The Outsourcing History of India

The outsourcing history of India is one of phenomenal growth in a very short span of time.

Over the years, the meaning of the term 'outsourcing' has undergone a sea-change. What started off as the shifting of manufacturing to countries providing cheap labor during the Industrial Revolution, has taken on a new connotation in today's scenario. In a world where IT has become the backbone of businesses worldwide, 'outsourcing' is the process through which one company hands over part of its work to another company, making it responsible for the design and implementation of the business process under strict guidelines regarding requirements and specifications from the outsourcing company. This process is beneficial to both the outsourcing company and the service provider, as enables the outsourcer to reduce costs and increase quality in non core areas of business and utilize his expertise and competencies to the maximum. And now we can see the benefit to the service companies in India as they mature, prosper and build core capabilities beyond what would generally be possible by the outsourcing company.

Since the onset of globalization in India during the early 1990s, successive Indian governments have pursued programs of economic reform committed to liberalization and privatization.

IT industry in India has existed since the early 1980s, it was the early and mid 1990s that saw the emergence of outsourcing. One of the first outsourced services was medical transcription, but outsourcing of business processes like data processing, billing, and customer support began towards the end of the 1990s when MNCs established wholly owned subsidiaries which catered to the process off-shoring requirements of their parent companies. Some of the earliest players in the Indian market were American Express, GE Capital and British Airways.

NASSCOM studies pinpoint the following factors as the major reasons behind India's success in this industry:

Abundant, skilled, English-speaking manpower, which is being harnessed even by ITES hubs such as Singapore and Ireland.
Improving telecom and other infrastructure which is at par with global standards.
Strong quality orientation among players and their focus on measuring and monitoring quality targets.
Fast turnaround times and the ability to offer 24x7 services based on the country's unique geographic location that allows for leveraging time zone differences.
Proactive and positive policy environment which encourages ITES/BPO investments and simplifies rules and procedures.
A friendly tax structure, which places the ITES/BPO industry on par with IT services companies.

NASSCOM lists the major indicators of the high growth potential of the ITES/BPO industry in India as the following:

During 2003-04, the ITES-BPO segment is estimated to have achieved a 54 percent growth in revenues as compared to the previous year.
ITES exports accounted for US$ 3.6 billion in revenues, up from US$ 2.5 billion in 2002-03.
The ITES-BPO segment also proved to be a major opportunity for job seekers, creating employment for around 74,400 additional personnel in India during 2003-04.
The number of Indians working for this sector jumped to 245,500 by March, 2004.
By the year 2008, the segment is expected to employ over 1.1 million Indians, according to studies conducted by NASSCOM and leading business Intelligence Company, McKinsey & Co. Market research shows that in terms of job creation, the ITES-BPO industry is growing at over 50 percent.

Surveys of the Indian ITES/BPO industry in 2004 expected it to follow the trends given below:

Customer care: Customer care and support services will continue to lead in terms of revenue generation, with a turnover of around US$ 1200 million in 2003-04., up from last year's turnover of US$810 million.
Finance: With the financial services segment moving into value added domains like insurance claims processing, financial management services and equity research, this segment is expected to clock the highest growth, with estimates of US$820 million in revenue in 2003-04, up from US$510 million in 2002-03.
HR services: HR services are also expected to grow and revenues are expected to touch US$70 million during 2003-04, thereby providing latent opportunities to the industry's dominant players.
Payment services: This segment has also been identified as a high growth area within the industry, and is expected to generate revenues of around US$430 million for 2003-04, up from US$210 million in 2002-03.
Administration: Revenues from the administration services segment are expected to increase from US$ 310 million in 2002-03, to US$540 million during 2003-04.
Content development: The content development services segment which includes engineering and design services, digitization (GIS), animation, network management and biotech research, is expected clock a turnover of around US$520 million in 2003-04.

Engineering services like CAD/CAM 2D, 3D and CAE modeling and design automation are the latest additions to the ever increasing list of processes being outsourced to India.