Indian outsourcing set to grow

Software development was just the start. Now global companies are slashing costs by outsourcing whole business processes to Indian offices

The IT industry in India is poised to expand massively by taking over major parts of the infrastructure of global companies, according to speakers at a London conference on Tuesday. In the past, Indian companies have become well known for handling software development work, but now they will step up to so-called "business process outsourcing" (BPO) and call centres, allowing global companies to cut their IT budgets by 50 percent, the FT Outsourcing to India conference was told. "Business process outsourcing is the new growth engine for the Indian software industry," said Arun Kumar, president of Nasscom, India's National Association of Software and Service Companies, co-sponsor of the conference. While the Indian IT industry is growing at an impressive 30 percent per year, the BPO sector is growing at 70 percent, he said, and call centres are growing at the same rate. The conference heard from companies including GE Capital International Services, which outsources back-office operations for clients worldwide, and Accenture, which has a growing India-based consultancy practice. Nasscom, a non-profit organisation with 900 members, lobbies with the Indian government and promotes the Indian IT sector abroad. Indian employees are more enthusiastic and flexible about work which Western Europeans would regard as dull or dead-end jobs, said Sid Khanna, senior partner at Accenture, which has increased its Indian operation from 100 to 1,500 in just over a year. "US call centres have an 80 percent staff turnover level. In India, we see 15 percent attrition, where people see this as a long-term career. Corporations come to India for cost savings, but stay for quality," said Pramod Bhasin, chief executive of GE Capital International Services, which handles outsourced back-office functions for global companies. However, companies that move whole functions abroad could cut their costs by as much as 70 percent, he said. "So far we have only scratched the surface," said Khanna. "The labour and cost arbitrage arguments are clear. India has established itself at the low end -- complex projects are the test for the industry." The biggest problem is selling the idea to European and US staff whose jobs may be threatened, said Khanna. Most companies will begin by taking functions that are already outsourced and shifting them to India, he said. India leads the outsourcing market, as it has a large English-speaking population and good levels of education. Other countries pitching for the business include the Philippines and Mexico, (both closer to the US, but smaller than India); Eastern European countries like the Czech Republic; and China. Outsourcing in India began without government awareness, and early government intervention was often unhelpful or ill-advised, said Kumar. The central government founded its Ministry of IT three years ago, and now offers concessions to international companies setting up there, such as an initial tax rate of zero, climbing over ten years. "We haven't seen legislation in ten years that is detrimental to us," said Bhasin, though he said that negotiations would be intense over data protection laws and the "safe havens" implications for companies handling overseas data. Companies working in India have to be aware of the need to deal with some shaky infrastructure. They must have electrical power backup, and will probably find they have to manage their own transport, over congested roads. "We transport 12,000 people to work each day," said Bhasin. "That's not one of the core competencies I was hoping to develop." Telecoms is developing fast in India, said Kumar. "We have better mobile coverage than the US," he said, agreeing that this still left the country some way behind Europe or Japan. The country has skipped the costly 3G hype, and is launching GPRS services. The costs of telecoms is coming down at a rate of about 20 percent a year as competition increases, said Khanna. India has around ten million Internet users -- sharing four million accounts -- and broadband penetration is still low, except for satellites and some DSL. E-government is starting, particularly in states like Karnataka. This is focusing initially, on digitising the bureaucracy of functions like the land registry. "Indians are great early adopters of technology," said Kumar.


More enterprise IT news in ZDNet UK's Tech Update Channel.

For a weekly round-up of the enterprise IT news, sign up for the Tech Update newsletter. Let the editors know what you think in the Mailroom.