Outsourcing to IndiaOutsourcing to India Whitepaper

Table of Contents

  • A Global Need for Outsourcing
  • India as a Global Outsourcing Destination
  • Talent Pool in India and Workforce Statistics
  • Language Advantage of Outsourcing to India
  • Industry Numbers
  • Strategic Advantage of Outsourcing
  • Global Corporations with Production Offices in India
  • Key Market Trends
  • Key Market Drivers
  • Challenges to Market Growth
  • Market opportunities

Outsourcing to India

A Global Need for Outsourcing

Outsourcing has altered the foundations of global business practices. Until recently, outsourcing was implemented solely to reduce operational costs. Now, however, with the increase in competition and emergence of new players on the scene, forerunning organizations rely on outsourcing as a strategic move, to get an edge on their competitors whilst simultaneously extending their global reach.

By contracting out non-essential processes to a third-party with proven expertise in the field, focus can be redirected to a company’s core activities so as not to interfere with growth in size and operations. Peripheral services such as data entry, employee database, customer support, content creation, and design work can effectively and efficiently be managed externally with no extra risk to the business. In doing so, companies are able to turn fixed costs into variable ones whilst simultaneously reducing the burden of managing, maintaining, and extending benefits to a large workforce.

The Grant Thornton International Business Report (2014) results show that outsourcing is a popular option for businesses, with 40% of business leaders globally and 43% of larger businesses either currently outsourcing or planning to outsource business processes.

Some regional markets are also more likely to outsource and offshore than others, showing an image of service transactions that is consistent with global trends:

  • 64% of businesses in southern Europe are likely to outsource, Spain (70%) leading the chart.
  • 51% of business in Latin America – especially in Argentina (64%) and Brazil (53%)
  • certain areas in Africa are also highly likely to outsource (Botswana 68%; South Africa 48%).
  • by contrast, just 26% of businesses in Southeast Asia are keen on outsourcing with businesses in the Philippines (4%) and Vietnam (12%) amongst the least likely to be looking at this option globally.
Global Outsourcing
Source: https://goo.gl/Gz1Hzd

The same study indicates the processes that businesses are most likely to outsource:

  • Tax (49%)
  • IT (46%)
  • HR and payroll (36%).

Motivations - why companies are outsourcing

Motivations - why companies are outsourcing - Graph
Source: https://goo.gl/U0U81m

The two main reasons why companies outsource are to cut costs while being able to focus on core business. The primary goal of outsourcing is to massively reduce the costs associated with employing additional in-house teams, and in doing so, gain value for the host organization. In order for outsourcing to be economically viable, savings from the lower wage rate must exceed the increased cost of management and any associated risks.

Companies often overlook the additional benefit of generating higher customer retention rates through outsourcing services. The combination of innovative practices, intelligent and talented subject matter experts, and speedy execution leads to remarkable increases in customer retention.

Additionally, outsourced services provide a certain amount of flexibility. Signing on for the services of an outsourcing company with extensive lists of vendors in their arsenal enables companies to scale up or down based on customer demand whenever the need arises. This is a valuable asset during the peak and valley periods of the year.

Need for Outsourcing Runs Both Ways

While companies across the globe turn to outsourcing for the reasons mentioned above, there are equally as many reasons for service companies to take an interest in offering business support.

Some economies around the world have become major players in the outsourced service game and have subsequently determined critical changes in their countries business environment, as well as in the work ethic of their people. This is particularly true of countries which went through a development boom in recent decades, and as a result, have benefited of the following:

  • New Technological Infrastructure, in particular internet penetration infrastructure, which is based on newer technologies and is equally if not more reliable than older infrastructure in developed countries
  • A Profound Gap between the current workforce and the previous generation - young workers social status is vastly improved as opposed to their parents’, which contributes to a highly motivated workforce
  • A Beneficial Shift in Exports, from goods to services, which is likely to steer the respective economies into a positive direction
  • The Global Connectivity Boom, which determined both companies and governments to take into account global cooperation as the future of business.

India is the second largest player in the freelancing game after the USA. According to an online employment report by Elance, more than one third of its freelancers are based in India.

India as a Global Outsourcing Destination

India has traditionally been the preferred choice for offshoring and outsourcing, especially for English language operations and a global hub for multi-location sourcing strategy.

A recent (2014) study by PwC states that India is one of the most mature global sourcing destinations with the widest range of options, highlighting that:

  • The Indian IT/ITeS industry has a strong and established Customer Footprint in North America and Europe and is in the process of establishing itself in Latin America.
  • Industry coverage is extensive, with clients from Manufacturing, Telecom/Hi-tech, Retail, BFSI, Healthcare, travel, transportation and media.
  • With the industry being primarily export driven, its performance is largely dependent on the global economic factors than domestic factors
  • Infrastructure in India has room for development, however when compared to countries similar in cost of operations, India offers better facilities on ground.
  • India has a strong network of government recognised IT/ITeS promotion bodies and special tax incentives for the sector

As a result of these factors, India has maintained its leadership position despite constant challenges from emerging destinations, with India’s share in global offshore revenue being over 50% since 2009, in the study’s target timeframe.

Multiple studies across the last years confirm India’s leadership position in the global outsourcing market.

According to a recent Deloitte survey, 59% of businesses that were interviewed are already outsourcing to India, with an additional 22% planning to go or considering it.

India as a Global Outsourcing Destination
Source: https://goo.gl/kiFsrT

India is leading the AT Kearney Global Services Location Index. Offshoring to India remains a highly attractive proposition for many companies, and is the undisputed industry leader, with top financial attractiveness, people skills and availability and business environment.

India proves to be the most mature market for business process outsourcing, having set cornerstones in the history of outsourcing. A brief history of Indian business service providers shows how the nation has progressed within the global economy, from mainly data processing and data entry services offered, to high-value consulting, development, design, virtualization and other top-notch convergent services.

Indian 3rd Party Providers - depth and breadth of services performed
Source: https://goo.gl/CfbsVI

Top Outsourcing Destinations within India

India is the leader in outsourcing worldwide, with 6 out of the top 10 outsourcing destinations, according to Tholons 2015 Top 100 Outsourcing Destinations (the organization has been tracking outsourcing destinations for over a decade).

Top Outsourcing Destinations within India
Source: https://goo.gl/rVLP67

Alternative sources confirm: ‘Cities in India Top List of Cities Attracting Technology Talent’, a study by Linkedin, shows the top 10 cities attracting members with tech skills: Bangalore, Pune, Hyderabad and Chennai are the top 4 positions, ahead of San Francisco and Seattle.

Top 10 Cities attracting Linkedin Members with Tech Skills
Source: https://goo.gl/RD1Avi

Established IT outsourcing destinations that offer variety and high end skills such as Bangalore and Hyderabad are less expensive than similar destinations across the world. According to the same source (PwC, 2014), emerging tier 2 BPO destinations such as Kochi or Indore offer a 20-30% cost advantage over tier 1 Bangalore, keeping India’s cost-value proposition strong.

According to all sources, Bangalore is the world capital of outsourcing. The city grows tech talent faster than Silicon Valley, according to LinkedIn, with more software programmers moving to Bangalore in 2014 than to the US tech hub. While Bangalore clocked 44% new residents with technical talent active on Linkedin, the San Francisco-Bay Area region only had 31%.

Talent Pool in India and Workforce Statistics

By picking up large jobs from other countries, organizations in India are able to provide a compendium of services in not only the IT field but several others as well.

According to PwC, the talent pool in India is highly qualified to respond to the needs of the IT/ITeS industry:

  • 100 million English speaking people – the second largest in the world after USA.
  • over 3 million IT employees with the outsourcing industry and indirect employment to 10 million people
  • every year more than 200,000 engineering graduates are joining the IT industry.

IT/ITeS industry in India supports businesses across verticals such as banking and finance, manufacturing, healthcare, retail, government and utilities, having a very diverse skill base in the industry, including graduates from engineering and non-engineering background, finance specialists, doctors, lawyers, etc.

However, the same study notes that in recent years companies have been finding it little more difficult to get the right talent. With the development boom in the country, job demand in other sectors as banking, engineering, and manufacturing has increased.

Industry Skill Base Estimate Based on 2014
Source: https://goo.gl/pG4JNW

BPO and IT Outsourcing are Most Popular

The most common forms of outsourcing to India relate to IT or BPO. Software developers, infrastructure engineers, and technical support teams are highly sought-after. These professionals are able to provide a service from their end of the world that is as effective and valuable as employing a local team – though, of course, their services are much cheaper. Provided that a standard process is in place, managing the relationships between sites can be done successfully and efficiently.

BPO, the practice of working with a Business Service Provider in India, facilitates the outsourcing of an entire, full-scale service. BPO often refers to complete services such as back office administration or contact centres. KPO (Knowledge Process Outsourcing) and RPO (Research Process Outsourcing) are often used by outsourcing companies to distinguish their high-value services from “regular” BPO which is often thought to be limited to contact centres or data entry work exclusively.

Trends suggest that companies are moving towards outsourcing 10% - 25% of their workforce. This is due to companies thinking about their supply chain strategically. By retaining core teams and building leadership talent internally, companies work smarter when using external resources for projects that require niche skill sets that are not financially viable to build internally.

Language Advantage of Outsourcing to India

India ranks third in Asia on English proficiency, according to the EF English Proficiency Index.

Although English is often considered to be a second language to the people of India, the fact is that many Indian people consider it more of a first language. This is largely due to the language's long history with the continent, which over the centuries has spread and developed to the point where it's spoken as well as in England itself.

India is expected not only to have the largest workforce in the world, with around 2 billion English-speaking people by the end of 2020, but it is also on it’s way to becoming the country with the largest and youngest employable population in the world (in 2020, the average age of an Indian will be 29 years, compared with 37 for China and 48 for Japan). These people, brought up as global citizens in a true digital environment will represent a key part of the workforce in the business service market.

India has an advantage over China in the global labour market as its young and English-speaking workforce is much more relevant on the global level, as per leading human resource consultancy giant Manpower Group.

“In terms of human capital benefit, India has a highly literate and very driven young people. We see that the big benefit for India is that it has a much bigger young, literate English speaking relevant workforce, which is more relevant on the global level, as compared to the Chinese young people for instance. That’s going to be the biggest strength in future for Indian labour market.” Manpower Group President (Global Corporate and Government Affairs) David Arkless said.

Industry Numbers

The BPM outsourcing industry in India is a stable sector, enjoying sustained growth over the years, while also developing new capabilities and value added services.

The National Association of Software and Services Companies (Nasscom), the voice of the Indian IT industry, has published the NASSCOM Strategic Review report for 2015, the most relevant assessment of the current State of the BPM industry in India, which outlines:

  • In 2014, India continued to hold onto its leadership position with a 55 per cent market share
  • While worldwide IT-BPM spend was USD 2.3 trillion, growing at 4.6 per cent over 2013, global sourcing of services grew by 10 per cent
  • In FY2015, the Indian IT-BPM industry is estimated to account for revenues of USD 146 billion, growing by 13 per cent over last year.
  • Industry exports are over USD 98 billion growing at 12.3 per cent, while the domestic segment, which has benefited from the inclusion of ecommerce and mobile app industry, is estimated to touch USD 48 billion.
  • The industry today is India’s largest and most diverse private sector employer, with a direct workforce nearing 3.5 million, and effecting over 10 million indirect jobs.
  • The number of employees in the industry is expected to grow to 3.7m in 2016
  • At the same time the industry’s relative share in India’s GDP has swelled to 9.5 per cent, it offsets more than 70 per cent of India’s oil import bill, attracts a major share of PE/VC investments into the country, has effected balanced regional growth and empowered diverse sections of the society, and is the face of the Indian MNC story.
  • With over 150,000 digitally skilled IT-BPM employees, the industry is exponentially growing capabilities that help clients go digital
  • India is also home to the fourth largest and fastest growing digital startup ecosystem in the world that is engaged in developing innovative solutions, and actively collaborating with larger technology companies to take these solutions to market.
  • The new government’s technology reliant economic growth agenda has significantly boosted domestic IT-BPM market growth prospects and overall business confidence.
  • Globally, new delivery centres added in 2014 recorded an impressive growth of 49 per cent with over 27 per cent additions being in India.
  • The fastest growing segments of services export are the high value added ones: ER&D and product development, IT, ERP, CRM, mobility
  • The industry has been catalyzing business transformation for global clients through its established global delivery chain – ~640 ODCs across >78 countries, acquiring local talent for language skills and cultural compatibility with clients.

In revenue numbers, trends are also clear:

  • The Indian IT-BPM industry’s overall revenue (exports + domestic) for FY2015 is expected at USD 146 billion, a growth of ~13 per cent over last year, an overall y-o-y addition of ~USD 17 billion
  • Industry contribution relative to India’s GDP is set to touch an estimated 9.5 per cent and share in total services exports >38 per cent
  • Of the services offered/exported, IT services is the largest segment, with a share of ~47 per cent followed by BPM with share of ~18 per cent.

By all accounts, the Indian industry continues to develop capabilities around traditional and emerging markets, verticals and customer segments, expand global delivery presence, and increase focus on high value services including product development.

As for the industry structure, NASSCOM reports the following breakdown by revenue in FY2014:

  • Large >USD 1bn - 11 players that contribute more than 40% to total IT-BPM revenue
  • Mid-sized – USD100 mn-1bn - 122-150 players that contribute 35-40% of the industry’s revenue
  • Emerging – USD 10-100 mn - 1000 - 1200 players contributing 9-10%
  • Small - <= USD 10mn Source - 15,000 players contributing 9-10%
Industry Numbers
Source: https://goo.gl/CfbsVI

Entry level salary in these emerging destinations is around USD 3000 per annum and office rental USD 0.65 per sqft per month. Loaded costs per FTE could be as low as USD 8000, thus offering significant cost advantage.

Strategic Advantage of Outsourcing

The many advantages to offshore outsourcing include domain expertise, outsourcing non-core functions, improved control over expenses, and round-the-clock service availability.

Further advantages include:

  • Specialized skills, such as expertise with domains are often challenging to come across within established teams. The concept of outsourcing holds great value in this regard, with the potential to procure talent that already boasts the know-how required.
  • Concentrating on core business: outsourcing the lesser workings of a business, ensures that saved funds can be put back into the core business functions.
  • Controlled spending: it is easier to control the spending rate on outsourced work by making use of whichever company has the best offering.
  • Reduction of Start-up Costs: start-up costs are dramatically reduced as a result of the service providers already having the framework in place. This drastically reduces the amount of time spent in the initialization phases of work, which also saves a significant amount of money.
  • Time Zone advantage: working globally has the advantage of making use of many different time zones, which allow round-the-clock work to be completed which massively boosts productivity. For example, an American firm may choose to utilize it's in-house staff during normal operating hours and make use of an offshore company to maintain the pace while their in-house team gets some rest. The American firm can then review the overnight progress and update their needs for the following night's work as needed. This continuous cycle of productivity can be highly beneficial when executed correctly.

With the momentum of globalization, the world is shrinking into an ever-more familiar village environment. A direct result of this is that companies need to look to outsourcing work in an effort to remain competitive in the global market.

It’s Not All About Reducing Costs

The outsourcing industry has grown within the last decade with over 2 million jobs being outsourced in 2013 alone. The numbers show that a large quantity of these opportunities were made available to freelancers in India and China. In the 2013 financial year, the IT sector outsourced 43% of its work, the distribution industry outsourced 26%, while 12% of call centre agents and 38% of R&D workers found employment through outsourcing.

The benefits of outsourcing don't stop at its cost-efficiency. By outsourcing effectively, corporations have access to a global pool of talented and experienced experts who all have something unique to contribute. Working towards a common goal from many different points of view can create a holistic and useful result with global appeal and influence.

A Global Economy Aiding Freelancer and Consumer Alike

While the uninitiated may find fault with the notion of outsourcing by saying that it costs local jobs, this is an unbalanced view. Outsourcing actually has the potential to aid the economies of both the outsourcer and the freelancer. The outsourcer's economy benefits from more affordable products and services which lower the cost to the consumer as well. The freelancer's economy is boosted by the influx of job opportunities, giving the previously unemployed a new way of finding success.

Companies may choose to outsource their needs for many reasons that range from simple financial constraints to more tangible and complex motivators. The following section offers a brief summary of a few of these alternate motivators.

Naturally, opportunities for saving money will always appeal to companies in their pursuit of better margins and better practices. Outsourcing can really help here, as many countries have a lower cost of living than others, which means that big companies can do business more intelligently, while helping to promote growth in under-appreciated economies.

This could have as much of an impact upon a business as is desired, from individual project components to entire departments being outsourced. It is not uncommon to see customer support, development, or product testing divisions based remotely.

Localised outsourcing within the company's own country can also lead to significant savings. Companies in large cities with a high cost of living have the opportunity to employ individuals who live in more economical environment who demand a lower hourly rate.

In this way, outsourcing offers businesses skilled, experienced workers at a lower cost, while giving those struggling with poor job markets a chance to tap into a vast array of online opportunities.

Outsourcing in India vs Eastern Europe

Statistically, India is the preferred choice for outsourcing talent when compared to Eastern Europe, the Pacific Rim and Latin America. India is the most compelling choice for several reasons.

1. Achieve more with less
Business all over the world are expected to constantly boost productivity by using their existing teams. A clever approach is to use current team members to manage the remote workforce which in turn boosts each member's productivity rate, and by extension the company as a whole. The lower cost of living in India makes it the obvious choice for the cost-conscious company.

2. Access to educated professionals with skill sets
Indian freelance workers are well-educated and often hold degrees from respected universities around the globe. While one may have reservations with regards to the language barrier, the figures show that Indian experts are more fluent in English than other popular outsourcing countries.

3. Focus on core business competencies
With the growth of any business comes the need to continually support an increasing number of clients, research and develop new products and services, all while maintaining a steady growth rate. In-house limitations mean that these peripheral tasks can often detract from the core business. Outsourcing to India allows you to delegate these non-core tasks to experienced professionals, which creates the opportunity for more time to be spent on the in-depth functions of the company. India offers a varied landscape of service providers which means that you are sure to find the perfect fit for your needs.

4. Become more scalable
Business can be a wildly unpredictable landscape with dizzying highs followed by crushing lows. The real risk here is maintaining profitability while maintaining a steady workforce, even in the tough times. The fantastic part of outsourcing to India is the ability to make use of these professionals as they are needed, without the traditional and very valid concern of low staff retention. Outsourcing service providers can scale your support on an as-necessary basis, which really takes the edge off when it's needed most.

5. Better pricing flexibility
The cost of living in countries like the United States is a lot higher than in many other countries. This makes American labour more pricey, especially when each individual's taxes, pay package, benefits package, equipment, and insurance are added together. Outsourcing to India drastically cuts overhead costs by removing these burdens. A skilled developer from the USA could cost a company between $50 and $80 per hour, compared to the estimated Indian average which can be as low as $15 per hour. The pricing flexibility offered by India's outsourcing industry allows for dynamic budget and staffing strategies that save money when cash is tight.

6. Determine appropriate staff levels
It can often be a challenge to ensure that there is a sufficient staff base to cover the workload, while protecting those members of the team from growing bored or feeling undervalued at times when the business is experiencing a slump. On the other hand, having too few team members when business improves is also a disaster waiting to happen. Outsourcing to India offers great flexibility in terms of maintaining the correct number of workers at any stage of your business cycle. A smart approach is to maintain a base team that you will always need active in your business, and then add the uniquely skilled individuals you require on a task-by-task basis. The benefit for your in-house team is that they will not be overworked at certain times and then bored at others - outsourcing to India will help you to boost your team's productivity, morale, and quality of work.

7. Advantage India: India has a critical advantage over Eastern Europe and other outsourcing destinations because of its industry maturity. Having been the first large scale exporter of BPM services and the market leader for decades, India has come to deliver state-of-the art services. Over the last 25 years, India has achieved a national business ethic developed over an entire generation, well-established practices and business relationships, and a national growth strategy where the export of services are one of the most important factors. All these create a thriving environment for businesses looking to outsource their processes, as opposed to Eastern Europe, where the IT-BPM sector is much less developed.

Disadvantages of Outsourcing to India

As an outsourcing destination, India is subject to the same pro’s and con’s as any other country.

Key attributes to the Indian outsourcing market are tightly tied to the economy and geography of the country. We can speak of two main disadvantages that are specific to India and have a significant influence on the country’s outsourced services exports:

  1. India is a developed nation, with a rapidly-growing middle class especially in the regions which are fueled by foreign investment or key providers of outsourced services. This middle class, while beneficent to the economy as a whole, it is also increasing the cost of labor as well as causes the benefits of labor arbitrage to slowly dissipate.
  2. The monsoon season in India can bring challenges to the infrastructure, from floods, to overheating, to power shortages. During the peak monsoon season, extreme weather can break out and cause critical disruptions, however, this is not unique to India, as almost every country worldwide can experience extreme, disruptive weather phenomena.

Other than the two challenges mentioned, outsourcing as a process has its own downfalls, which can be very challenging for businesses. While these are not necessarily disadvantages, but business aspects that can be improved on, they are undoubtedly more prevalent in outsourcing contexts than in in-house operations.

  • Communication - outsourcing is by definition a global phenomenon which can add communication challenges to any business partnership. Communication is key to any successful project, however, with global outsourcing, additional barriers arise. Even when speakers are using the same language, pronunciation, syntax, vocabulary and accents can make English speakers from different parts of the world strain to decipher each other's speech. Additionally, cultural nuances and communication technology can add another layer of misunderstanding on the communication process.
  • Quality - without adequate quality management procedures in place, it is easy for an outsourcing venture to lead to significant loss of quality in the final product or services delivered by the contracting company. However, a professional service provider should always be able to integrate the employer company into the outsourcing process management, in order to ensure the best quality outcome. This can be easily achieved through new communication and teamwork technologies that contribute to collaborative, transparent work environments.
  • Legal compliance - more of a risk rather than a business disadvantage, legal compliance in outsourcing partnerships is not always as obvious as it should be. Each possible outsourcing destination has its own legal framework governing personal data management, data safety, privacy, corporate espionage, non-disclosure agreements, employee compliance and other aspects of data compliance. It is not uncommon that service providers be willing to adjust their compliance methodologies to meet their client’s requests, however, legal compliance is an issue that must be clearly established before any data transfer occurs. Bad outsourcing decisions cause 63% of data breaches.
  • Hidden costs - A study by PwC showed that hidden costs can represent more than half of the Total cost of ownership for a given process. Unexpected requirements and business needs that have not been specifically included in an outsourcing contract can be considered additional services and require additional payment.

However, for an objective business perspective, it is important to note that these challenges can be overcome through efficient and effective project management. Forward-looking service providers, as well as business owners, should be keen to find the perfect balance in their partnerships, to build constructive relationships that last.

Global Corporations with Production Offices in India

With India setting itself up as such an advantageous outsourcing destination, it hardly seems surprising that various well-known MNCs have established a foothold in what to them must be a veritable goldmine of opportunity.

The outsourcing markets in India can be measured by multiple standards:

  • looking at major corporations that have captive centers in the country, using indian talent and infrastructure to manage their global processes
  • other global corporations that outsource services from third party providers in India
  • Indian companies outsourcing services themselves, or global outsourcing companies that are key players on the Indian outsourcing market

Leading multinationals with captive centers in India: Airbus, Amazon, AT&T, Barclays, Caterpillar, Cisco, Continental, Dell, Exxon, Ford, GM, HP, IBM, McKinsey, Mercedes Benz, Pfizer, Shell, Reuters, World Bank, Yahoo and others.

Leading Multinationals with Captive Centers in India
Source: https://goo.gl/SBQ3A7

Outsourcing consultancy and research firm Everest Group published their rankings of the top 20 service providers worldwide (at the beginning of 2016) based on their performance in 26 different categories, including key business lines, geographies, and technologies. The rankings were as following:

Top 10 IT Service Providers of the Year

  • Cognizant
  • Accenture
  • IBM
  • TCS
  • Wipro
  • HCL
  • Dell
  • Infosys
  • CapGemini+IGATE
  • CSC

Cognizant (US based, but now India’s second largest outsourcing provider) claimed the top spot, followed by Accenture and IBM. Rounding out the rest of the top five were India’s TCS and Wipro.

While Cognizant consolidated their position as market leader by way of year-on-year growth, TCS and Wipro performed particularly well in banking and financial services, which account for more than half of their revenues. Cognizant’s strategic advantage was based on the company’s increased coverage in the increasingly important areas of healthcare and life sciences.

On the 6th position, Indian company HCL was honored as “star performer” of the year, having transformed itself, particularly on the infrastructure services side. The Indian company is known to have one of the most aggressive sales forces in the industry as well. However, the authors are cautious about the new entry and their sales policy: “What we don’t know yet is the quality of the deals they’ve signed on for. It’s not clear yet whether they’re compromising or they are truly bringing something new to the table.”

Other players:

McKinsey in India
Over 20 years ago, McKinsey was the first global consulting firm to make its mark in India. In 2016, this McKinsey works with most of the largest companies in the country, assisting them in becoming global powerhouses. Additionally, this consulting firm works closely with the government in efforts to promote growth across the Indian subcontinent with the aim of raising living standards, strengthening education, and boosting their health systems. McKinsey has also be instrumental in developing top quality data, knowledge, and analytics on a large number of global and Asia-specific topics.

FTI Consulting Global
With offices in Mumbai and New Delhi, FTI Consulting is a business advisory firm focussed on Forensic and Litigation Consulting, Economic Consulting, and Strategic Communications. Their team of professional consultants have amassed a wealth of knowledge regarding the challenges faced by both Indian companies and foreign companies with a foothold in India. FTI Consulting specializes in governance, mergers and acquisition, litigation, investigation, reputation management, governance, and compliance, among others.

Morgan Stanley
Morgan Stanley’s presence in India extends to both domestic and international clients, providing a range of services in the realms of capital markets, investment banking, commodities, fixed income, equities, and research services. For many years, the firm has been an active investor in Indian Infrastructure as well as Real Estate and Private Equity project.

Bechtel
Since opening its doors in 1994, Bechtel has worked on several large projects in India. Three of these projects include the Jamnagar refining complex, the Dabhol power plant, and the KG D6 gas development project.

Key Market Trends

BPO and outsourcing companies in India are increasingly embracing technological processes such as increased standardization, automation and cloud computing, showing a trend towards a ‘best-of-breed’ positioning on the global market.

Experts share some highlights on the coming trends in the outsourcing/offshoring world. India will undoubtedly be one of the early adopters, as the global leader of the market.

Security- as connectivity and data sharing are a key part of business operations, security is a major concern for all industries, not only outsourcing. Companies of all kinds are ever more aware of the necessity of a high level of security regarding business information, and BPO providers need to be able to answer to that need, by ensuring their systems and infrastructure are bulletproof. For most of them, this means having a Information Security department as well as security certifications and audits periodically.

Cloud locations - data centers will understand that their physical location is vulnerable and will seek out multiple cloud solutions to secure their client’s information, as well as their work processes.
Cloud services providers such as Amazon Cloud, Microsoft Azure and Google Cloud Platform will become trusted partners for outsourcing companies. Moreover, the ‘as-a-service’ outsourcing model of most providers points to a flexible combination of infrastructure, software, and business process as the best way to create modular, scalable and intelligent platform.

Integration - emerging digital technologies with enhanced connectivity options led to a shift in business models as well as in clients’ expectations. However, the increased elements of connectivity (internet of things, global networks, multiple layers of technology) will require a substantial integration effort. The complex systems that result from these integrations will need service, incident and change management - a maintenance service package that will most likely be outsourced. This is seen by experts as one of the coming trends in the following years.

Automation - Outsourcing started out as an opportunity to move work to lower-cost, more qualified people. However, with globalization, these opportunities are slowly leveling out. Operations outsourcing providers will look to automate as much of their workflow as possible - the current growing trend of robotic process automation (RPA) for time consuming, repetitive work. This will lead to redefining the roles for humans, most likely by starting to offer innovation services.

Key Market Drivers

From a business perspective (functional):

Leading advisory firm Grant Thornton carried out the study Outsourcing: Driving Efficiency and Growth which hauled business leaders in 45 economies in the world to understand their business views in outsourcing. The Grant Thornton International Business Report (IBR) is the world’s leading mid-market business survey, interviewing approximately 3,300 senior executives every quarter in listed and privately-held businesses all over the world.

According to the research, 40% of the companies globally are considering to outsource one or more business processes. Their motivations are the functional drivers of the market. Though there are variations in the survey results for the said economies, the study outlined the needs that fuel the global market for service outsourcing to be:

  • The need to increase efficiency (57%) and cost reduction (55%) as the major drivers in companies’ decision to outsource back office services. Business leaders in high-cost labour countries, such as North America and Europe, are more likely to cite these drivers. In North America, 70% mention reducing cost and 69% improving efficiencies; in Europe, the proportions are 63% and 67% respectively.
  • The need of accessing expertise, especially among developing economies. Major emerging economies such as the BRIC states (Brazil, Russia, India, China), in which labor costs are not a critical issue, say they outsource in order to access expertise more easily and quicker than by internal means (46%).
  • There is also a gap between the outsourcing drivers of larger vs. smaller businesses. While larger businesses see cost reduction and improved efficiencies (both 58%) as the main decision driver, smaller businesses are outsourcing in order to ensure business continuity (48%), free up staff to focus on core strategy (44%), and reduce headcount (37%).

From a functional, business management perspective, the key drivers that turn companies to outsourcing may vary over geographies and market share, however, they all meet under a single term: ‘business-wise’. As long as outsourcing will keep being business-wise for one reason or another, the market will thrive.

From a tech perspective - Aligning with technological advances

Market research shows the key drivers that contribute to market growth and business diversification in the outsourcing business. A recent look at the Indian market as a destination of outsourcing (PwC, 2014) shows the main technological advances in the field:

  • Mobility
  • Big Data / Analytics
  • Social Media
  • Adoption of cloud

Globally, business say cloud computing, BPO as a service, hosted virtual desktop, big data and enterprise mobility are the key technological developments impacting future outsourcing decisions.

Key Market Drivers
Source: https://goo.gl/r4O7RP

Challenges to Market Growth

The indian outsourcing industry is a major economic sector in the country and has been subject to research for many years. Challenges to the sector have been acknowledged by major market research companies, as well as the government:

  • Largely fragmented industry
  • Preference for young employees with good command over English and other foreign languages.
  • Cut-throat competition as well as severe shortages of trained and skilled manpower, when compared to the demand
  • Non-existence of social security laws needed for checking the background of employees working in BPOs and call centres
  • Need of higher level of control (for client companies), confidentiality and enhanced risk management, maintenance of higher quality standards, etc.
  • Meet cut-throat competition - BPO employees work in night shifts as clients are mainly US and UK . But, due to lack of normal sleep, their physical and mental health gets affected in the long run, leading to a negative perception about the work environment in outsourcing companies

Furthermore, India faces new emerging challenges, as the market develops:

  • As the industry grows and the technological requirements are growing even more rapidly, the country need to keep the pace with the infrastructure
  • The market is becoming decentralized, as labor costs rise in major cities and companies are moving towards smaller tier 2 destinations. These smaller cities are faced with the danger of unsustainable development, in terms of infrastructure and human resources.
  • Global competitors arise in countries in South-East Asia and South America. Both zones have important developing economies, meaning growing infrastructure, multilingual, skilled workers and government support for budding industries.
  • Global events such as the ongoing Eurozone crisis, worldwide major elections and general economic uncertainty leads to businesses keeping their spending tight.
  • Ultimately, some challenges come from within, with some businesses seeing the outsourcing process not as effective as they had hoped for. Issues such as poor quality service and a reactive, rather than proactive attitude of service providers may lead companies to turn away from outsourcing as a valid business solution.
Issues with outsourcing providers
Source: https://goo.gl/x81aaA

Market opportunities

Maybe the major opportunity for service providers is to take advantage of the growing trend of robotic process automation (RPA). The working world as we know it may well be over, and that doesn’t need to be a bad thing to clients and providers, to employers and employees. On the contrary.

Taking RPA seriously and adding it to their offer may propel IT-BPO companies to the top position of early adopters in the industry. This alone is an important business achievement, not to mention the opportunity to improve economic outcome. Research has shown that for companies outsourcing their BPO needs, robotic automated processes are nine times more cost-effective that an on-shore FTE (full time equivalent), as compared to an offshore FTE, which is only 3 times more cost-effective.

Aside from this simple comparison, ‘robots’ are also improving the operational efficiency, by contributing to quality, accuracy, risk mitigation, flexibility, multi-tasking, and management information.

Operational Efficiency
Source: https://goo.gl/5xAEj2

The outsourcing industry isn’t slow to embrace RPA, with clients saying that service providers:

  • Want to discuss RPA (20%)
  • Demonstrate it (13%)
  • Are currently implementing RPA (13%) or evaluating (12%)

Adopting RPA can be the key factor keeping a provider on the market, especially in the highly competitive and developed market in India, the global leader in IT-BPO.

Automation in Outsourcing
Source: https://goo.gl/4rpra3