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Mustafa Suhail Shamsee Jamia Millia Islamia

Outsourcing Industry in India: an overview ABSTRACT The idea of outsourcing is not new. It started way back in the 1700s when manufacturers started shifting the manufactures of goods to countries with cheaper labor during the industrial revolution, following the percepts of Adam Smith in his book The Wealth of Nations. Outsourcing can be defined as a contract service agreement as a company's decision to hire an outside firm to handle the companys responsibilities for a specified time. It involves reassigning a considerable amount of management control to the supplier or the vendor. The primary reason for outsourcing jobs is to gain immediate economic gains for the company, usually comes from saving costs which allows companies to be more competitive. Nowadays, more companies are leaning towards outsourcing because are finding it difficult to supply services from within in order to remain efficient and competitive. To attain and maintain global competitiveness, it is wise for the companies to transfer their high-cost professional jobs to low-cost countries. In India outsourcing of manufacturing is an old story, outsourcing to services is a relatively new phenomenon. Services outsourcing to India started in the 1980s and rapidly accelerated in the '90s. This paper will give an overview and whereabouts of outsourcing especially in the Indian context, and an overview of the outsourcing activities conducted in India. This paper will discuss that what are things which can be outsourced in India and why, and what are the challenges of outsourcing in India. OBJECTIVE 1. 2. 3. 4. Defining Outsourcing and why to outsource? Outsourcing history of India Why outsource to India? What can be outsourced to India? And what are the challenges of outsourcing to India.

Mustafa Suhail Shamsee Jamia Millia Islamia

Literature Review Business Process Outsourcing Outsourcing is one of the oldest ideas; it was used the first time a carpenter paid someone else to cut down a tree for wood. It started way back in the 1700s when manufacturers started shifting the manufactures of goods to countries with cheaper labor during the industrial revolution, following the percepts of Adam Smith in his book The Wealth of Nations. Outsourcing is simply a classic economic principle of division of labor (Nicholas)1 Outsourcing is a generic term used when companies contract non-critical, but essential, business processes and services to third-party vendors, either domestically or offshore. Outsourcing is the act of transferring the work to an external party. Whether or not to outsource is the decision of whether to make or buy. Organizations are continuously faced with the decision of whether to expend resources to create an asset, resource, product or service internally or to buy it from an external party. If the organization chooses to buy, it is engaging in outsourcing. An outsourcing initiative calls for the transfer of factors of production, the resources used to perform the work and the decision rights, or responsibilities for making decisions. The organization transferring these is referred to as the client, the organization that conducts the work and makes decisions is the vendor, and the scope of the work is captured in a project.

The client A client is the person or organization that would like to outsource a given project. Normally, this entity is thinking about utilizing outsourcing as a strategic tool. We are writing this book from the client perspective. Our goal is to help an organization that wants to conduct outsourcing do it effectively and efficiently. Clients can range in scope and size. A client can be an entire organization or a unit within an organization. If the project being outsourced is the entire IT department of the organization, we can say that the organization is the client. However, if we are only outsourcing the payroll functionality of the human resource department, the client is the human resource department, though indirectly the entire organization is also the client. The vendor The vendor is the service provider who will take over and conduct the outsourced work. Vendors come in many shapes and sizes. For instance, a vendor can be an external organization, which is most often the case. However, a vendor can also be a subsidiary of the organization. For instance, Dell Computers has opened operations in places like Brazil, where they own the outfits. Dell routinely sends software work to these locations because of the availability of a skilled workforce and cost savings. Hence, Dell is engaging in what might be called wholly-owned outsourcing by outsourcing work to subsidiaries that it
1

Burkholde C. Nicholas (2006), Outsourcing: The Definitive View, Applications, and Implications; john wiley &sons; new jersey. (pp. 5-8)

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owns, where it can get the work done for a much lower price but with the same quality. Vendors can be differentiated based on where they are located. Some vendors are located onshore or in the same area as the client. Others are located near-shore, as in the case of potential Canadian companies for US clients. Finally, vendors can be offshore, as in the case of Indian companies for British clients. The project The third component is the actual work being outsourced. In the past, the most common form of such work was manufacturing or labor-intensive projects. Today, however, there is a move towards the outsourcing of more complex forms of work, such as software development or R&D. These projects differ from the old manufacturing projects in several ways. First, they are more loosely defined than manufacturing projects. Putting together a software project involves much more creativity than running a basic assembly line to make a piece of clothing for which there are pre-specified guidelines. Second, since the work involves more knowledge-intensive tasks, it requires the use of a more skilled labor force. Third, most projects today are more complex owing to the way communications are handled using IT, the crossfunctional nature of project teams and the presence of multiple stakeholders, many of who may be in different locations and may work for different organizations. Outsourcing projects also involves one more important feature collaborations between organizations that do not necessarily share the same interest or goals. The client organization will normally want to get the work done at the most superior quality for the lowest possible price. The vendor wants to maximize its revenues from the project. These differences in objectives, if not managed appropriately during the contracting and negotiating phases of the outsourcing life cycle, will result in a disastrous business relationship.(Power & Kevin)2 Why Outsource? Outsourcing has emerged as a popular competitive strategy for large and small companies that believe they must perform their business processes offshore in order to survive in the domestic and international marketplace. Outsourcing non-core business processes and competencies to a third party gives the organization better focus and control on their core competences, which will lead to increase the overall profitability of their business. Outsourcing gained greater attention in the 1970s, when large corporations were considered to be underperforming, a trend that became even more pronounced in the early 1980s with the onset of global recession (Kakabadse & Kakabadse, 2000).3 Furthermore, the 1980s seen a shift and change of direction in business strategies focusing on cutting down the number of activities (Peters & Waterman, 1982). As a result, vertically integrated and self-sufficient corporations were achieved by managers who reevaluated the core functions of the organization (Mullin, 1996).4 According to Craig (2004), outsourcing is a feasible choice for many companies. Outsourcing non core activities from the supply chain to a place where that activity can start adding value to the organization. Businesses outsource for many reasons such as increasing shareholder value, gaining competitive advantage, reducing costs, improving operations, business transformation, overcoming lack
2

Power j mark, Desouza c Kevin (2006); The Outsourcing Handbook : How to Implement a Successful Outsourcing Process; kogan page limited, United States (pp-3-8)
3

Kakabadse Nada, Kakabadse Andrew(2002); Trends in Outsourcing: Contrasting USA and Europe European Management Journal, Vol. 20, No. 2, (pp. 189198)
4

Mullin, R. (1996); Managing the outsourced enterprise ; Journal of Business Strategy, Vol.17, No.4, (pp2832)

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of internal capabilities, keeping up with competitors, mitigating capital investment, improving capabilities, improving service, increasing sales, and reducing inventory. In addition to this, other reasons for outsourcing can be; increasing inventory velocity and turns, improving cash flow, turning fixed costs into variable costs and much more benefits. (Craig, 2004) 5 Outsourcing can solve production problems that are faced by global companies. These companies can reach out to cheaper labor markets for production; they can outsource material purchasing to companies that can provide them with the best materials with better prices. Outsourcing can even help in reducing time to market and overcoming timing issues which are of primary importance in outsourcing call centers from the U.S. to India. However there are some problems in outsourcing. According to Linda Taylor (2006)6 in her article in Industry Week, many manufacturers and business these days are reevaluating their strategies for outsourcing. The cost of fuel has increased dramatically making transportation cost go sky high. In addition, time to market is facing extreme pressure in order to reduce such unpleasant delays to the market; therefore, the closer one is to the market, the better one can reduce the delays. Supply chain managers are in great concern on multiple issues such as time of delivery and cost in general. The response time from ordering to fulfillment as well as cost of transportation to the market is the issue to address when deciding for outsourcing. (Taylor, 2006) Reasons to outsource include reduced costs,

enhanced performance, and an ability to access superior expertise and industry best practices, and a desire to devote scarce human resources to core businesses. A third-party service provider may provide better performance at a lower cost than in-house providers because of economies of scale, specialization and tactical focus. Cost savings may be secured by converting fixed costs to a variable cost structure to accommodate fluctuations in labor and equipment needs. Additionally, outsourcing can provide immediate access to expertise and best business practices that may be too expensive to build internally or hire particularly in areas such as technology. The choice of which activities to outsource is often determined by the strategic value of the activity and its level of operational performance. Generally, the less strategic the activity and/or the lower the level of internal performance, the more likely to consider it for outsourcing. Lastly, in the case of certain technology activities, such as desktop support, the cost of keeping current in a rapidly evolving environment is a precipitating factor. Centralized internal support functions, such as internal help desk operations, are other attractive areas to outsource. Such units were typically consolidated to capture internal economies of scale, and are therefore relatively selfcontained and easily separable.

Craig, Tom (2004,). Outsourcing Supply Chain Management 3PL Vs.4PL. accessed on 26 February, 2013, Web site: http://hosteddocs.ittoolbox.com/TC011604.pdf
6

Taylor, Linda (2006). 2007 And Beyond -- Supply Chain Strategies For U.S. Manufacturers, Web site: http://www.industryweek.com/ReadArticle.aspx?ArticleID=12959 accessed on 28 february 2013.

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Risk Associated with Outsourcing

Several factors innate to outsourcing give rise to potential operational, legal and reputational risks. One factor is that outsourcing arrangements are binding contractual relationships with another legal entity, typically an unaffiliated third party. The duration of contracts may be fairly lengthy, often five to ten years, during which time business needs and environments can change significantly and in unanticipated ways. Consequently, there is a risk that financial institutions may be locked into agreements that reflect outdated business realities. The contractual basis of outsourcing coupled with this intrinsic business uncertainty contributes to legal risk.7 Another innate factor is that outsourcing almost inevitably results in changes in the financial institutions business practices and processes, which contributes to operational risk. These changes may be required to capture economies of scale and operational efficiencies, or simply reflect a different way of doing business by the service provider. For example, operations that were performed in-house by decentralized units may be consolidated either before or as a part of the outsourcing arrangement. Consequently, business processes that were customized for individual business units or for the financial institution may now be changed and converted to a more standardized format. 8 A third innate risk factor is the unique concerns that arise from giving third parties access to confidential data, strategic technology applications, or the books and records of the institution. The potential for violations of confidentiality by service provider employees contributes to operational, legal and reputational risks. Fourth, outsourcing requires modifications to the institutions management structures and practices to mitigate operational risk. For example, managers need to be skilled in negotiating and administering outsourcing arrangements, and monitoring the inherent risks at the service provider rather than exercising direct managerial control of departments. If not, the provider may deliver sub-par service or even fail to deliver some critical business activity, possibly resulting in
7

Dhar Subhankar, Balakrishnan Bindu (2006); Risks, Benefits, and Challenges in Global IT Outsourcing: Perspectives and Practices, Journal of Global Information Management, vol. 14, No.3 (pp.39-82)
8

SEBI (2011), Discussion Paper on Outsourcing of Activities Related to Intermediation Services

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a business disruption. An in-house coordination and communication mechanism may also be needed to coordinate internally among business units, externally among several service providers, and between the internal and external groups. Outsourcing often makes considerable demands on in-house staff to provide relevant information. A related issue is the outsourcing of functions that are not well managed and effectively controlled when performed in-house. While the temptation to outsource activities that are experiencing problems is considerable, such actions pose significant operational and legal risks. Management needs to understand the nature of their problems before they can define the solutions that will work and select an appropriate service provider. This understanding is also necessary to define realistic performance measures and to engage in effective monitoring of the service provider.9 Fifth, outsourcing creates a potential dependency on the third-party service provider, which raises several issues. One concern is ensuring adequate responsiveness from the service provider. For example, if a financial institution needs their service modified in some way, that request may be placed in a queue of requests. Individualized and timely attention from the service provider may be uncertain and may entail significant additional costs. In the face of unsatisfactory responsiveness, changing service providers is likely to be a costly option that adds to operational, legal and other risks. This potential dependency on the service provider may increase over time since organizational learning is based mostly on experience, and therefore the financial institutions capacity to learn may be diminished. Day-to-day responsibilities, hands-on experience, and responding to changing business needs provide a training environment for managers. As these processes are transferred outside the organization with outsourcing, managers retained at the institution will need to develop alternative channels to keep their knowledge base current and their skills sharp. Moreover, the next generation of managers those with both technical expertise and knowledge of the business and the institution will need to be developed. Outsourcing also poses significant reputational risk. A problem at the service provider is potentially a problem for the client financial institutions. For example, if the service provider has a highly visible problem with one client institution, the adverse publicity of that situation may have contagion effects for other client institutions. Also, in some situations, such as customer service call centers, the service providers employees interact directly with the financial institutions customers as if they were employees of the financial institution. This direct interaction poses reputational risk for the financial institution if the interaction is not consistent with the financial institutions policies and standards. Lastly, a factor unique to outsourcing is managing the operational, legal and reputational risks during the transition phase. As mentioned, processes may be modified or systems changed. Internal staff may need training in the service providers systems. Adjustments to staff size and transfer of employees to the service provider may raise morale and complex labor law issues. Inadequately handled, the transition can cause the loss of personnel who are highly skilled and familiar with the institutions practices and requirements.

Hillary Mark Kobayashi(2005) Outsourcing to India: The Offshore Advantage; Springer publication, Germany (pp67-78)

Mustafa Suhail Shamsee Jamia Millia Islamia

Outsourcing to India According to (Bhowmik, 2004), outsourcing in India started with the software industries more than a ten years ago. The starting city was Bangalore. With the revolution of the Micro-Electronics in the 80s, production in India has seen an increasing level of changes. In fact, Bangalore is considered the Silicon Valley of India, as a result for accommodating large number of software companies. (Heitzman, 2004).10 Furthermore, a swift improvement in communications in general led to hasty transfers of capital and production between nations. In Kolkata, the government has realized the importance of building up and creating an entirely new area for software corporations in its suburb, called, Salt Lake. They were hoping at that time to enlarge this sector in the future (Mitter and Sen, 2000). 11 Bhowmik (2004)12 cites that Indian software producers are in a comparative cost advantage in regards to software production. In general, the cost of living is lower in India when compared to developed countries. As an example, about $500 a month would be considered as a very decent salary for a professional software programmer. Furthermore, call centers have flourished in India due to the high proficiency in English as well as the lower wages operators look for when compared to their peers in the USA or UK. The operators are paid around $200 per month and supervisors earn around $400 to $500 a month which are several times lower than what a person doing the same job would get in the USA or in Europe. (Bhowmik,2004). Business Process Outsourcing (BPO) to India is increasingly becoming the strategic choice for companies looking primarily to achieve cost reductions and improving their service quality. Such approach will allow these companies to focus more on their core business capabilities and competencies. The Federal Reserve Bank of Dallas in its issue 6, Beyond the Border published in 2003 cites that, to make outsourcing viable, other business-promoting factors must be considered as well, such as the number and quality of skilled workers, maturity of the outsource market, government support, the legal system, political stability, location and accessibility, education, infrastructure, time differentials, technological modernity and English language skills. (Thomas, 2003) 13 IT Outsourcing:Significant growth of software exports can be accounted for with initial body shopping and later by the ITES sector. Export of the ITES sector grew by 73 percent during 2001 2 and 78 per cent in 20023. Indias BPO industry grew by 59 percent in 20023 and is projected to grow 54 percent in 20034 to $3.6 billion (Sharma 2005). Table 1 in Appendix summarizes some important figures in support of the study. In the year 2000, the Information Technology industry reached an important milestone. For the first time, more than half (54%) of IT services purchased in North America were
10

Heitzman, James. (2004). Network City: Planning the Information Society in Bangalore . New Delhi: Oxford University Press.
11

Mitter, Swasti and Asish Sen. (2000). Can Calcutta Become Another Bangalore? Economic and Political Weekly 35:27.
12

Sharit, Bhavmik (2004). Work in a Globalizing Economy: Reflections on Outsourcing in India . Labour, Capital & Society, 37(1/2), 76.
13

Siems, Thomas (2003). Beyond the Border: Do What You Do Best, Outsource the Rest? - Southwest Economy, Issue 6. from Federal Reserve Bank of Dallas Web site: http://www.dallasfed.org/research/swe/2003/swe0306c.html

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outsourced. In 2004, China graduated about 500,000 engineers, India, 200,000 and the United States, 70,000, according to a report called "Rising above the Gathering Storm" issued last fall by an advisory panel of the National Academies (foxnews.com). In addition to this, Federal Reserve Bank of Dallas cites in its Issue 6 (2003), Beyond the Border, that, even though Indias basic infrastructure is among the worst in the world, businesses in India have found ways to compete globally in the IT arena, making India one of the worlds leaders in software exports. India has many universities dedicated to maintaining state of-the-art IT curriculums, and more than 70,000 software engineers graduate annually from Indian institutes. (Thomas, 2003) Services Outsourcing:An article in EconomyWatch.com (2005) analysis that, service sector accounts for more than a half of India's Gross Domestic Product (GDP). The rise in service sector's share in GDP marks a structural change. Reason for high growth rate in service sector in India is liberalization in regulatory framework. That gives rise to innovation and high export earnings. The growth rate of India's service exports in 2002 was 8% compared to 5% Worldwide. India is ranked 21st among exporters of services. India is a signatory to the General Agreement on Trade in Services (WTO-1995) and is actively engaged in seeking full opportunities for free movement of services across borders. Keeping in view the growing dimensions with structural shifts the Government of India has given special status to the services sector in its Export-Import Policy 2002-2007 announced on 31st March 2002. It included all the 161 tradable services covered under the head "Services" where payment for them is received in free foreign exchange.14 (EconomyWatch.com, 2005) Indias service sector is considered one big magnate to attract foreign corporations to the country. The telecommunication infrastructure in some parts of the country as well as the highly quality level of talented Indians who can speak multilingual languages and especially English made it an ideal choice for many companies who are willing to outsource their non core competencies to foreign firms. India is a call center to many foreign companies such as Dell computers, American Express and many other companies. In addition, outsourcing what is called Business Process Outsourcing is now a challenging objective for India.

14

(2005, Oct). Economy for the Month, Indian Economy. Accessd on february 27, 2013, from Economy Watch Web site: http://www.economywatch.com/economyoverview/oct2005-economy.html

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ARGUMENT Benefits and liabilities of Outsourcing. Outsourcing come with many benefits as well as many liabilities below is the table showing few benefits and liabilities associated with the outsourcing business.
Benefits and potential liabilities associated with outsourcing Benefits Potential liabilities Labor arbitrage (profit from labor wage differential). Offshore workers cost generally one-third to one-fifth that of U.S. workers). Opportunity to build a global production chain. Labor productivity and economies of scale, efficiencies, flexibility, and streamline operations. Ability to focus on core-competencies to create stronger companies. Greater flexibility to respond to unexpected changes in the business cycle or in the market. Access to latest technologies, business practices, and other skills not available within the company. Lower operations costs. Ability to provide around the clock services to customers. Ability to convert fixed costs to variable costs. Overall cost savings can range between 20 to 60 percent. Savings from reduced costs can be translated into lower prices for consumers. Sources: Nasscom, IT PRO, Lack of intellectual property - weaker data security in many developing countries (no data protection laws to ensure data security), sharing sensitive data and proprietary technology. Loss of institutional knowledge. Weakness in internal controls of 3rd party players. Hidden costs: staff training, redeployment costs, lost productivity during transition, temporary staff costs, cost of selecting a vendor, cost of layoffs, cultural costs, and cost of managing an offshore contract. Loss of management control. Dependency on political stability in the host country. Loss of production and customer knowledge base. Vendor underperformance. Loss of flexibility. Loss of bargaining power. Quality-delivery issues

Advantages of Outsourcing to India Indias comparative advantage lies in its highly developed and successful IT sector, its reputation for low-cost high quality work. Indias BPO sector has a large pool of low-wage English speaking IT knowledge workers, a strong educational tradition, growing Internet and telecommunications capabilities, and a favorable time zone differential. The major benefits of outsourcing to India are summarized in the following table.
Indias comparative advantages

Human capital advantages: Large pool of low-cost computer literate English speaking professionals (2 million college graduates per year) with strong technical and quantitative skills. India has over 270 universities and 2,400 professional colleges graduating large numbers of science, technology, finance, business, engineering students. Economic advantages: Manpower cost between one-tenth to one-fifth of wages earned by American IT workers. Higher free cash flow due to reduced investments in physical infrastructure, telecom services and equipment, wage arbitrage has also led to increased cost savings. Compared to countries like China, the Philippines, and Malaysia, India has a comparative advantage in superior project management skills.

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Booming BPO sector where employment has increased by 479 percent since 1999 also has access to IT software technology parks and other central and state government incentives. Telecommunications service: India has the worlds fifth largest public sector telecommunications network. Reliable satellite and submarine communications links; significant reduction in telecommunication rates, privatization has brought greater access to competitive cellular, basic, Internet, and international gateway services offered by the private sector vendors. Government has liberalized telecommunications sector permitting 100 percent FDI. Adequate physical infrastructure. Strong flow of global venture capital. Improved efficiencies and high service levels due to streamlined processes. General institutional comparability: India has a well developed banking system and capital markets. Democratic government and relative political stability. Independent judiciary with Western legal and accounting systems, media, and advertising. Other important factors: Leveraging time zone differential (GMT + 4.5) that enables timely turnaround time and 24x7 services. Work practices largely comply with international quality assurance standards (SEI-CMM Level5, ISO 9000, TQM, Six Sigma Quality, BS 7799, and COPC). Proliferation of software parks and Export Enterprise Zones. Information Technology Act 2000 brought e-commerce within the purview of the law and provides for stringent punishment of cyber crimes. Real estate and general and administrative expenses are low in comparison with the United States, Japan, and Western Europe.
Sources: Nasscom, Gartner, McKinsey Global,

What can be outsourced to India? 1. Call center outsourcing Typically, BPO services include: Inbound call center services These typically include answering services that are available 24X7. Call center agents can also be trained to up-sell and cross sell services, take orders, and provide information on the benefits and features of products/services Outbound call center services These include services like telemarketing services, lead generation services, and market intelligence services Technical helpdesk services This includes technical after-sales support for products and services 2. Knowledge Process Outsourcing (KPO) A KPO typically provides domain-based processes and employs advanced analytical skills and business expertise, rather than just process expertise. Some research services include: Market research and analysis These services help the business extract useful information that reveals current trends and provides inputs for decision-making

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Web-based market research These services help collect information from different websites. As compared to primary research where data is directly collected from respondents, data is collected from secondary sources like government publications and newsgroups 3. Data entry outsourcing All organizations, whether big or small, have data entry requirements. Data entry outsourcing can be divided into: Online data entry These includes services such as compilation of data from websites and e-books, updating online catalogs, and creation of databases. Offline data entry These include services such as offline data capture, fillings of forms, forms processing, data entry from one format/version to another, MS Word document data entry, etc 4. IT sector outsourcing IT outsourcing typically includes outsourcing of software development. This may take the form of end-to end outsourcing where all activities related to design, development, and testing are outsourced. In other cases, only a part or portion of the overall system is outsourced for development. This is in cases where the client does not have the requisite skills or technology for the development work. 5. Healthcare sector outsourcing Medical outsourcing includes a diverse range of HIPAA compliant services. These include: Medical transcription services These include services to transcribe information from a variety of audio sources and file formats such as MP3, MPG, MOV, DSS, WMA, etc Medical coding and billing services These services are delivered using popular billing software like Medic and Lytec Teleradiology services - These services provide 24X7 access to qualified radiologists 6. Financial sector outsourcing Accounts outsourcing services include: Accounting services These include preparation of financial statements for the statutory annual audit, cash forecasting services, and payroll services Bookkeeping services These include preparation and maintenance of both day-to-day books as well as monthly and quarterly accounts. It also includes preparations of different kinds of reports like sales reports. Financial analysis services These include analysis of financial information such as financial statements, portfolio structures, and offer documents.

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Opportunities for the Indian Outsourcing Industry The growth of Indian outsourcing industry has been phenomenal. As markets worldwide are becoming knowledge-intensive, India has evolved to become the most preferred destination for knowledge services. Knowledge Process Outsourcing may soon be the biggest revenue grosser in India. India has a large pool of skilled manpower Chartered Accountants, MBAs, Doctors, Lawyers, Research Analysts, etc., which strengthens its position in the knowledge service industry. Opportunities for India in terms of outsourcing are:

In services that require advanced English, like KPO, Content and Medicine, India will continue to excel. NASSCOM predicts that India will emerge as a global hub for knowledge services by 2015.

India has a large pool of English-speaking lawyers with expertise in foreign legal systems who can offer legal support and patent services. A few Indian companies are already affiliated with American legal firms and they have captured a small part of the American market.

India is now the leader in the FAO market with many Fortune 500 companies already having their outsourced operations in India with firms like IBM, ACS, TCS etc.

India has a big market in pharmaceuticals, in terms of clinical research and manufacturing. Availability of talent for high-quality trials and data management gives it an edge over competitors. Ranbaxy, a major Indian pharmaceutical firm, has tied up with GlaxoSmithKline to manufacture certain compounds together.

Another vertical that presents great potential for India is Infrastructure Management Services. A wide range of management services for IT infrastructure, application operations, IT security and maintenance can be provided.

According to a study done by Booze and Company, India will become a dominant player in the Engineering R&D market which is expected to expand to $1.4 trillion by 2020. India's domestic market is expected to contribute 10-15% of the global ER&D services market.

Challenges for the Indian Outsourcing Industry The industry is undergoing an evolution, and will continue to be driven by changes in demand. A survey done by Pricewaterhouse Coopers and Duke University's Offshoring Research Network found that the outsourcing industry is transforming as new providers are emerging while existing providers are expanding into new markets. India has made remarkable achievements and has built a strong reputation in the outsourcing industry.

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India will face some new emerging challenges, such as:

The industry is growing rapidly and requires corresponding growth in infrastructure as well, an area where India is lackingthis needs to be addressed.

Due to the rise in labor costs in Indian metro cities, companies are moving towards smaller Tier II cities.

Though India continues to be the world leader in the outsourcing business, it will face tougher challenges in the near future, from South-east Asian countries like Indonesia, Malaysia, the Philippines, Singapore, Vietnam and Thailand, which are improving their positioning as alternative offshore locations.

India's competitiveness is being challenged by countries like Indonesia, which offer cheaper labor in IT and business process skills, while India is experiencing increased labor costs and high attrition, which are of concern, and need to be addressed.

Political crises in markets like the US and UK might result in outsourcing restrictions being put in place.

Challenges of outsourcing to India The explosive growth of outsourcing in India has exposed some fundamental weaknesses such as high attrition rates, absenteeism, rising salaries, inadequate physical infrastructure, and the lack of data privacy laws and intellectual protection. Indias Weaknesses State owned companies continue to dominate telecommunication services market. Weak protection of intellectual property rights. Potential loss of sensitive corporate information. Regional political uncertainty (Kashmir and Pakistan). English is spoken with a heavy accent. Lack of customer service culture. Poor infrastructure, which increases costs. Underdeveloped and unreliable electrical infrastructure, roads, railways, power, inadequate housing, inadequate and expensive telecom infrastructure, poor PC and internet access rates. Process implementation and marketing are generally still in their infancy. Rising operator attrition and rising training costs. Corruption. Low-quality middle and floor management (one prime cause of attrition). Absence of legislation for intellectual property and data protection. Margins may come under pressures as competition increases from other countries.

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Most Indian BPO companies are small by world standards. Price wars. Small and desperate players drive down prices, causing irrational pricing behavior and poor service.
Sources: Nasscom, Gartner, McKinsey Global,

Insights of Outsourcing Industry in India Consequently, hundreds of corporations moved portions of their noncore customer services and other financial and administrative functions, to countries like India, China, and the Philippines to take advantage of substantial labor cost differentials.

Indian companies appear to be moving up the value-added chain in the BPO market to provide higher skilled and more sophisticated services. Indian business process outsourcing firms are now performing tasks such as computer chip design, information technology services, architecture, engineering and design, business consulting, pharmaceutical research, and financial analysis, and many multinationals have established research and development centers in India. According to Frost & Sullivan, the India business process outsourcing research and development market is expected to have grown from $1.3 billion in 2003 to $12.1 billion by 2012.

India still remains the Hotpoint for outsourcing as it ranked first according the Global Outsourcing Index however the country is facing tough competition by its following country like China and others. The most

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important which keeps India at the top of the list is its IT competency, Legal environment and the Cultural risk.

Source: NASSCOM According to the NASSCOM report 2012, the Net Hiring in the BPO sector had been declined; however the total employee working in the BPO sector had been increased. And the net addition to the active clients is increasing which clearly shows that still the BPO sector in India is increasing but new clients growth rates shows ups and downs which means that the business organization which are outsourcing some of their operations do consider other countries also as their preferred destination for outsourcing their business.

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CONCLUSION India is undoubtedly the leader in the global offshoring industry today, and it is likely to remain so for the foreseeable future. However, service providers need to work at the micro and macro levels to manage attrition and other ills of the industry to ensure that the country retains its fair share of the total global outsourcing (offshoring) business. The BPO industry is seen as a major employment generator and foreign exchange earner for the Indian economy over the next decade. The Indian domestic outsourcing has its own loopholes that make the business of operations for BPO players quite challenging. However of the decline in the growth rate outsourcing is gaining steam in India. While outsourcing to India Companies get many benefit from low cost skilled labour force availaible round the clock for the service, various R&D benefits, low relational risk and favourable legal regulation like there is no data protection laws which restricts the inflow and outflow of data, linguistic skills, institutional comparability, low priced telecommunications services, and its ability to offer quality services.

Mustafa Suhail Shamsee Jamia Millia Islamia

Bibliography 1. Burkholde C. Nicholas (2006), Outsourcing: The Definitive View, Applications, and Implications; john wiley &sons; new jersey. (pp. 5-8) 2. Power j mark, Desouza c Kevin (2006); The Outsourcing Handbook : How to Implement a Successful Outsourcing Process; kogan page limited, United States (pp-3-8) 3. Kakabadse Nada, Kakabadse Andrew(2002); Trends in Outsourcing: Contrasting USA and Europe European Management Journal, Vol. 20, No. 2, (pp. 189198) 4. Mullin, R. (1996); Managing the outsourced enterprise ; Journal of Business Strategy, Vol.17, No.4, (pp2832)
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