The Business of Offshore Outsourcing in India

The Business of Offshore Outsourcing in India

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Offshore outsourcing of IT and business process outsourcing (BPO) is known to be the practice of hiring an external organization to perform some or all business functions in a country other than the one where the product or service will be sold or consumed. “In 2005 IT and BPO were estimated to have generated revenues of $36 billion contributing nearly 5% of the GDP” (“Virtual,” 2006, p. 1).
It is very clear that BPO has transformed into a very large and profitable business, with “India leading the way by providing $7.5 billion in BPO revenue this year. India’s outsourcing capabilities have grown steadily throughout the last decade” (“Turning India,” 2006, p. 1). “In the 1980’s outsourcers in India did low skill jobs such as data entry and some software development. In the 1990’s they expanded by doing larger software projects, taking over entire IT systems and back office functions such as accounting for U.S. and European corporations ” (“Offshoring,” 2006, p.1). “Indian IT grew on the relatively humdrum software work needed to fix the Y2k millennium bug at the end of the 20th century. It then received a boost from the dotcom bust, which in many firms in America and elsewhere caused IT budgets to be slashed, prompting outsourcing to India for a lower price” (“Virtual,” 2006, p. 1). The India of today has taken on new challenges and more sophisticated services such as engineering, research and development, and designing auto parts, and chips for wireless service (“Offshoring,” 2006, p. 1). “Now Indian firms can perform almost every service offered by the global giants of IT outsourcing and India’s core business remains “ADM” which is the application, development and maintenance of software, which accounts for about 55% of exports of IT services”(“Virtual,” 2006, p.1).
Tata Consultancy Services, Infosys, and Wipro are the three largest Indian IT service firms in India, “Each are recruiting and hiring more than 1,000 people per month” (“Next Wave,” 2006, p. 1). J.P. Morgan Chase, a large investment bank in the U.S., plans to double its staff to 9,000 in the near future. These new employees responsibility will be to settle complex structured finance and derivative deals (“Next Wave,” 2006 p. 1).
These new investments all show that India has moved into a third stage of the great Indian services-export boom. In the first stage, “firms such as Tata developed world-class expertise in software application development, and maintenance.

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In turn, these low cost developers became excellent business partners of many U.S. firms” (“Next Wave,” 2006, p. 1). In the second stage, “Indian forms and the local operations of multinationals started offering low skill back office services that could take place globally thus came telephone call centers, medical records transcription, insurance claim processing” (“Next Wave,” 2006, p. 1). In the third stage, “In both IT and BPO more sophisticated functions are happening” (“New Wave,” 2006 p. 1). With more sophistication comes higher revenue. (“Next Wave,” 2006, p. 2). The growth in Indian exports is expected to come from the software market, and IT outsourcing or remote management of whole systems, which now is a market dominated only by big global IT consulting agencies. By the year 2010 it is projected that in BPO the largest industries will remain banking and insurance, with quick growth in other areas such as legal services (“Next Wave,” 2006, p. 2).
There are some concerns for the Indian IT and BPO market. “With a projected 2.2 million people estimated to be working in the industry by the year 2010 there will only be 1.05 million suitably qualified college graduates between now and then” (“Next Wave,” 2006, p. 2). According to Jayant Sinha, “ I believe the education system can be fixed in time to plug the gap” (“Next Wave,” 2006, p. 2). Jayant believes, that more important is the lack in urban infrastructure, or in simpler terms space. “ IT and BPO will need about 150 million square feet of office space by the year 2010. This is the equivalent to Manhattan” (“Next Wave,” 2006 p. 3). With the need for more office space comes the construction of new office buildings, construction is not only underway in the leading IT and BOP cities of Bangalore, Mumbai, and Delhi, in India but, construction is also underway in smaller cities known as “second tier” they are Pune, Hyderabad, and Chennai.
In conclusion, the expansion of IT and BPO are inevitable. “Spending on offshore IT will nearly triple in six years to approach $60 billion by 2010” (“Next Wave,” 2006 p. 4). With that in mind, will India remain the global leader in IT and BPO?

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