcing has gained its present stature after traversing through contract and sub-contract phases. The supplier country continues to have the satisfaction of generating valuable foreign exchange by exporting hardware / products. We now have Airbus cabin doors travelling to Toulouse from Bangalore, as well as content for sitcoms and popular shows being uploaded to Hollywood, from some remote town in India.

New services joining the outsourcing bandwagon

IT and business processes continue to account for the bulk of inter-country transactions, given the time-tested maturity level these sectors have reached. Other sectors are just beginning to harvest the benefits that accrue from outsourcing. Depending on the nature of the product / process, differences exist in the relative controls wielded over customer / employee / accounting operations.

The next big claimants to the pie are the banking and the financial sector giants who look for services other than Applications Development and Maintenance (ADM). They seek support in the areas of claims and bills processing, share market research and accounting services. For example, Deutsche Bank has closed a deal with an offshore player for providing additional computing (processing) power on demand. American Express is finding it worthwhile to pursue recovery, even from small debtors, through Indian debt collectors because of the substantial savings in costs.

Big names in automotive and aerospace technologies GM, Daimler-Chrysler and Snecma have outsourced engineering services such as design and modelling. Content development (complete pre- to post-production animation, television programming, and digital conversions), research (biotech and engineering), logistics (provisioning, supply chain management etc) and HR services, healthcare and manufacturing; follow in close succession in an economics-driven outsourcing scenario. Already, a firm in Kerala offers attractive personal services outsourcing (PSO) deals – ranging from maintaining your daily accounts and paying your power bills to getting you the birthday gift you wish to give your daughter to completing legal documentation in property deals.

Probable causes for hiccups

New concerns have cropped up along with the mushrooming outsourcing companies and growing variety of services. Enormous web enabled activity means enormous amount of data flow back and forth. Consequently, well placed concerns about quality, safety, security, privacy, confidentiality and timely delivery arise. The grave concerns on data security make some companies cautious. Luckily, hardware technology, the enabling service is keeping pace with software, if not advancing one step ahead of the enabled service.

Another concern is the attrition rate of trained manpower in the nearly ‘saturated’ cities like Bangalore, where infrastructure is unable to keep up to the demand and costs are rising. This is a blessing in disguise for both the outsourcing company as well as the destination country – The former can continue to keep costs down by moving to newer locations while the latter can aim towards overall development outside established hubs.

A third glitch is the absence of sufficient indigenous quality training and certification centres for personnel. This means continued dependence on American and European accrediting agencies. Positive moves in this area will lead the suppliers to better customer satisfaction levels by eliminating or reducing lapses during communication. This will also complement the ISO certifications of quality standards and Six Sigma / CMMI levels of processes.

Another aspect to watch out for is legal correctness. The US is all set to bring about global sourcing legislation. India and other service-providing countries are bringing in regulations on issues like copyright infringement. This means that companies will need specialized legal eagles to guide them on country-specific and global law and tax issues.

New products, processes and locations

Going by the ‘Made in China’ and ‘Made in Taiwan’ tags on most goods ranging from PDA’s to stuffed toys, it is more than likely that the two countries will dominate in the outsourced manufacturing scene for some time to come.

The lead that India has established in the ADM arena will continue to keep Indian service providers ahead. But, with established hubs getting costlier and with diversification in products, processes and services, newer providers are setting up new ‘Tier two’ centres - within India and elsewhere. Indian cities like Pune, Jaipur, Kochi and Lucknow now have BPO centres and software technology parks.

Over forty pharmaceutical companies have established R&D labs in India. Another technology major has filed nearly a hundred patents, that too at a fraction of the cost of filing patents in the US and Europe. Diversification also means more and newer markets. When outsourcers seek specific destinations like the Czech Republic, Belarus, Vietnam, Canada, Mexico, Korea, Philippines and Latin America, they reap obvious benefits – reduced costs and ROI issues apart, they have more choice in providing customer-friendly service in English.

Innovation in business models vis-à-vis outsourcing

When offshoring began, the outsourcer gave work and sat back to watch his processes run smoothly at reduced costs. As HR services, F&A activity and PSO start on the path towards ultimate maturity, even the support infrastructure and processes of the parent company (such as servers and networks) follow offshore. This leads to the necessity of the supplier multiplying his number of contracts in order to retain revenues.

Also, the parent companies themselves are setting up organizations- the so-called captives- offshore to carry on the outsourced activity. Yes, precious IP, expertise and technology is retained in-house, while still accruing the 30-40% cost savings that was the initial reason for outsourcing. This exists as a trend despite the relatively longer time it takes to set up a captive.

Industry-ready manpower from ‘finishing schools’

Whichever model takes centre stage, no matter how long, the demand for industry-ready manpower has to be met. The undoubtedly vast and excellent technical talent pools need to be oriented to satisfy the global software industry. To this end, corporates with foresight are investing time and infrastructure in moulding personnel. The newly opened Infosys training centre at Mysore is geared to make available 12,000 personnel annually who will be groomed in new technologies, communication skills, work ethics and leadership. This training is intended to prepare these young corporate employees to assimilate changes smoothly and rapidly. The company’s ‘Campus Connect’ partnership initiative goes further in enabling reduction in training costs by ‘catching them younger’.

With the industry imposing demands on the quality of “academic deliverables”, academia cannot continue to remain confined within traditional walls. Management and business schools are tuning curricula and encouraging faculty involvement in consultancy services. Dynamic industry-institute dialogue leads the way towards enabling a new professional to be productive right from day one in the industry. Alongside increasing awareness regarding ethics, leadership abilities and quality consciousness, collaborative incubation centres develop entrepreneurship abilities in graduates.

The Diaspora and Returning NRI factors

The Indian Diaspora was directly and indirectly the reason outsourcing came about. Logical reasons to economise, without undue bias towards the mother country, pointed the way to tapping abundantly available qualified and skilled labour. While exodus from India, as from elsewhere, continues unabated towards realising the Great American dream, there are those PIO's (Persons of Indian Origin) who feel the need to come back for various reasons. Many among them are venture capitalists who bring with them experience in innovation.

There is likely to be an increase in start-ups and pursuit of newer technologies, services, processes and outsourcing locales. Perhaps we are headed for a cycle-repeating panorama. The more the merrier.

Author’s note:
ADM: Applications development and maintenance
ROI: Return on Investment
PIO: Person of Indian Origin
Sources: The Hindu, Deccan Herald, Outsourcing Journal, Business Communications Review, NASSCOM website.

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—About our writer:
Swarna likes to think Eleonora Duse had her type in mind when she said “If the sight of the blue skies fills you with joy, if a blade of grass springing up in the fields has power to move you, if the simple things of nature have a message that you understand, rejoice, for your soul is alive”. Her blood group? Be positive.

Swarna is pictured here with her son, Aditya (meaning 'Sun')

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