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Meaning of outsourcing:
In a world of IT, 'outsourcing' is the process through which one company
anywhere in the world hands over part of its work to another company,
making it responsible for the design and implementation of the business process under strict guidelines
regarding requirements and specifications from the outsourcing company. This
process is beneficial to both the outsourcing company and the service provider,
as enables the outsourcer to reduce costs and increase quality in non core areas
of business and utilize his expertise and competencies to the maximum.
The Outsourcing History of India:
With the process of globalization in India during the early 1990s, successive
Indian governments have pursued programs of economic reform committed to
liberalization and privatization. Till 1994, the Indian telecom sector was under
direct governmental control and the state owned units enjoyed a monopoly in the
market. In 1994, the government announced a policy under which the sector was
liberalized and private participation was encouraged. The New Telecom Policy of
1999 brought in further changes with the introduction of IP telephony and ended
the state monopoly on international calling facilities. This brought about a
drastic reduction and this heralded the golden era for the ITES/BPO industry and
ushered in a slew of inbound/outbound call centres and data processing
centres. Although the IT industry in India has existed since the early 1980s, it was the
early and mid 1990s that saw the emergence of outsourcing. One of the first
outsourced services was medical transcription, but outsourcing of business
processes like data processing, billing, and customer support began towards the
end of the 1990s when MNCs established wholly owned subsidiaries which catered
to the process off-shoring requirements of their parent companies. Some of the
earliest players in the Indian market were American Express, GE Capital and
British Airways.
The ITES or BPO industry has grown phenomenally and has now become a very
important part of the export-oriented IT software and services environment. It
initially began as an activity confined to multinational companies, but today it
has developed into a broad based business platform backed by leading Indian IT
software and services organizations and other third party service providers. The
ITES/BPO market expanded its base with the entry of Indian IT companies and the
ITES market of the present day is characterized by the existence of these IT
giants who are able to leverage their broad skill-sets and global clientele to
offer a wide spectrum of services. Today, Indian companies are offering a variety of outsourced services ranging from customer
care, transcription, billing services and database marketing, to Web
sales/marketing, accounting, tax processing, transaction document management,
telesales/ telemarketing, HR hiring and biotech research.
Looking at the success of India's IT/software industry, the central government
identified ITES/ BPO as a key contributor to economic growth prioritized the
attraction of FDI in this segment by establishing 'Software Technology Parks'
and 'Export Enterprise Zones'. Benefits like tax-holidays generally enjoyed by
the software industry were also made available to the ITES/ BPO sector. The
National Telecom Policy (NTP) introduced in 1999 and the deregulation of the
telecom industry opened up national, long distance, and international
connectivity to competition. The governments of various states also provide
assistance to companies to overcome the recruitment, retention, and training
challenges in order to attract investments to their region. The National
Association of Software and Service Companies (NASSCOM) has created platforms
for the dissemination of knowledge and research in the industry through its
survey and conferences. NASSCOM acts as an 'advisor, consultant and coordinating
body' for the ITES/BPO industry and liaisons between the central and state
government committees and the industry. The ardent advocacy of the
ITES/BPO industry has led to the inclusion of call centers in the 'Business Auxiliary
Services' segment, thereby ensuring exemption from service tax under the Finance
Bill of 2003.
These measures have led to a steady inflow of investments by large foreign
companies such as Reuters, for establishing large captive ITES/BPO facilities
across India. Moreover, the existing ITES/BPO operations of major multi-nationals are also being ramped up to cater to the ever increasing demand
for better and speedier service. Almost all of India's top ITES/BPO giants have
announced some form of expansion and are in the process of hiring manpower to fill the additional seats. India's competitive advantage lies in its ability to
provide huge cost savings thereby enabling productivity gains and this has given
India an edge in the global ITES/BPO marketplace. NASSCOM studies pinpoint the
following factors as the major reasons behind India's success in this industry
(Source: www.nasscom.org):
(i) Abundant, skilled, English-speaking manpower, which is being harnessed even by ITES hubs such as Singapore and Ireland.
(ii) Improving telecom and other infrastructure which is at par with global standards.
(iii) Strong quality orientation among players and their focus on measuring and monitoring quality
targets .(iv) Fast turnaround times and the ability to offer 24x7 services based on the country's unique geographic location that allows for leveraging time zone differences.
(v) Proactive and positive policy environment which encourages ITES/
BPO investments and simplifies rules and procedures. (vi) A friendly tax structure, which places the ITES/BPO industry on par with IT services companies.
NASSCOM lists the major indicators of the high growth potential of the ITES/BPO industry in India as the following (Source
www.nasscom.org):
During 2003-04, the ITES-BPO segment is estimated to have achieved a 54 percent growth in revenues as compared to the previous year. ITES exports accounted for US$ 3.6 billion in revenues, up from US$ 2.5 billion in 2002-03.
The ITES-BPO segment also proved to be a major opportunity for job seekers, creating employment for around 74,400 additional personnel in India during 2003-04.
The number of Indians working for this sector jumped to 245,500 by March, 2004.
By the year 2008, the segment is expected to employ over 1.1 million Indians, according to studies conducted by NASSCOM and leading business Intelligence Company, McKinsey & Co. Market research shows that in terms of job creation, the ITES-BPO industry is growing at over 50 percent.
Surveys of the Indian ITES/BPO industry in 2004 expected it to follow the trends
given below:
Customer care: Customer care and support services will continue to lead in terms of revenue generation, with a turnover of around US$ 1200 million in 2003-04., up from last year's turnover of US$810 million.
Finance: With the financial services segment moving into value added domains like insurance claims processing, financial management services and equity research, this segment is expected to clock the highest growth, with estimates of US$820 million in revenue in 2003-04, up from US$510 million in 2002-03.
HR services: HR services are also expected to grow and revenues are expected to touch US$70 million during 2003-04, thereby providing latent opportunities to the industry's dominant players.
Payment services: This segment has also been identified as a high growth area within the industry, and is expected to generate revenues of around US$430 million for 2003-04, up from US$210 million in 2002-03.
Administration: Revenues from the administration services segment are expected to
increase from US$ 310 million in 2002-03, to US$540 million during 2003-04.
Content development: The content development services segment which includes engineering and design services, digitization (GIS), animation, network management and biotech research, is expected clock a turnover of around US$520 million in 2003-04.
The availability of technically trained and skilled manpower in India is making
companies across the world look at the country as a profitable base to shift
their high-end support services. Other areas are high-end network engineering/management support. Another field which
is showing immense potential is that of digital content creation and animation.
Animation studios like Walt Disney, MGM and Warner Brothers are already
outsourcing low-end work like clean-ups, twining and modeling to India. The
availability of skilled and trained manpower and India's ability to keep in step
with the latest technological advances in the industry is prompting foreign
studios to consider India as a base to shift other high-end animation work like
storyboarding and developing original content for animated films ad TV series.
Tele-radiology is the next segment that holds great promise, mainly due to the
time zone differences and the availability of highly skilled radiologists and
companies. Engineering services like CAD/CAM 2D, 3D and CAE modeling
and design automation are the latest additions
to the ever increasing list of processes being outsourced to India.
The current scenario:
Rising competition, an overload on existing infrastructure, and high attrition
rates are some of the reasons why the Indian government and NASSCOM are
promoting smaller Indian towns and cities. NASSCOM predicts that about 30 percent of India's outsourcing revenues will be
going to smaller cities within a few years. General Electric Capital International Services
(GECIS), a subsidiary of the US
company, recently opened a customer support center in Jaipur, a tremendously
popular tourist location. The center handles 200 and there may be an increase to
2,500 employees by the end of 2006. EXL Service Inc, a US incorporated BPO company, is currently hiring 300 people
per month. Part of its recruitment strategy involves hiring from smaller cities.
ICICI OneSource , 24/7 and MsourcE, and many more company
hiring daily from smaller cities.
The metro cities, Delhi, Mumbai, and Bangalore, are still the dominant players,
but there is an exploration of less congested locations like Jaipur, Cochin, and
Pune. Experienced professionals, less competition, loyal employees, cost
effectiveness, and ample space are some of the reasons why smaller towns and
cities are attracting attention. Smaller cities like Mangalore, Mysore, and Hubli are being promoted as preferred
destinations for software development and outsourcing companies.
Wipro, India's second largest IT company, has bought 10 hectares of land in the
$100 million Infopark in Kochi. It is also building a $22 million campus that
will eventually employ 5,000 workers in its software development and BPO
operations.
Kolkota (Calcutta), the capital of the state of West Bengal, is gradually
attracting investment with its inteleectual talent and low costs. Currently the
revenue generated by the West Bengal IT industry is miniscule, accounting for
2.2% of India's total, whereas Karnataka accounts for a third of the total.
However, the communist government in the state, is playing an important role in
Kolkota's transformation. A number of these IT centres are being built on the
outskirts of cities like Bangalore, Pune, Chennai, and Hyderabad. There are several other cities that are being explored. Nagpur,
Lucknow, Allahabad, Varanasi, larger cities in Kerala, Punjab, Tamil Nadu, Karnataka, and
the North East are all bustling centers which have a large stream of educated
English speaking people.
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