History:

       
         Advantages of outsourcing to India:

The three-decade-old IT-BPO industry has had great impact on the Indian economy and society, more than any other sector, and within a much shorter time frame. According to the NASSCOM report, the Indian IT-BPO industry has undergone a rapid evolution, as it has kept abreast of what the global markets require in terms of products and services. 

In a recent survey, 80% of European and US outsourcing firms ranked India as their number one outsourcing destination. The National Association of Software & Service Companies (NASSCOM) also reported that almost half of all Fortune 500 companies choose to outsource software development to Indian outsourcing firms.

Indian IT's core competencies and strengths have attracted significant investments from major countries. The computer software and hardware sector in India attracted cumulative Foreign Direct Investment (FDI) inflows worth US$ 21.02 billion between April 2000 and March 2016, according to data released by the Department of Industrial Policy and Promotion (DIPP).

1.      Wide gap that exists between personnel costs in India and that of the developed countries.

2.       Consistent high quality service provided by Indian outsourcing firms.

3.      The Indian Government is stable and offers attractive IT policies

4.      Indian outsourcing companies are able to provide the quickest time-to-market due to the advantages gained by time zone differences. 

5.      India has gained global confidence with major players such as Cisco, Oracle and Hewlett-Packard opting for India because they are confident of gaining access to superior talent, quality results, fast turnaround times and low costs. 

Business Process Outsourcing (BPO) sector in Asia is more or less a battle between India and the Philippines

1. PROVISIONS OF THE 2O14-2O15 UNION BUDGET: Service tax exemption for services provided by operators of common biomedical waste treatment facilities by treating or disposal of bio-medical waste or processes.

2. As part of Digital India Initiative Government has turned sufficient attention towards Healthcare services: E-health services which aims at providing timely, effective and economical healthcare services to all.

3. Major differentiators such as certain favourable government policies, fast-developing infrastructure- due to the advent of “Make in India” and “Digital India” initiative, and an immensely talented work force are responsible for the Indian IT outsourcing industry continuing to experience a tremendous growth rate of 25–30% per year.

4. With the advent of GST, the percentage of cascaded indirect taxes are expected to decrease in India.

Many of these cities have highly developed educational infrastructure, ensuring fresh crops of qualified graduates for the foreseeable future.

REASONS :
1.India has the largest technical and professional talent pool in the world
2.India offers flexible pricing options
3.India provides consistent high quality services
4.India boasts of the best in Infrastructure and technological capabilities
5.The Indian Government is stable and offers attractive IT policies
6.Indian companies provide the quickest time-to-market
7.India—the most preferred global destination

·         Indian service sector grew at approximately 8 per cent per annum and contributed to about 64 per cent of India's GDP in FY 2015-16.

·         A T Kearney's 2016 Global Services Location Index (GSLI) rated India as number one out of the total 55 countries analysed.

India is the best outsourcing destination because of the following factors:

·         Right Skill set

·         Good talent at lower costs but also, quality work.

·         Reliable customer service and in getting an edge over the competitors.

·         Access to latest technology

·         Good educational infrastructure that ensures the availability of talented professionals

·         Secured business environment

·         Availability of labour and lower attrition rates

·         Work Ethics- mainly Respect giving attitude

·         Problem solving mindset

·         Proficiency in English language

·         Minimum turn around time so you get maximum benefits

·         The services sector is the key driver of India’s economic growth. The sector contributed around 66.1 per cent of its Gross Value Added growth in 2015-16, thereby becoming an important net foreign exchange earner and the most attractive sector for FDI (Foreign Direct Investment) inflows.!

·         The Indian telecommunication services market is expected to grow by 10.3 per cent year-on-year to reach US$ 103.9 billion by 2020##.

·         India is the eighth largest services exporter in the world. The services exports have in 2014 stood at US$ 155.6 billion, which constitutes 7.5 per cent of the GDP. The services imports increased at a rate of 3.3 per cent to US$ 81.1 billion in 2014-15.

·         Out of overall services sector, the sub-sector comprising financial services, real estate and professional services contributed 21.6 per cent to the GDP, and grew the fastest among all sub-segments at 10.3 per cent year-on-year in 2015-16. The sub-sector of trade, hotels, transport, communication and services related to broadcasting contributed 12.6 per cent to the GDP. The third-largest sub-segment comprising public administration, defence and other services contributed nearly 12.6 per cent to the GDP.

 

The Indian services sector has attracted the highest amount of FDI equity inflows in the period April 2000-March 2016, amounting to about US$ 50.79 billion which is about 18 per cent of the total foreign inflows, according to the Department of Industrial Policy and Promotion (DIPP).

The Government of India recognises the importance of promoting growth in services sectors and provides several incentives in wide variety of sectors such as health care, tourism, education, engineering, communications, transportation, information technology, banking, finance, management, among others.

The Government of India has adopted a few initiatives in the recent past. Some of these are as follows:

1. Professional services to the world provided remotely from India – IT services, IT enabled services, telemedicine, e-learning, etc. 

2. Customers serviced in India (import of customers) – special service tourism (health care, education services), leisure tourism, etc. 

The potential revenue from these two opportunities is huge. By 2020, India Inc. can hope to generate $139-365 billion of additional revenue from these opportunities, pushing the GDP growth rate by an additional 0.6-1.5% between 2002-20. The resultant employment generation (direct and indirect) can be in the range of 20-72 million by 2020.

Remote services alone can contribute $133-315 billion in revenues to the Indian economy by 2020. The resultant employment creation (direct and indirect) will be in the range of 10-24 million jobs by 2020. Starting with simple services, such as call centers targeted at corporate clients, Indian providers can evolve to providing more complex services to corporations and also targeting individuals as potential customers.

The second opportunity, importing customers into India, has the potential of generating $6-50 billion of revenues and creating between 10 and 48 million jobs (direct and indirect) by 2020. Purely from an economic perspective, the fundamentals for this business are strongly in India’s favor. The cost of medical treatment and educational services in India is a fraction of the cost in developed countries

CONCLUSION

1. India can accelerate its economic growth and mitigate the unemployment problem that is forecast for the coming decades by seizing a huge opportunity provided to it by a combination of global developments in industry, trade, and demographics

 2. Many agencies in India need to act now to prepare to capitalize on this opportunity. Even in a pessimistic scenario of global economic growth, the gains for India are very large. Therefore, we should not waste further time debating the precise size of this opportunity. Rather, we must move to action

A huge shortage of talent, infrastructural deficiencies and external political problems like a backlash from European and North American markets could pose formidable challenges. "India's economic growth will be greatly accelerated if the India-based IT and BPO industries sustain their global leadership and are able to generate approximately $100 billion in export revenues by 2020," the report released Monday said. "But India's offshore industries have to overcome major challenges to continue their heady growth and sustain their share relative to other competing countries," it added. The first major challenge is that the demand growth may slow down. According to Noshir Kaka, principal of McKinsey and a co-author of the report, global companies are now at a crossroads point: "Increasingly there is a realization that changing business processes to accommodate large offshore workforces is a difficult, time-consuming task and often produces lower than expected savings." For instance, he says that it can take a year or two before performance stabilizes and the volume of work ramps up, which slows the payoff. And, as union and political opposition to offshoring grows, companies in Europe and North America are growing more wary of sending thousands of jobs to India. Indeed, during the recent referendums on the European Constitution, as well as the 2004 U.S. presidential campaign, job losses from offshoring were a major issue. "There are also concerns about service quality and security, in the wake of several well-publicized security breaches," said Kaka, "and these put together are making many companies think twice before moving functions offshore."

 

The BPO sector faces even bigger problems. Urban infrastructure is an even bigger challenge than the demand constraints that its peer -- the IT services sector -- faces. After all, India's offshoring industries are dealing with bottlenecks ranging from power to cafeteria services, the most glaring example of which is Bangalore -- considered to be the "Silicon Valley" of India -- which is almost on the verge of collapse. The report added that most larger Indian cities have reached saturation in terms of supporting the IT sector, and further growth will have to come from entirely new business districts outside of the Tier I and Tier II cities such as Bangalore, Madras (now called Chennai), Gurgoan (near New Delhi) and Pune (near Bombay).Equally importantly for the BPO sector, India also confronts a potential shortage of skilled workers in the next decade. The report has estimated that currently only about 25 percent of the country's technical graduates and 10 percent to 15 percent of general college graduates are suitable for employment in the offshore IT and BPO industries respectively.

 

"India will need a 6.3 million-strong IT and BPO workforce by 2020 to maintain its current market share," it says. "And our supply projections indicate a potential shortfall of nearly 0.5 million qualified employees -- nearly 70 percent of which will be concentrated in the BPO industry."

"As countries from around the world enter the market and competition for offshoring contracts intensify, India must improve the quality and skills of its workforce," the report added.

For instance, India lacks large numbers of workers who are fluent in French, German, Japanese and Spanish, making China and Eastern Europe more attractive offshoring destinations for Japanese and Western European companies, respectively.

The final challenge facing Indian IT service providers, according to the report, is the need to continuously innovate in developing new service lines and improving their operating processes.

"Traditional service lines such as call-centers are under pressure," says Jayant Sinha, a partner at McKinsey.

And given the latest rise in costs -- wages and other costs that are rising by 15 percent per year -- India-based IT and BPO providers will need to keep finding ways to reduce total costs so that "they can continue to offer customers 30 percent to 40 percent cost savings."

Additionally, the model of offshore replication of existing onsite processes limit providers from capturing the full value from offshoring.

Nevertheless, it is also true that the addressable market for global offshoring is huge and offers India an opportunity of dramatic growth if the country can meet these challenges.

"Our research suggests that rapid growth is likely to continue in the global offshore IT and BPO industries," the report said. The Nasscom-McKinsey study, which examined the offshoring potential for each service line in the IT market and for each vertical industry in the BPO market, indicated that the addressable market for global offshoring is above $300 billion, split almost evenly between IT and BPO. And India has realized "only around 10 percent or so of this addressable market until now leaving ample headroom for future growth."

Small wonder then that S. Ramadorai, CEO of TCS, the country's largest IT services company, believes the country's IT sector could become "one of the biggest examples of export-led growth in the world, rivaling the oil exports from the Gulf."

—Upinder Zutshi, CEO of Infinite Computer Solutions

With a decline in sales, hiring in India by outsourcers has also slowed significantly. New job growth is projected to hit a five-year low this year, according to India’s National Association of Software and Services Companies. Tata Consultancy Services, India’s largest outsourcer by revenue, added 19,192 jobs in the year ended in March, down from 24,268 over the same period a year earlier, according to the company’s annual reports.

India’s outsourcing giants rose to prominence in the late 1990s because they could deploy armies of engineers at lower salaries than their Western counterparts to build bespoke programs as well as monitor and maintain in-house computer networks cheaply for the world’s biggest companies.

They wrote basic code for databases and enterprise software and handled labor-intensive jobs, such as upgrading their customers’ copies of Microsoft Office, Explorer and other mundane programs.

As more companies ditch their own data centers for cloud storage and replace custom-made software with off-the-shelf cloud versions, the need for coders and technicians has fallen drastically, undercutting India’s low-cost-labor advantage.