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Benefits of Outsourcing IT Services to India - Competive Cost

Indian IT industry is on track to achieve its long term aspirations of US$ 50 billion in export revenues by 2008 and remain the pre-eminent destination for exports. The industry has grown at a CAGR of 46 percent since 1999, which is higher than the growth rate required to reach the target set in the first NASSCOM-McKinsey Study.

IT Services

Today, India is undoubtedly the pre-eminent destination for offshore IT services. However, China has the fundamentals to emerge as a credible offshore IT services destination in the medium term.

The Indian IT services industry landscape is being fundamentally reshaped by changes in customer and competitor behaviour, and the emergence of new opportunities along service lines, verticals and geographies.

Sustaining future growth will call for new capabilities, an expanded business footprint, and radical changes to existing business models. India needs to take several initiatives to sustain its lead in exports of IT services and also explore opportunities to engage with China.

IT Enabled Services

Based on location and people attractiveness, ten countries were identified as strong contenders for the global ITES market in 1999-- India, Ireland, UK, Australia, Singapore, Hong Kong, China, the Philippines, the Netherlands and Mexico. Among these, only two countries, India and Ireland, have created a substantive presence till date.

Today, India and Ireland surpass other competitors in terms of employment, number of companies sourcing ITES as well as spectrum of verticals and services lines. India, in particular, is witnessing rapid growth due to its cost advantages, the early success achieved by the reference lighthouse customers and government initiatives implemented to improve location attractiveness. The ITES industry has grown at more than 70 percent over the last two years and currently employs over 1,00,000 people. India is fast emerging as the new leader, especially in traditional services such as call centers, back office processing, etc. India is also the first country to see significant third party activity.

Philippines and China could pose the strongest competition to India and challenge India's supremacy in the medium to long term. Only China and the Philippines, other than India, have a sizeable, low cost talent pool, which could meet global ITES manpower needs. Governments in both countries are taking significant steps to improve their attractiveness for the ITES industry.

Other countries like Malaysia, the Caribbean, South Africa, Hong Kong, etc. have seen some ITES activity. However, the small size of their talent pools and lack of reference customers severely constrains their ability to emerge as hubs.

The Indian ITES industry is set to move well beyond contact center, low-skilled work driven by the early success of the first movers. Capturing the opportunity will require players to crystallize their business models and develop tailored value propositions.

The Government will need to focus on three areas to help the industry realize the potential--removing regulatory hurdles especially in emerging service lines such as IT-enabled services; unlocking growth in the domestic market; and proactively addressing potential infrastructure and talent bottlenecks to ensure that India stays ahead of competition.

NASSCOM will need to take on the mandate of developing and positioning India as a global services sourcing hub. Specifically it should focus on three main tasks--developing India's presence and strengths in emerging service lines such as IT-enabled services, systems integration, infrastructure management, and RD services; helping companies break new ground in long under penetrated geographies; and, strengthening the India Inc. brand.

Learn more about the advantages of India as an Offshore Destination

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