India’s Outsourcing Market

Technology has made the world a global village and this impact is felt not only by the common man but also by the companies in developed countries especially the United States. The phenomenon of outsourcing refers to shifting the non-core jobs of an organization to another organization usually located in a different geographical location in order to increase efficiency and reduce costs.
This phenomenon certainly benefited a lot from the modern networking and communication technologies since it has become very easy for companies located in different parts of the globe to coordinate and cooperate to get the work done in other regions where labor costs are relatively lower and ample skilled labor is available.

Outsourcing in India

One of the countries commonly referenced with the word outsourcing is India which is one of the fastest growing economies of the world today. India has an immense pool of skilled labor and educated people who have a good knowledge of English and are willing to work at relatively lower wages than an average source in say Europe or USA.

All these factors have combined to make India the outsourcing king of the world. Figures from National Association of Software and Service Companies (Nasscom) which is the primary association representing the IT industry in India, noted that India would earn approximately US $ 60 billion by the end of this decade, through the outsourcing exports, and the rate of growth of outsourcing industry would be in the region of nearly 33%.

From this projected growth of 60 billion US dollars, nearly one third would be from IT services and software exports while another one sixth would be from business process outsourcing and call center businesses. In fact so great is the projected growth that the current educational infrastructure would not be able to deal with the shortage of skills and by the end of the current decade; India would be short by nearly half a million of trained workforce for the outsourcing industry.

Figures also show that during the first half of the last year (i.e. 2007) India far surpassed other major players in the Asia Pacific region, namely Japan and Australia, bagging nearly 30% of the contracts while Japan and Australia followed suit by having a share of 22 % and 2% respectively.

The Downside

Despite such heavy growth and potential for further growth, some experts also express reservations about this trend of outsourcing being continued in the long run. There are several reasons cited for these doubts. One strong reason is that with the rise of outsourcing and relatively lower rise in skilled manpower availability, the wages are tending to rise. Since cost savings is one of the major lucrative factors which govern the choice of outsourcing destinations it would go against India in the longer run.

It is estimated that work which cost somewhere in the region of 125 USD per month now costs somewhere in the region of 200 USD per month. This may not seem to be a significant rise but given the number of workers this is certainly a cause for concern.

Nations such as Malaysia, China, Mexico, New Zealand, West Africa and so forth are becoming equally lucrative as outsourcing markets. This would certainly affect the position of India though there is no such danger that outsourcing will be fully gone in favor of these countries. India with its vast supply of skilled English speaking population and a good infrastructure of educational institutes does have the assurance that at least in the near future its position will be very strong regarding outsourcing.

The The fears of the Indian outsourcing market being eroded are echoed in the research findings from research firm Gartner Inc which states that unless something is done about rising wages and labor shortages in India, that companies abroad would certainly be shy of outsourcing to India in the future. They cite the example of Ireland to prove that even Ireland lost substantial outsourcing business due to such problems and India was at advantage at that point, but now Ireland will be at the receiving end if these trends continue.

Data Center Outsourcing & India

When we talk about outsourcing we normally mean IT services, business process outsourcing, legal process outsourcing and so forth, but this discussion cannot be complete without discussing the aspects of data center outsourcing as well. Now logically we might think that data centers would be the last thing a company would like to outsource mainly because of confidentiality issues relating to the vital and important data which is stored on the servers of a company.

The main reasons which prompt parent companies to outsource data center services include complexity of business demands in the current technological arena, data growth, staffing issues and so forth. Though currently India only holds about 2% market share of the total data center outsourcing business, it is expected to grow by nearly 22% in the years to come. These data center operations which are given by foreign companies to specific vendors are also known as managed service providers or MSPs. In recent months we have heard of several major players in the market such as IBM and HP developing global data centers for the purpose of managed data center services.