The History of Outsourcing in India

Source: Outsource 2 India

The idea of outsourcing has its roots in the 'competitive advantage' theory propagated by Adam Smith in his book 'The Wealth of Nations' which was published in the year 1776. Over the years, the meaning of the term 'outsourcing' has undergone a sea-change. What started off as the shifting of manufacturing goods to countries providing cheap labor during the Industrial Revolution, has taken on a new connotation in today's scenario. In a world where information technology 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 certain business process under the requirements and specifications of the outsourcing company.

This outsourcing process is beneficial to both the outsourcing company and the outsourcing service provider. In an outsourcing relationship, the outsourcing service provider enables the outsourcer to reduce operating costs, increase quality in non core areas of business, save on effort and increase in productivity Outsource2india (O2I), a pioneer in outsourcing since the year 1999, provides ten distinct services which cater to a wide range of industries. Outsource to O2I and get access to proficient and cost-effective services.

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. Until the year 1994, the Indian telecom sector was under the control of the governmental. The state owned units in India enjoyed a monopoly in the market. In the year 1994, the government announced a policy under which the sector was liberalized and private participation was encouraged. The ‘New Telecom Policy’ of 1999 brought in further changes with the introduction of IP telephony and ended the state monopoly on international calling facilities. This brought about a drastic reduction heralded the golden era for the ITES/BPO industry. This in turn ushered in a slew of inbound/outbound call centers and data processing centers.

Although the 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, medical billing, and customer support began towards the end of the 1990s when MNCs established wholly owned subsidiaries which catered to the offshoring requirements of their parent companies. Some of the earliest players in the Indian outsourcing market were American Express, GE Capital and British Airways.

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The ITES or BPO industry is a sector in India that has been in existence for a little more than ten years. Despite its recent arrival on the Indian scene, the industry has grown phenomenally and has now become a very important part of the export-oriented IT software and services environment. It initially began as an activity confined to multinational companies, but today it has developed into a broad based business platform backed by leading Indian IT software and services organizations and other third party service providers.

The ITES/BPO market expanded its base with the entry of Indian IT companies. The ITES market of the present day is characterized by the existence of these IT giants who are able to leverage their broad skill-sets and global clientele to offer a wide spectrum of services. The spectrum of services offered by Indian companies has evolved substantially from its humble beginnings. Today, Indian companies are offering a variety of outsourced services ranging from customer care, medical transcription, medical billing services and database marketing, to Web sales/marketing, accounting, tax processing, transaction document management, telesales/telemarketing, HR hiring and biotech research.

Looking at the success of India's IT industry, the central government identified the ITES sector as a key contributor to the economic growth that prioritized the attraction of FDI in this segment by establishing 'Software Technology Parks' and 'Export Enterprise Zones'. Benefits like tax-holidays generally enjoyed by the software industry were also made available to the ITES/BPO sector. The National Telecom Policy (NTP) was introduced in the year 1999 and the deregulation of the telecom industry opened up national, long distance, and international connectivity to competition. The governments of various states also provided assistance to companies to overcome the recruitment, retention, and training challenges, in order to attract investments to their region.

The National Association of Software and Service Companies (NASSCOM) has created platforms for the dissemination of knowledge and research in the industry through its surveys and conferences. NASSCOM acts as an 'advisor, consultant and coordinating body' for the ITES/BPO industry and liaisons between the central and state government committees and the industry. The ardent advocacy of the ITES/BPO industry has led to the inclusion of call centers in the 'Business Auxiliary Services' segment, thereby ensuring exemption from service tax under the Finance Bill.

These measures have led to a steady inflow of investments by large foreign companies such as Reuters, for establishing large captive ITES/BPO facilities across India. Moreover, the existing ITES/BPO operations of major multi-nationals are also being ramped up to cater to the ever increasing demand for better and speedier services. Almost all of India's top ITES/BPO giants have announced some form of expansion and are in the process of hiring manpower to fill in the additional seats. India's competitive advantage lies in its ability to provide huge cost savings thereby enabling productivity gains and this has given India an edge in the global ITES/BPO marketplace. 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
• High-end telecom and 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.

Outsourcing to India offers significant improvements in quality and productivity for overseas companies on crucial parameters such as number of correct transactions, number of total transactions, total satisfaction factor, number of transactions/hours and the average speed of answers. Surveys by NASSCOM also revealed that Indian companies are better focused on maintaining quality and performance standards. Indian ITES/BPO companies are on an ascending curve as far as the quality standards are concerned. Organizations that have achieved ISO 9000 certification are migrating to the ISO 9000:2000 standards and companies on the CMM framework are realigning themselves to the CMMI model. Apart from investing in upgrading their CRM and ERP initiatives, many Indian ITES companies are beginning to acknowledge the COPC certifications for quality and are working towards achieving COPC licenses.

Despite being a fledgling in the global ITES/BPO industry, the Indian ITES industry recorded a growth rate in excess of 50% in the years 2002-03. Industry experts consider this a positive indication of the times to come and a look at the ranking and the revenue and headcount statistics show the potential of the industry. The global ITES/BPO industry was valued at around US$ 773 billion during the year 2002 and according to estimates by the International Data Corporation worldwide, it is expected to grow at a Compounded Annual Growth Rate (CAGR) of 9% in the future. NASSCOM lists the major indicators of the high growth potential of the ITES/BPO industry in India as the following.

• During the years 2003-04, the ITES-BPO segment achieved a 54 percent growth in revenues as compared to the previous years
• ITES exports accounted for US$ 3.6 billion in revenues, up from US$ 2.5 billion during the years 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 the years 2003-04
• The number of Indians working for the ITES sector jumped to 245,500 in the year 2004
• In the future, the BPO 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