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India's Outsource Industry Poised To Grow


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By Harbaksh Singh Nanda


Published December 28, 2004



NEW DELHI -- India's fledging outsourcing industry is poised to grow by 40 percent in year 2005 as the country's information technology industry continues to impress the world with its low-cost, high quality service.


According to a study by India's software industry, outsourcing will continue to grow and will bring in $20 billion in revenue in the coming three years.


India's offshore companies survived a major scare. They feared that if elected, John Kerry would have pulled the plug on outsourcing. But with Bush's reelection, India's outsourcing industry looks secure, at least for another four years.


Accordingly, several research studies have predicted a very busy growth of the call-center industry across India in the coming years.


A study by the AMR research says that up to 15 percent of IT jobs required by U.S-based companies will be performed in India by 2010, helping the U.S economy to create investments worth $30 billion per year.


The study said the cost savings from offshore outsourcing would create an additional $30 billion per year in new investments for U.S companies. By then, the Indian IT labor force will be larger than 3 million, and half of the workers will be performing jobs for U.S companies.


Companies effectively outsourcing to India can slash by 40 percent to 50 percent cost of application management and development, data center operations, help desk support, and other non-strategic activities.


The AMR research study summarized its findings: "With average U.S. IT fully loaded labor costs approaching $80,000 per worker per year, a worker in India represents a $36,000 savings per year, and 1.5 million workers represent $54 billion in savings each year. Our research shows that companies reinvest 60 percent of savings from outsourcing in IT or business unit projects, that's $30 billion per year. With the savings from outsourcing to India, U.S. companies can fund and launch 12,000 new strategic projects," it said.


India Inc. is delivering high-value, low-cost services. While Indian providers struggle to understand all the intricacies of the U.S. and European markets, a focus on process, quality, and low cost will make them hard to beat in the long term, it said.


Another study said that India's majority industry players are getting to feel the competitive heat as more and more U.S. companies choose smaller offshore outsourcers to offshore their work. Although the majority of the media's focus has been on large vendors, size is not a key to the success of offshore outsourcing projects and relationships.


Sierra Atlantic, a 700-person offshore outsourcer based in India's southern city of Hyderabad is a fine example. The company launched its operations early this year with 400 employees and has since grown to almost double.


"We plan to add more people to our unit in the New Year," Marc Hebert, executive vice president of Sierra Atlantic told United Press International.


He said that India is No. 1 destination for outsourcing industry, and India's BPO industry has captured 70 percent of global market.


"India has steady and growing supply of good developers and engineers, the infrastructure is improving and people not only speak good English but it is cost effective to outsource work to India," Hebert said.


Hebert cautioned Indian administration to not take it easy and be on its toes to continue streamlining its infrastructure.


"India's advantage will erode over time if it doesn't stay aggressive and current. Besides a steady supply of good engineers, India needs to continue to maintain a friendly business climate," he said.


Hebert, who as a board member of the principal IT lobby group (ITAA) had lobbied the federal government in Washington to maintain and expand the free market in offshore services, said that the United States would be the ultimate gainer by the entire Business Process Outsourcing gamut.


He cited an example that when United States lost 5 million manufacturing jobs over the last 30 years, it created 40 million other jobs during the same period.


While the BPO industry is not only saving big bucks for U.S. companies but has also bolstered the life style of India's new generation. Nearly 400,000 people, mostly young and educated, are employed by the BPO industry, and they are paid much more than they would have earned in other jobs.


Although the BPO company employees in India earn almost one-third of what their counterparts in Western countries make, their salary is enough to afford a new car and a good lifestyle. The spending habit of India's younger generation is changing thanks to the dollar salaries.


Following the United States and the EU, Japan is showing interest in outsourcing jobs to India. According to a survey by the Indian industry, more than 87 percent of Japan's industries wanting to offshore business voted for India.


Citibank N.A., British Airways, General Motors, IBM, Intel and Hewlett Packard are some of the leading multinationals that have routed customer-care calls to Indian cities.


India and United States shared some tense moments in 2004 over the outflow of U.S. jobs to Indian companies.


India's Finance Minister P. Chidambaram said Washington would ultimately gain from outsourcing.


"I think this dispute about outsourcing is highly exaggerated," he told the BBC. "For every dollar that is outsourced by American business to India, U.S. makes at least $10 of business from India."


More and more IT professionals from abroad are returning home due to the growing trend of off-shoring combined with rising employment opportunities in India.


According to the National Association of Software and Services Companies, between 2001 and 2004 roughly 25,000 Indian IT professionals settled abroad have opted to return to the country. And this number is rising.


"This trend is on the rise. Today employment opportunities that one sees in India are comparable to that in the U.S. Companies like Intel and IBM are doing cutting-edge work in India," the NASSCOM Vice-President, Sunil Mehta, told Business Line daily. "Moreover, off-shoring activities are on the rise, providing these professionals an opportunity to come back to the country."


Larger cities in India today offer a quality of life comparable to those in global metros, and professionals are happy with their homecoming.

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