Sustaining Competition – Outsourcing

Companies look at outsourcing their business processes not only as a proven way to reduce cost, but to enable greater focus on the core business. India’s competitive edge in the outsourcing sector hinges on its cost effective business model. Certain operations are being outsourced to India having a language advantage over the other competitors like China or Brazil. Eight out of ten organizations thinking of outsourcing thinks of India first.

Of all the Asian countries, India in particular has seen an outward growth when it comes to the BPO industry. India has a combination of factors in favor compared with some other Asian countries. In the IT industry at large, India has the early starter advantage. This implies that Indian companies over the years have gained deep understanding of the businesses of the customers along with the market dynamics that surround the customers’ business.

India is extensively considered the most attractive country for offshore business process outsourcing. Players based in India were responsible for 46% of the revenues in fiscal 2005. Also the employee cost in India is 15 to 20 percent of the cost in the US. Besides this India has become an established destination for outsourcing and this business history adds to the country’s attractiveness.

In the past few years, India has seen a considerable rise in Business Process Outsourcing (BPO)’s. And with the boom in the IT industry in India, many global companies are stepping on the Indian shores to set up BPOs thus enhancing carrier options and opportunities.

Outsourcing has made India the major hotspot for industries across the globe. But with increasing stakes, many of them are approaching other countries including China. Will India be able to sustain the competition or crumble under pressure?

Countries like Philippines, Mexico, Israel, Russia, especially China provide competition to India with regards to providing cheaper resources. India’s strength is in the intellectual capital of its people which will provide it with a strategic advantage over other countries.

India’s competitive advantage as compared to other countries has made it a target destination for multinationals to back end their operations in the country. To begin with the abundant skilled manpower gives the country an edge. About 100,000 engineers graduate from India every year. Many of these engineers are employed with call centers for troubleshooting and providing technical support.

Several fortune 500 companies have opened centers here, to benefit from technologically skilled, highly educated, motivated workforce. Indian BPO organizations have successfully built up the scale of operation to match the pace of increasing demand of these services. These companies have now graduated and expanded their services offerings from simple process to now provide higher value knowledge based processes. India ranks high in areas such as capabilities, quality of work, linguistic capabilities and work ethics, and thus is ahead of competitors such as China, Philippines, Ireland, Australia, Canada etc. Indian companies also have unique capabilities and systems to set measure and monitor quality targets. Many state governments in India are offering incentives and infrastructure to set up IT enabled services.

Labor cost and abundant supply of skilled manpower are the key factors behind India’s sustenance as the top outsourcing destinations globally. Outsourcing sector in India is experiencing consolidation and “service providers” are moving up the value chain, expanding their onshore presence to strength global delivery capabilities. As India moves up the value chain the newer countries in Asia will move into lower tier activities and more Indian companies are expected to setup and manage lower tier activities from these newer destinations.

India has variety of candidates available. For example, to hire a strong person in India, the client needs only to go through 100 prescreened candidates, while to hire a strong person in China they may need to go through 200-300 prescreened candidates. Indian firms are reducing average wage bills by making larger use of talents coming straight from university. However the key variable is not price alone. One has to consider productivity, to arrive at a metric that is more relevant: price per unit of output. Here is where India really outperforms its peers in Asia.