The Role of India as a Global Outsourcing Hub
Radhika Madhavan
Director of Marketing
Table of Contents
- Introduction
- Industries Outsourcing to India
- Main Motives for Companies to Outsource Business Processes
- Reasons That Make India A Global Outsourcing Hub
- Conclusion
Introduction
India’s emergence as a global outsourcing hub was a consequence of multinational corporations wanting to eliminate the overhead costs that come as a part of their business operations. Increasingly, companies have developed a lot of interest in India to outsource their business processes because of an abundance of skilled talent and workforce.
As an organization grows, the tasks and projects and the need for more skilled work increases. To keep up with the competition and to maintain an efficient workflow, companies outsource their business processes to service providers across the globe. And today, outsourcing has grown to become a global industry in itself.
Typically, there are three broad categories of outsourcing: Business Process Outsourcing(BPO), Infrastructure and Technology Outsourcing (ITO), and Software Outsourcing. Companies can either outsource a portion of the business process or the entire business process itself. A recent report by Statista shows that the ITO revenue worldwide was $246.6 billion in 2011. Amongst the various locations, India continues to be the leading location for companies to outsource their business processes.
Industries Outsourcing to India
In today’s modern digitized world, outsourcing has become a means for companies to drive innovation and generate profits while building a brand value globally. India has cultivated an image as the outsourcing hub of the world by creating a platform which makes it accessible for companies to outsource their business processes. While IT and BPO sectors take the lead many other industries have realized India as their preferred destination for outsourcing services.
Manufacturing
The manufacturing industry is vast and well spread across the globe. A large segment of factory goods and services rely on the combination of technical skills and labor which is supplied by India. There are a number of reasons why manufacturing companies prefer to outsource to India. Decreased labor costs, quick delivery, availability of services and indirect cost savings to name a few.
A significant amount of money is saved in terms of investing in real estate, equipment purchase, and maintenance. The costs associated with the maintenance of manufacturing plants and equipment is generally high, especially in the U.S. By outsourcing, companies can get the job done for no cost of maintenance and lower labor costs as well.
A report by NASSCOM claims that among all the industries which outsource to India, the manufacturing industry share is 16%.
Production
The production industry is prominently present in India as well as China. Companies seek out India because of its vast population of skilled and unskilled workforce depending on the job that is required to be done. From assembling car parts to manufacturing leather shoes, India undertakes several outsourcing jobs employing both skilled and unskilled people.
Another advantage that multinational companies bank on is extremely low labor costs. When it comes to India, the cost of labor on a per day basis comes up to as little as $2 per day. This is significantly low in comparison to other countries like China and Malaysia, where the labor charges are $4-$8 per day.
IT Sector
The IT industry is the fifth largest in India and a majority of the revenue is generated through outsourcing companies. According to a Statista report, the IT sector contributed to 7.7% of India’s GDP in 2017. IBM and HP are some of the biggest IT service providers to India along with Indian based companies like Wipro and TCS(Tata Consultancy Services).
The IT sector in India contributes largely to the global outsourcing market share. A report by Statista claims that India is the world’s largest IT services provider.
Telecom Sector
One of the booming sectors in India today, the telecommunications sector is growing in size and potential. The demand for data bandwidth and better communication quality is always high and companies are increasingly investing in the telecom sector. This progress in the telecom sector took place because service providers are enthusiastic about adopting new emerging technologies such as real-time data analytics.
For instance, RCOM (Reliance Communications) recently signed up with Ericsson and Alcatel-Lucent, which are both leaders in the telecom market to outsource their network management operations. Similarly, Bharti Airtel partnered with IBM to outsource its IT services and management.
A Statista report claims that the FDI(Foreign Direct Investment) equity inflow for the telecommunication sector in India in the year 2017 was approximately $5.56 billion.
BPO & Call Centers
Business Process Outsourcing is the process of delegating back-office activities like customer related functions, HR, accounting, and internal functions of the organization that can be passed on to call centers. Since the onset of globalization in the nineties, outsourcing became popular and India became a preferred location for companies. India offers a distinct combination of technological advancements and communication which motivated companies to outsource their business processes to India.
The earliest in the Indian outsourcing market were companies like Texas Instruments, American Express, General Electronics, and British Airways. Today, several companies outsource their customer support departments to India. From then the outsourcing market in India has grown in leaps and bounds. According to a study, in the next four years, the BPO services market in India is expected to grow at a CAGR of 7.63%.
Healthcare
India is the most sought after country when it comes to healthcare services outsourcing because it is technologically advanced and is equipotential with the global healthcare standards. In the healthcare industry, medical transcription and RCM are the services that are usually outsourced. In the last five years, the global healthcare outsourcing market has grown to $50 billion according to a report by Statista
Retail
The retail industry is one of the most economical sectors across the globe. India has become the primary location for retail companies to outsource their business processes, especially through captive centers Large retailers like Tesco, Target, and Supervalu have been setting up captive centers and development centers in India. Tesco set up its shared service center called Hindustan Service Center in Bangalore, India in 2004. The center runs Tesco’s IT functions like ERP and Enterprise Application Integration as well as its BPO functions like payroll processing and invoice processing. Similarly, the trend for retail companies to outsource their services to India has grown exponentially over the years.
India is expected to become the world’s fastest-growing market in retail with a growth of up to $1200 billion by the year 2020.
Main Motives for Companies to Outsource Business Processes
The biggest motivation for companies to outsource their business processes is to reduce labor costs and overhead expenses. This is because of lower daily hour wages in other locations especially in third world countries like India. By outsourcing, companies can shift their focus on the core aspects of the project rather than spending time on other operational tasks.
For instance, customer service is one area that is outsourced by companies.
Outsourcing also helps in the maximization of profits because while companies outsource their business processes they can take on more projects and increase their profits.
Another important reason why companies prefer to outsource is that they want to have a smooth and efficient workflow. Maintaining a smooth workflow helps companies improve their efficiency and deliver better results. To achieve this, they outsource their business processes to third world countries like India, where there is an abundance of talent and skill but at affordable costs for the company. For instance, companies like Cisco, TCS, and Accenture outsource to India.
Reasons That Make India A Global Outsourcing Hub
Highly-Qualified & Skilled Manpower
India is the number one preferred choice for outsourcing by global companies for many reasons. India ranks highest among countries as a computer literate English speaking population, which makes it the best location for outsourcing jobs. India produces nearly 2 million graduates each year from well reputed educational institutions. The availability of well trained and skilled employees in India helps companies outsource their business processes. Companies have seen an increase in production and efficiency by outsourcing to India and are now outsourcing even the more complex aspects of the job like research and development.
Contractual Employment
While the availability of skill and knowledge is evidently present, another important reason why companies prefer to outsource their business processes to India is that companies have the option to hire individuals or enterprises for a seasonal period and not spend on permanent employment, thereby reducing the costs of hiring and training candidates for a particular job. This also means that companies can hire skilled and well-trained experts for the job on a contractual basis making the process more efficient and delivering better results.
Conducive Business Environment
Employees of Indian companies maintain a reputation for credible work ethics and good customer relationships. The ease of communication provided by Indian professionals has proven beneficial for companies, especially those companies that have outsourced their customer service functions. Altogether, Indian companies provide a contributive environment and help companies promote themselves better through their services.
Differential Time Zone
Another reason why India makes for the top destination for outsourcing is that the time zone difference provides for round-the-clock business advantage. The varying time zones provides for a 24/7 working staff which helps companies stay efficient and produce faster results. For instance, customer support, data entry, transcription are common services that are outsourced by companies to India.
Research & Development
Ever since companies began the practice of outsourcing in the nineties, a majority of the outsourced business processes included customer support, data entry, transcription and so on. But in the present day, with the availability of enhanced skills and knowledge, companies have started outsourcing the more valuable services of their workflow such as research and development. For instance, companies like Texas Instruments and Walmart were among the first few companies that established their research centers in India. In doing so, companies were also able to alleviate the overhead costs of installing and setting up new pieces of equipment and the cost of infrastructure.
Conclusion
When companies began to outsource their business practices to global locations, the major aim was to reduce the labor costs and get the job done in less time and money. Over the years, outsourcing has developed into an industry of its own with countries like India, China, Malaysia, and many others becoming the most preferred locations for countries that want to outsource.
Communication and skilled labor is the main driver for successful outsourcing. India occupies the top position among the list of countries in the global outsourcing market. Especially in the BPO market, India holds 65% of the universal offshore outsourcing BPO market. India has continued to maintain its position in the global market despite constant competition from emerging destinations like China and Malaysia.
Gradually, India is moving from back-office operations to product innovation and research and the scope for talent and leadership is evolving at a steady pace.
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