Outsourcing to India: What is the big secret to the success of half of fortune 500?

Outsourcing to India

Why do more than half the world’s top 500 firms use India for Offshore Outsourcing, Software Outsourcing, “back office” functions and even supporting business applications? As a business owner, you know the importance of the bottom line.

If you are publicly traded, how can you keep Wall Street happy? If you are private, your investors want the same thing—for you to turn a profit. In many cases, your competitor has long since determined that outsourcing to India is one way to realize that profit.

What has your competitor figured out that you are still resisting?

Making the Comparison Between Equally Qualified Professionals in the US and India

Salary expectations for Information Systems/Information Technology professionals are high in the United States. It is not unheard of to pay someone with a Bachelor’s in Computer Science who is also certified in MCSC, Net App and myriad others, a six-figure salary.

Along with a competitive salary, US employees expect—and governments may mandate—health insurance, disability, and social security. Your larger competitors—for talent if not for customers—may offer additional benefits: tuition reimbursement, stock options or profit sharing, subsidized day care, expanded health care, life insurance, flextime, three to six weeks time off, subsidized transportation or telecommuting.

Most Indian IT/IS professionals possess a Master’s degree, come with all the same letters following their names (certified in Microsoft Software, Sun Certified or Oracle certified professionals etc) as their American counterparts—and may command at the upper end a $40,000 salary, without benefits.

On top of that, the official Indian workweek is six nine-hour days; in practice, the private employment workweek often runs higher than 54 hours.

Incentives, Tax Breaks, FDI and Other Reasons to Consider Partnering with India

As a business owner, you are familiar with various “incentive” schemes, usually consisting of a temporary break on taxes, offered by governments to promote business growth. These can be very complex, and political, and particularly for smaller businesses it can be questionable whether taking advantage of them is worth the expense of time and effort—or local policies may simply not apply to one’s business.

Similar incentives exist on the international level, too, under the rubric Foreign Direct Investment. Like the local incentives, these can be complex and may not apply to your particular business—you would need an expert opinion as to whether this is a real factor in your decision. (About.com offers a very basic definition.)

The salient points for this article are that India sees its FDI program as central to its own economic development and actively and cooperatively pursues foreign investment. The relative ease and adaptability of Indian FDI arrangements have made them central to the world economy as well. (Indian monetary policy is also friendly.

Unlike, say, China’s insistence on an artificially valued currency that props up its export-driven economy, India seeks integration with the world economy, and is becoming a major player in global monetary management, helping to protect foreign investors from the shocks currently roiling international markets.)

As one example, IBM sees its presence in India as part of its long-range global planning. Its strategy has included tripling its investment in India; credible sources report that IBM’s Indian workforce likely exceeds its workforce in the U.S.

Its CEO has said: “India and other emerging economies are an increasingly important part of IBM’s global success. If you are not here in India, making the right investments and finding and developing the best employees and business partners, then you won’t be able to combine the skills and expertise here with skills and expertise from around the world, in ways that can help our clients be successful…IBM is not going to miss this opportunity.”

The prominence of technology companies on this short list is no accident. The Indian educational system—including the third largest post-secondary system in the world—places particular emphasis on scientific and technical education.

Curriculum and Emphasis on Technology

The institutional expression of that emphasis is in two sets of élite Indian institutions, the sixteen Indian Institutes of Technology and the five Indian Institutes of Information Technology.

These are stand-alone institutions that generally correspond to the computer science departments of the Institutes of Technology, although they may have a specific emphasis such as informatics or interdisciplinary engineering.

To some extent, the existence and influence of these Institutes is reflected in the location of IT sites that offer outsourcing possibilities.

  • Delhi’s Institute provides skilled workers in the capital and its satellite city, Gurgaon, in the north of India
  • In the south, Institutes in Chennai (Madras) and Hyderabad are supplemented by Hyderabad’s Indian School of Business—recently ranked number 12 in global MBA programs by London’s Financial Times. Also in the south is India’s fastest growing metropolis, “the Silicon Valley of India”, Bengaluru—yes, the proverbial Bangalore.
  • In the west, Pune offers its own unique blend of nine universities with dozens of colleges—giving it the air of a cosmopolitan student town—plus another dozen or so research institutes. Mumbai, on India’s west coast, is its most populous city and its commercial and financial capital, as well as the center of the worldwide phenomenon of the “Bollywood” movie—in American terms, think New York plus Los Angeles in terms of national and international financial and cultural influence. IT is a big part of its strongly diverse economy. Also in the west is Ahmedabad, with its strong commercial culture, diverse foreign joint ventures, and pharmaceutical and chemical industries in addition to IT.
  • In the east, the IT sector in Kolkata (Calcutta) has been growing at 70% annually for a decade, twice as fast as in the rest of the country. It’s also a major financial and cultural hub.

Another factor in the map of IT in India is its twenty-odd Software Technology Parks, located in most of the cities mentioned.

The history of education in India is uneven; the present is promising and the future appears to be bright. High illiteracy persisting into the twenty-first century has not precluded the development of an already existing large pool of talent with excellent technical educations, including some 50 million college graduates.

Moreover, the government has had astonishing successes in eradicating educational disparities through the provision of universal primary education—including a hot lunch that can make all the difference to children in impoverished areas.

Illiteracy has been nearly eradicated in children, and school retention rates have risen sharply. India is projected by 2020 to more than double its number of college graduates, and to produce more such graduates than any other country.

India’s educational future dovetails neatly with its demographics: a young population, the youngest among the world’s large economies, with a median age of twenty-five projected to rise to 30 over the next fifteen years.

(The next youngest major economy, China, has corresponding figures of thirty-four and 39, while in the U.S., Western Europe and Japan the current median age ranges from the late thirties to the mid-40s, with correspondingly high projections of 2025 medians ranging from thirty-nine to 51.)

Education Includes Being Multi-Lingual

India has a rich and diverse number of languages. English is considered a principal language of the country, along with Hindi and various state languages, and is taught in primary schools.

Japanese has been taught for over half a century, and is catching up with such traditionally popular foreign languages as French and German. These are of course key languages in world commerce, and position educated Indian workers as a potentially rich resource for either companies with a global strategy or those with supply chains or customer bases that reach into specific other countries. (Contrast this with the US, perhaps the most obstinately monolingual of industrialized nations.)

India has long been the fastest growing economy in the world. The present global recession excepted, its growth has been essentially exponential for decades. Although many Americans might remember this or that explosive event in modern Indian history, the solidification of its economic success has coincided with orderly political transitions for the last couple of decades. India, in short, has a big and growing piece of the world economic pie—and is willing to share.

This entry was posted in Offshore Outsourcing, Outsourcing to India. Bookmark the permalink.

Comments are closed.