India’s trend and the fact that it is

 

 

India’s Outsourcing Business

By

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A term paper submitted to the Graduate Faculty of Indiana
University of Pennsylvania

Indiana, Pennsylvania

December 2017

 

 

Contents

Title                                                                        Page
No.

1.   Abstract                                                                                                                
3

2.   Introduction                                                                                                         
4

3.   Two Main Domain of Outsourcing
in India                                                                
  5                                                   

4.   Outsourcing in India: Timeline                                                                             7                                                                                               5.   Current
Outsourcing Trend in India                                                        
            9                                        6.   Outsourcing Effects in India                                                                                 10                                                             7.
  India and Brain Drain                                                                                           11                                                                               

8.   Future of Outsourcing                                                                                           12                                                

9.   Conclusion                                                                                                             13                                                         10. Recommendation                                                                                                 14                                                             

11. References                                                                                                                        15
 

12. Appendix                                                                                                                           16

 

 

 

 

Abstract

The
aim of the paper is to discuss the trends of outsourcing in, especially with
respect to India and further more to address the future issues of the country.
Though the practicing of outsourcing is not new and one can readily find
historical example of firms choosing to purchase products and services instead
of producing them in house, the prevalence of this trend and the fact that it
is outsourcing on a global scale are just two of the factors that distinguish
the current wave of outsourcing from the previous forms of outsourcing. However
outsourcing in India is so widespread today that it can potentially affect
every aspect of the business process. Businesses in India are no longer
outsourcing specific tasks but entire business.

Keywords

 

 

 

 

 

Introduction

To
generalize in business outsourcing would roughly be an agreement in which a
company contracts out a part of their existing activity, business process,
operational and non-core functions. We already know quite a few examples of
outsourcing in all fields like manufacturing, processing, and development and
even supply chain.  Outsourcing takes you
back to Romania if you ask about its origins; where romans used to outsource
their tax collections to its neighboring countries. Although there wasn’t much
development in this area, early 1980’s showed a drastic shift in business
strategies where they focused on cutting down the number of activities to
optimize their quality and or cost.  “Do
what you to best and outsource the rest” (Nicole, Erica: Business Insider, Aug
2011) seems to be the current slogan of the companies that look to gain
competitive advantage by outsourcing. Not only they get to cut down their cost
and processes, they also get a lot of options to choose from. Reducing costs,
increasing shareholder value, sales, cash-flow, IT benefits and all other
development options are all the reasons why businesses outsource. (Craig 2004)

Outsourcing
can be a solution sometimes or nowadays can be the only option for business to
operate. Businesses target cheaper markets, better qualities or to reduce the
time factor. A major growth in the logistics industry and the IT industry is
revolutionizing the term ‘outsource’ at present. Boeing as an example, with the
help of excellent logistics can now import and assemble thousands of parts from
around the world reducing time and improving efficiencies. Companies now target
quality as the primary concern and the reason to outsource in areas like
manufacturing. Apple’s iPhone production demands top notch quality and
perfection to deliver to its customers worldwide.

India
has become one of the largest developing countries; one of the leading factors
would be the growth in the IT, R&D and development sectors due to
outsourcing of jobs from software firms across the globe during the 1980’s.
Micro-electronics productions in India took a new turn. Major cities like
Bangalore and Delhi saw an increasing level of changes, followed by Chennai and
Hyderabad. Bangalore, also known as the Silicon Valley is now a leading site
for development and information processing. The cost advantage comparatively
was more in India and also the country offered a younger population of
engineers and research students. Proficiency in English also proved to be a
point to improve their service qualities. Other factors like skilled workers,
accessibility, technology senses and other related demographics are factors
that cannot be missed.

 

Two
main domains of Outsourcing in India:

ITO and BPO:

Information
Technology Services (ITO): This involves the provision of some or all
information systems by one or more service providers and the typical functions
outsourced under an ITO includes data conversion, database administration, help
desk, content development, application development, systems administration,
network management, and other development functions.

ITO:

Software
development and implementation services, data processing and database services,
IT support Services, Application Development and Maintenance , Business
Intelligence and data warehousing, procurement, content analysis, systems
analysis and implementation, SAP, ERP, Enterprise applications, Web Services,
Web hosting and application service providers(ASP’s)

BPO:
 Customer Interaction Services:  Sales support, Membership
management, claims, Subscription    
handling, Customer Services, Billing, Accounting and Telemarketing
Research Services.

Back
Office Operations: Data entry
and handling, Data processing and database services, Medical Transcription,
Payment Services, Financial Processing, Human Resource Processing, Warehousing,
Logistics, E Commerce, Inventory management, Supply chain services, Insurance
claims and tracking, Data Security services, Network management.

More
Independent Professional or Business Services:  Human resource services,
payroll, finance and accounting, auditing, taxation, marketing services,
product design and development.

Source: Mattoo, Aadita, and Wunsch, Sacha. (2004). “Preempting
Protectionism in services:  The GATS and
Outsourcing”. Journal of International Economic Law, 2004, vol.7, issue 4.

Business
Process Outsourcing (BPO): Is when an organization turns over the management
and optimization of a business process to a third party that conducts the
activity based on a predefined performance standard. Software Development and
Implement

 

 

 

Outsourcing
in India: Timeline

From
the 1980’s till date, India has been a host to thousands of businesses.
European airlines started using Delhi as a base for back office operations.
Silicon valleys and Salt Lake cities are all developed in India that sees
outsourcing activities around the world. The governments in India have realized
the importance of building and developing infrastructure’s to make aid for the
development of the country. The availability of skilled workers and the cost
factor attracted businesses to operate in India. It mainly started with the IT
industry; BPO industry grew by 73% during 2001-2 and it kept growing
thereafter. (Sharma 2005). More than half of the IT services from America are
now outsourced to India.
The service sector adds to half of India’s’ Gross Domestic Product – (GDP)
(Economywatch.com).

 India saw an increase in exports, signed a
General Agreement on Trade in Services (WTO-1995) and is now the one of the top
developing countries. Indian call centers are well known, such as HP, Dell,
American Express and many others. When you assess the competitive factor of
emerging nations, India stands at the low cost and high quality development
slab. Vendor sophistication and people sophistication all stands high for
businesses in India.  Other countries
like china, Philippines, Russia, Brazil and Africa are few other development
options for businesses to outsource. IT sector has been the prime area and has
maintained its position amidst growing competitions from China.  Philippines have become the next destination
for call centers. India is seeing a dip in the call center industry and a huge
rise in the IT development and research centers.

Software
developments, testing and automation, backend processes are all on the rise.
The growth of technology has made knowledge transfers easy, thereby increasing
outsourcing efficiencies for businesses in India. Indian Universities with
their IT courses produce more than 100000 engineers annually; this coupled with
the growing infrastructure methods in the country has led to a career boom in
the employment sector in India. The country ranks third in Knowledge and
Information based jobs in the 2002 Global Tech Index research by META
group.  The following is a rough
chronology of Indian Outsourcing:

General
Electric 1990’s: They started a back office at Gurgaon at the GE Capital
International Services and were later spun off as Genpact.

Third-party
BPO’s: HP, Dell, American Express and many other businesses outsourced Call
center’s in India.

Entry
of IT Majors: Development, Testing, Engineering, Automation, Networking, Accounting
and all other IT domains created a boom of employment in India during the
2000’s. Infosys HCL, Satyam, Microsoft, Wipro etc. are all such examples.

Present:
Development and logistics companies like Amazon, DreamWorks, Pixar Studios,
Disney, Google, Facebook, Target, eBay and hundreds of the Fortune 500
companies have multiple bases in India.

                           

 

Current
Outsourcing Trends in India:

AT
Kearney’s 2016 Global Services Location Index (GSLI) rated India as the number
one out of the total 55 countries for outsourcing destinations in terms of
financial attractiveness and environments. Automation to jobs would be one of
the major factors to displace the country in outsourcing. Foreign Direct
Investment in India is expected to decline due to automation of jobs, but the
country holds a lot of opportunities to improve in many factors.
IT services and solutions for Social, Mobile, Analytics, and Cloud related
developments and maintenance is the segment that sees a major growth in the
recent years. Data and information security is another area where outsourcing
plays a major role. Logistics and ecommerce companies like Amazon and e-bay
have created major employment opportunities and scope for Information security
related fields.

Core
visual developments for major animation corps like Pixar and DreamWorks have
now bases in Bangalore and much of the visualizations are done in India. Local
government plays a huge role for the businesses to operate and succeed. India
sees a rise in FDI and the governmental policies that attract multinationals
across various sectors. Cyber security poses a new threat in areas of data
processing and information processing. India offers security solutions for such
issues that provide a boost in security engineers that has a potential demand. Wipro
developers now design GPS systems for European cars. 3

Reengineering
and transformation of outsourcing tasks are making processes more streamlined
and automated. For example, the robotic industry saw a rise in automatic
processing systems that mapped the existing systems to achieve better
efficiency and quality.

Outsourcing
Effects in India:

The
result of outsourcing mentions that is still ahead in overall performance but
now faces serious competitions by other developing countries like South Africa
and Philippines. According to NASSCOM- McKinsey report of 2005, the IT sector
in India’s offshore Information Technology Business Process will still face
challenges that must be addressed and well managed to overcome other
competencies. Changing businesses SOP’s and process to accommodate large
workforces or to incorporate high levels of quality is leading to an active
reengineering mode for all companies. The study also identifies many other
challenges like skilled workforce and urban infrastructure. There is a constant
development of these two factors through the government but is not enough at
this point. India’s heavily populated demographics require higher levels of
innovation and problem solving scenarios to avoid bottlenecks and such related
issues.

Positive
effects of Outsourcing include arrival of ecommerce giants like amazon and
eBay. Logistics has seen a significant improvement that helps and adds to the
outsourcing values of the country. Boeing now plans to manufacture FA-18 combat
aircrafts to modernize military equipment’s by the next decade, and has now
signed framework agreements with TATA Advanced Systems to collaborate. 1  

Governments
have played an important role in for businesses with mergers, allocations and
infrastructures. Initiatives from the Karnataka State Government, bought a lot
of businesses to operate in Bangalore providing them with infrastructures,
connectivity’s and certain other demographics. The recent Make in India
initiative has also helped raise FDI’s to the country.

 

India
and Brain Drain

Conflicts
regarding brain drain, i.e. a situation when a lot of engineers, technicians
and knowledge people migrating to a foreign country to continue its career and
resulting in losing out a hand in the home country. There was an uptrend in
India’s brain drain scenario, and more than 85% of the people migrated to the
foreign nationals especially United States. Outsourcing and reshoring has made
this possible.

The
GDP and economy of a country can play an important role behind the brain drain
of skilled labors. The development and infrastructures with other factor
endowments make up the GDP of a country. This plays an important role with any
skilled labor to make a decision to work abroad.

Controlling
brain in India or any country is to have a lot of investments and more
industrial opportunities to work for any business that leads to employment
opportunities. Again employment is the main reason for brain drains in any
country in a general sense. The brain drain can indeed be seen as a negative
externality on the population left in the source country. 2

The
economic attractiveness appendix,
and lifestyle in foreign nationals made the skilled labors look up to foreign
employment opportunities.

One
main factor resulting in brain drains is the population of the country,
especially in India where there exists at least 10 people to do the same job.
This makes it possible to be one of the main reasons to attract businesses from
abroad to India.

Outsourcing
and reshoring has doubled chances of brain drain in India. Prioritizing the
employment to the skilled local candidates can also result in overall
employment in the nation and hence leading to lesser brain drain.

 

Future
of Outsourcing:

When
it comes to India and its future in outsourcing, currently the Development rate
seems to be fortunate enough and can expect many more investments in India that
leads to higher employment rates in India where it is more feasible in India
than abroad.

Cost
of labor of the country still remains the same till the overall development and
economic development happens in India for Outsourcing to reduce. On the
contrary, the literacy rate of the outsourcing country also matters for its own
GDP issues and the reason to outsource.

Hence
to maintain a long run stability of having outsourcing into the country and to
maintain skilled labors in the nation, depends on how sustainable development
has been well practiced in that particular country as the resources plays an
important role for our future generations.

Globalization
has both pro’s and con’s in a particular country as it can play with the
outsourcing and brain drain rates both ways but it still depends on that
country to address the above mentioned points and gain the benefits of
globalization. Again globalization can be one of the main factors to diminish
or increase outsourcing effects.

Since
the quality of a process or a product has gained more importance in thus
business world, played like a solution to gain quality through outsourcing.

 

Conclusion

From
this paper we deduce that outsourcing in India was heavily encouraged over the
last decade and it created a lot of development and employment opportunities in
India and abroad. Indian demographics and factor endowment were one of the main
reasons to create higher levels of attractiveness for any business to perform
outsourcing. This paper also talks about the future of outsourcing in India
with respect to factors like Brain Drain, Political Stability and national
development.

 

 

Recommendations

Gigantic
volumes of work, tight deadlines, Language barriers, cultural barriers, along
with low cost issues altogether makes outsourcing very hard. Businesses must
perform in such a way that it beats all those barriers.

Recognizing
issues with respect to company’s development and also the country’s development
all concerns and risks can be effectively managed and diminished, thus giving a
flexible and strategic outsourcing model.

Firms
must aim at sustainability issues with respect to outsourcing and development through
effective strategies to maintain positive transition.

 

 

 

 

References

1
FRPT Software Industry Snapshot 

2 Habibullah Khan
and Omar K M R Bashar, “DOES GLOBALIZATION CREATE A ‘LEVEL

PLAYING FIELD’ THROUGH
OUTSOURCING AND BRAIN DRAIN IN THE GLOBAL ECONOMY?” April 2016

3 Pete Engardio and
Bruce Einhorn, “Outsourcing”. BusinessWeek March 21, 2005

 

4 Bianca Piachaud, “OUTSOURCING
TECHNOLOGY”. 2005 Industrial Research Institute. Inc.

 

5 Ehsan Elahi1, Mehdi
Sheikhzadeh and Narasimha Lamba. “An Integrated Outsourcing Framework: Analyzing
Boeing’s Outsourcing Program for Dreamliner (B787). 2014

 

Mattoo,
Aadita, and Wunsch, Sacha. (2004). “Preempting Protectionism in services:  The GATS and Outsourcing”. Journal of
International Economic Law, 2004, vol.7, issue 4.

http://www.authorstream.com/Presentation/phshameer-1548940-india-outsourcing/

https://www.raconteur.net/business/trends-shaping-the-outsourcing-industry

https://www.invensis.net/blog/it/outsourcing-services-india-trends-benefits/

http://www.emeraldinsight.com/doi/pdfplus/10.1108/14637151211283339

Global
Business Today – Charles W.L.Hill 8e

Appendix