Outsourcing to India

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India has a vast talent pool and it has become one of the most sought after destinations for global companies to outsource various office operations. Slowly, it became one of the global leaders in the BPO sector and with India's additional edge in knowledge based services; it also emerged as the new hub for outsourcing of knowledge processes too. The successful off-shoring of BPO sector led to the growth of KPO sector in India.

Outsourcing has boosted exports, increased national income, increased tax revenues, created employment opportunities and catered to the growth of other related industries like infrastructure etc.

Why Outsource to India

India's outsourcing industry offers competitive, quality, and technological, flexibility, cost and time-to-market advantages to foreign companies. Hence, these companies tend to earn huge profits and reach a position to offer their employees, good and competitive pay packages as well as many attractive employee benefits. Features making India the outsourcing hub are:

  1. India is a talent rich country:
    Its talent pool has a never ending supply of skilled manpower consisting of accountants, doctors, MBAs, engineers, lawyers, research analysts etc.

  2. Global corporate entities have confidence in India:
    Some examples to prove this fact are:
    • India is a software exporter to around 95 countries across the world.
    • In a recent survey, 82 % of the US companies ranked India as the first choice for software outsourcing.
    • Former US president, Bill Clinton appreciated India for liberating its markets. He revealed that more than 750 companies in America's Silicon Valley are being run by Indians and Americans.
    • Chairman of Microsoft and former world's richest person, Bill Gates rated India as an IT superpower and forged strategic alliances with Wipro and Infosys.
    • Former Chairman and CEO of General Electric, Jack Welch opened a $130 million technology center in Bangalore which is GE's largest foreign R&D center.
  3. India offers total solutions with state-of-the-art technologies:
    Companies have moved ahead from off-shoring just data entry assignments to large and complex turnkey projects with wide ranging applications including:
    • E-Commerce
    • Business Process Re-engineering (BPR)
    • System Integration
    • System Migration
    • Maintaining Legacy Systems
    • CBI Applicant
  4. India is one of the world's 10 fastest growing economies and has a stable government:
    • It has completed 60 years of democracy
    • The Indian service sector contributes a huge 51% to India's GDP. Under this sector, software exports grew at an amazing rate of 40-50% during the 1990s.
    • India was ranked third in investment potential in Asia for the next decade by the Export-Import bank of Japan.
    • The infrastructure sector has been given a big boost by Privatization.
    • The intertwining of the ISP, Telecoms, VSAT, Cellular and networking sectors is being done to create a convergent network for greater bandwidth availability.
  5. The Government of India considers IT as a major thrust area:
    • IT is one of the top five priority sectors.

    • The Government has approved and started implementing a 108 point Action Plan submitted by the National IT Task Force which aims at promoting IT in the country.

    • To streamline the regulatory process and make the approval as well as implementation of IT projects faster, a separate Ministry of Information Technology was set up.

    • In May 2000, the Indian Parliament passed the Information Technology Act which is now notified as the IT Act 2000. It brings E-commerce within the jurisdiction of law and accords stringent punishments to “cyber criminals” making India one of the 12 nations that have cyber laws.

    • The Indian Government has set up many Software Technology Parks which offer world-class infrastructure, incentives and concessions to promote foreign investment and software development in India. In this sector, Government allowed 100% foreign equity under the Automatic Route till 2010.
  6. Other reasons and advantages:
    • Leading global companies have realized that to stay ahead in the fierce corporate competition, they need to reduce costs, provide best quality, use latest technology, and be reliable and innovative. India has a mature and world class outsourcing industry which meets all these needs.

    • 23 software companies in the world have achieved the prestigious SEI-CMM Level 5. 15 of these companies are Indian. Also, Nasscom has predicted India will soon have the highest number of ISO-9000 software companies in the world.

Drafting an Indian Outsourcing - BPO and KPO Agreement

A comprehensive outsourcing agreement specifying the duties and obligations of both the parties - outsourcer and service provider is very important to minimize complications during disputes. Lawyers must be consulted for discussing terms and jurisdictions before finalizing the agreement.

The important features of an Outsourcing Agreement that need to be properly addressed and specified are:
  • Duties and obligations of both, outsourcer and service provider.
  • Laws and rules governing the outsourcing agreement
  • Details of Arbitration
  • Process for dispute resolution
  • Interim measures and remedies
  • Privacy, Confidentiality and non-compete agreements
  • Details of appeals and enforcements
  • Agreement terms and time limits
  • Details of defaults and addressing
  • Process of termination of the main agreement.
Every outsourcing agreement should be flexible, so that it can be modified when needed to suit different situations.

Governing Framework

At the Central level, the Department of Information Technology, Ministry of Communications and Information Technology is responsible for the overall development of outsourcing and IT industry. It is responsible for formulation, implementation and review of national policies in the field of IT and IteS with the goal of making India a global IT superpower. Some pf its functional areas are internet, e-commerce, IT education, hardware, software etc.

At the State/ Union Territory level, there are several organizations which handle matters relating to IT and outsourcing sectors; like Department of Information Technology, Delhi (Kerala, Punjab, Haryana etc.) Both at the Central and the State level, several policy initiatives and procedures are being undertaken to promote the sound growth of IT, BPOs and KPOs.

Performance of the Indian Outsourcing Industry

India has been a pioneer in providing outsourcing services and solutions to countries across the globe. The combined revenue of the IT and IteS sectors including outsourcing has grown from USD 52 billion in 2007-08 to USD 73 billion in 2009-10.

  1. IT-BPO INDUSTRY (2009-10)
    • It continues to dominate the global market place with 51% market share.
    • It is approximately worth USD 11 billion.
    • Contributes 25% of exports, 5.9% of GDP and 10.5% of services sector in India.
    • In IT-BPO intensive states, it contributed 14% to state GDPs.
    • IT-BPO Tier 2/3 employment increased by 50% in 2007-09 and is expected to grow at 4% with direct employment to around 2.3 million people.
    • The growth in granted patents to this sector, between 2005-10 was 22 times.
    • It accounted for over 10% of the total FDI investment in the last decade.
    • Domestic market grew by 12% to reach USD 14.71 billion.
    • Software and Service exports revenues grew by 13-15% and domestic revenues grew by 15-17%
    • Export revenues grew by 5.5%, to reach USD 49.7 billion.
    India has already made remarkable achievements in the IT-BPO field. The Indian IT-BPO sector has built a strong confidence base for its high service quality and information security standards which have been acknowledged worldwide. The industry is continuing this trend by combining government and industry level initiatives to generate greater awareness and facilitating wider adoption of standards and best practices. It is shifting its focus from just minimizing costs to provide high value services to its clients.

  2. IT-KPO INDUSTRY (2009-10)
    • It has captured about 70% of the global KPO sector.
    • The Global KPO industry reached USD 16 billion out of which USD 12 billion was outsourced to India.
    • It grew by 45% approximately.
    • It employed around 2, 50,000 professionals.
    In spite of major financial and banking crisis affecting the world's economic growth, many of the IT, BPO and KPO companies in India are maintaining a good success record. There are many competitors in the global market like China, Malaysia, Philippines etc. but India is still the major dominant player in the world in outsourcing due to its many advantageous factors and a huge market base.

Indian Outsourcing Industry – City wise View

In 2008, a study listed 7 Indian cities of Bangalore, Chennai, Delhi-NCR, Hyderabad, Mumbai, Kolkata and Pune among the world's top outsourcing destinations. Over 90% of the Indian outsourcing industry is captured by these 7 cities.

Due to the flourishing outsourcing industry, these citied enjoy many benefits like:
  • Direct employment
  • Branding and visibility
  • Consumption led economic growth
  • Improvement in infrastructure etc
Several other locations in the country are looking to realize these gains by promoting outsourcing. At, the same time, the rapid growth of the IT-BPO sector has led to:
  • Rising real estate costs
  • Increased attrition
  • Saturation etc
This gives an opportunity to other cities to enter this industry.

It is important to strive for a more balanced growth of IT-BPO services by encouraging cities other than the current hubs to develop their outsourcing industry, so that:
  • There is sharing of the above benefits across the country.
  • Migration across cities lowers.
  • Infrastructure burden on current hubs reduces
  • Employment opportunities rise.
  • Nation's talent pool grows and scope for revenues increases.
  • There is social development of the country.
The cities in the outsourcing industry are grouped as following:
  1. Leaders: Cities which dominate the Indian outsourcing industry.
    • Bengaluru
    • Pune
    • Chennai
    • Kolkata
    • Delhi-NCR
    • Mumbai
    • Hyderabad
  2. Challengers: Cities which have already entered the industry and are fighting for the market share.
    • Ahmedabad
    • Bhubhaneshwar
    • Chandigarh
    • Coimbatore
    • Indore
    • Lucknow
    • Kochi
    • Jaipur
    • Nagpur
    • Mangalore
    • Thiruvananthapuram
    • Vishakapatnam
  3. Followers: Cities which are looking for help from other cities and central government to undertake steps to enter the industry.
    • Aurangabad
    • Bhopal
    • Gwalior
    • Goa
    • Kanpur
    • Mysore
    • Surat
    • Puducherry
  4. Aspirants: Cities which aspire to enter the industry but have not taken any steps for this yet.
    • Allahabad
    • Dehradun
    • Gangtok
    • Guwahati
    • Patna
    • Shimla
    • Srinagar
    • Varansai
    • Ranchi
Over the next decade, share of the outsourcing industry in the top seven locations will decrease to around 60-75% with the entry of other cities into this industry.