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How India has become the IT Outsourcing hub across the globe

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IT Outsourcing in India: How It Has Emerged As a Global Hub.

The trend of outsourcing has increased with the increased globalization of business. The high returns and the cost savings have made it a popular investment. In addition to this, off shoring ensures on-time delivery as well as a skilled labor force. Throughout the years, India increased its prominence as a global outsourcing destination.

When it comes to being an attractive outsourcing location, India is ranked number one according to the A.T Kearney Global Service Location Index 2019.

It is because multinational corporations want to eliminate overhead costs associated with their operations that India has become a global IT outsourcing hub. Because of the abundance of competent talent and workforce in India, companies are more interested in outsourcing their business processes there.

With the growth of an organization, more tasks and projects are required and new skills are required. Businesses outsource their processes to service providers across the globe to stay competitive and to maintain an efficient workflow. The global economy is increasingly dependent on outsourcing.

A typical outsourcing project would fall into one of three broad categories:

BUSINESS PROCESS OUTSOURCING(BPO):

An enterprise can subcontract various business operations to a third-party vendor using Business Process Outsourcing (BPO). It is now common practice to outsource services, in addition to outsourcing manufacturing, such as the outsourcing of large segments of supply chains by soft drink manufacturers.

INFRASTRUCTURE AND TECHNOLOGY OUTSOURCING(ITO)

In Infrastructure and Technology outsourcing, an external party manages an organization’s information technology (IT) systems and applications for them. The concept of outsourcing may have gained in popularity over the last few years, but the concept is not entirely new. Companies such as EDS, IBM, and Unisys that assumed full ownership of the employees and IT assets of their clients in the early 1990s started the trend of Infrastructure and Technology outsourcing

SOFTWARE OUTSOURCING

The process of outsourcing software development involves hiring an external company to perform on behalf of an organization all of the tasks of a software development project that could be completed in-house but are not. When a company outsources software creation or development, it turns over the management of a specific business process or project to a third-party vendor who is qualified and capable of handling the business task.

The following India outsourcing statistics are to be considered:

India has the largest talent pool, which is the main reason for bringing business there.

Despite its small size, India is the world’s leading outsourcing destination for a number of reasons:

  • There are 1.33 billion people in India, making it the second-largest country in terms of population. Throughout the world, 100 million people speak English.
  • As of 2021, the United Nations estimates that India will have 2 billion English speakers.
  • India graduated 15 million graduates last year, along with over 300,000 postgraduates. Furthermore, over 1.5 million engineers graduate from engineering colleges in India every year. 
  • India graduated 15 million graduates last year, along with over 300,000 postgraduates. Furthermore, over 1.5 million engineers graduate from engineering colleges in India every year. 
  • Approximately 4 million Indian IT professionals work directly in the industry and 10 million indirectly.
  • Indian IT graduates make up the largest number of able-bodied people in the world, and they are the youngest employees in the IT industry.
  • Approximately 40% of the IT workforce will continue to train themselves based on the current technology stack in order to meet the fast-growing industry needs.

It is possible for companies to outsource a portion of their business processes or to outsource the whole process. The ITO reported $246.6 billion in revenue worldwide in 2011, according to the Statista report. Indian companies continue to outsource their business processes more than any other location.

Companies outsourcing to India:

Taking advantage of the digital revolution to boost profits and establish brands globally, outsourcing has become a popular option for businesses today. Having developed the infrastructure that makes it possible for companies to outsource their business processes to India, this country has established an image as the outsourcing capital of the world. While many industries recognize India as their preferred outsourcing destination, IT and BPO companies continue to lead the way.

Manufacturing industry:

Manufacturing is a large and well-established industry around the world. The combination of technical skills and labor which India provides plays a significant role in manufacturing products and services. India is the preferred outsourcing destination for manufacturing companies for a variety of reasons. To name a few, labor costs decreased, services were available quicker, and indirect costs were lower.

There is significant potential for saving when it comes to purchasing real estate, equipment, and maintenance.

U.S. manufacturing companies generally incur high maintenance costs for their plants and equipment. Businesses can use outsourcing to reduce labor costs and maintenance costs.

In a NASSCOM report, it is reported that the manufacturing industry outsources to India at a rate of 16 percent.

Production Industry:

In addition to China, India has a prominent production industry. Depending on the type of work needed, companies look to India for a skilled and unskilled workforce. India engages in several outsourcing jobs, both skilled and unskilled, from assembling car parts to manufacturing leather shoes.

Low labor costs are another benefit multinational companies take advantage of. India is one of the cheapest places to do business since the cost of labor is just $2 per day. Comparatively, labor charges are very low in other countries like China and Malaysia, where they range from $4 to $8 a day.

Information Technology sector:

A majority of the revenue generated by IT companies in India comes from outsourcing. In 2017, the Indian IT sector contributed 7.7% to the country’s income, a Statista report reported. IBM and HP are among the top IT service providers in India, along with Wipro and TCS (Tata Consultancy Services).

The outsourcing market in India comprises a substantial portion of the global market. In a new report from Statista, India is cited as the world’s biggest IT services provider.

The telecommunications sector:

Telecoms have become a booming industry in India, with opportunities and growth rapidly increasing. Telecom companies invest more in improving the quality of data and communication and there is always a demand for more bandwidth. It is thanks to the eagerness of telecom companies to adopt new technologies, like real-time data analytics, that telecom has made progress these past few years.

The telecom market leader RCOM (Reliance Communications) recently outsourced their network management operations to leading companies Ericsson and Alcatel-Lucent. A similar arrangement was formed between Bharti Airtel and IBM to outsource its IT services.

The 2017 flow of FDI (Foreign Direct Investment) equity into the telecommunications industry in India was estimated at $5.56 billion, according to a Statista report.

Call centers and Business Process Outsourcing(BPO):

BPO is when back-office functions such as HR management, payroll management, and accounting are delegated to call centers. Outsourcing became popular in the nineties, and India became an attractive location for companies that outsourced. India attracts companies from around the world due to its technological advancements and effective communications.

British Airways, American Express, Texas Instruments, and American Express were early movers in the Indian outsourcing market. The customer service department of several companies is nowadays outsourced to India. Throughout the past decade, the outsourcing market in India has grown exponentially. An Indian BPO services market report estimates a CAGR of 7.63% in the next four years.

Healthcare Sector:

Due to its technologically advanced nature and potential to meet global healthcare standards, India is the most sought-after country in the healthcare outsourcing market. The healthcare industry usually outsources services such as medical transcription and records management. The global outsourcing market for healthcare has increased to $50 billion in the last five years, according to Statista.

Retail Sector:

Retailing is a very economically successful industry around the world. Especially through captive centers, outsourcing has become a major activity in India for retail companies. India has been hosting captive and development centers set up by large retailers including Tesco, Target, and Supervalu. In 2004, Tesco opened a shared services facility in Bangalore, India called Hindustan Service Center. In addition to running Tesco’s IT systems, such as ERP and Enterprise Application Integration, the center also automates the company’s BPO functions, such as payroll processing. Retail companies have also been outsourcing their services to India at an exponential rate over the past few years.

By the end of 2021, India’s retail sales will reach $12 billion. This growth will be accompanied by a 20 percent annual rate.

Businesses outsource their business processes for various reasons:

  • In order to reduce labor costs and overhead expenses, companies predominantly outsource their business processes. Other locations, such as India, have lower hourly wages because of lower daily wages. Outsourcing allows companies to free up time for other responsibilities and focus on what really matters – the project at hand.
  • In addition to maximizing profits, outsourcing allows companies to acquire more projects and thus increase profits.
  • A seamless and efficient workflow is yet another reason why companies prefer to outsource. By improving efficiency and delivering better results, companies can improve their workflow. This is accomplished by outsourcing businesses operations to third-world countries such as India, where there is abundant talent and skill, but at a reasonable cost. Cisco, TCS, and Accenture are a few examples of companies outsourcing to India.

INDIA HAS BECOME A GLOBAL OUTSOURCE HUB FOR SEVERAL REASONS:

  • Highly skilled and qualified workforce:

    For many reasons, global companies prefer outsourcing to India. Among all the countries, India has the highest proportion of English-speaking computer-literate citizens, making it the preferred location for outsourcing jobs. Several hundred thousand Indians graduate from reputable universities every year. In India, companies can outsource their business processes due to the availability of highly trained and skilled employees. Companies are outsourcing research and development to India in order to increase their production and efficiency.

    While it is evident that India is a skilled country and has a wealth of knowledge, another important factor that causes companies to outsource their business activities here is that it is possible to hire for a seasonal period rather than hire for permanent jobs, which reduces the costs of hiring and training candidates. The process becomes more efficient and results are better when companies hire well-trained and skilled experts on a contractual basis.

  • A business environment conducive to success:

    India’s companies have a reputation for good customer relations and credible work ethics. It has proven to be beneficial for companies to outsource their customer service functions to Indian professionals due to the ease of communication they provide. Overall, Indian companies provide competitive environments and aid companies to develop better ways to market themselves.

  • Time zone differences:

    Having a time zone difference also helps India to be the top outsourcing destination because it offers the advantage of being open around the clock. Due to the varying time zones, companies can work around the clock, keeping them efficient and able to produce results as fast as possible. In India, companies tend to outsource services such as customer support, data entry, and transcription.

  • Innovative concepts:

    In the nineties, companies began outsourcing customer service, data entry, transcription, and so on as part of their outsourced business processes. However, today with the availability of more proficient skilled personnel, companies have started outsourcing research and development activities that are more valuable to the company. Texas Instruments and Walmart were among the first companies to establish research centers in India. The ability to install and set up new pieces of equipment and build infrastructure as needed reduced overhead costs as well.

    Outsourcing a company’s business practices to an overseas location was first a way to reduce labor costs and to accomplish the task more quickly and efficiently. India, China, Malaysia, and other countries have become the preferred locations for countries that want to outsource due to outsourcing has developed into its own industry over the years.

Concluding thoughts:

A successful outsourcing process is largely dependent on skilled labor and effective communication. The global outsourcing market is dominated by India, which is ranked first. The universal offshore outsourcing BPO market is dominated by India with 65% of the market. Even though China and Malaysia have been constantly challenging India for its position in the global market, India has managed to retain its leadership.

Indian businesses are moving from back-office operations to product innovation and research, and there are increasing opportunities for talent and leadership development.

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