The outsourcing history of India is one of phenomenal growth in a very short spa

n of time. 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 pu
blished in 1776. Over the years, the meaning of the term 'outsourcing' has under
gone a sea-change. What started off as the shifting of manufacturing to countrie
s providing cheap labour during the Industrial Revolution, has taken on a new co
nnotation in today's scenario. In a world where IT has become the backbone of bu
sinesses 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 req
uirements and specifications from the outsourcing company. This process is benef
icial to both the outsourcing company and the service provider, as enables the o
utsourcer 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 b
enefit 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 Ind
ian governments have pursued programs of economic reform committed to liberaliza
tion and privatization. Till 1994, the Indian telecom sector was under direct go
vernmental control and the state owned units enjoyed a monopoly in the market. I
n 1994, the government announced a policy under which the sector was liberalized
and private participation was encouraged. The New Telecom Policy of 1999 brough
t in further changes with the introduction of IP telephony and ended the state m
onopoly on international calling facilities. This brought about a drastic reduct
ion and this heralded the golden era for the ITES/BPO industry and ushered in a
slew of inbound/outbound call centres and data processing centres. 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 servic
es was medical transcription, but outsourcing of business processes like data pr
ocessing, billing, and customer support began towards the end of the 1990s when
MNCs established wholly owned subsidiaries which catered to the process off-shor
ing requirements of their parent companies. Some of the earliest players in the
Indian market were American Express, GE Capital and British Airways.
The ITES or BPO industry is a young and nascent sector in India and has been in
existence for a little more than five years. Despite its recent arrival on the I
ndian scene, the industry has grown phenomenally and has now become a very impor
tant part of the export-oriented IT software and services environment. It initia
lly began as an activity confined to multinational companies, but today it has d
eveloped into a broad based business platform backed by leading Indian IT softwa
re and services organizations and other third party service providers. The ITES/
BPO market expanded its base with the entry of Indian IT companies and the ITES
market of the present day is characterized by the existence of these IT giants w
ho are able to leverage their broad skill-sets and global clientele to offer a w
ide spectrum of services. The spectrum of services offered by Indian companies h
as evolved substantially from its humble beginnings. Today, Indian companies are
offering a variety of outsourced services ranging from customer care, transcrip
tion, billing services and database marketing, to Web sales/marketing, accountin
g, tax processing, transaction document management, telesales/telemarketing, HR
hiring and biotech research.
Looking at the success of India's IT/software industry, the central government i
dentified ITES/BPO as a key contributor to economic growth prioritized the attra
ction of FDI in this segment by establishing 'Software Technology Parks' and 'Ex
port Enterprise Zones'. Benefits like tax-holidays generally enjoyed by the soft
ware industry were also made available to the ITES/BPO sector. The National Tele
com Policy (NTP) introduced in 1999 and the deregulation of the telecom industry
opened up national, long distance, and international connectivity to competitio
n. The governments of various states also provide assistance to companies to ove
rcome the recruitment, retention, and training challenges in order to attract in
vestments to their region. The National Association of Software and Service Comp
anies (NASSCOM) has created platforms for the dissemination of knowledge and res
earch in the industry through its survey and conferences. NASSCOM acts as an 'ad
visor, 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 t
he 'Business Auxiliary Services' segment, thereby ensuring exemption from servic
e tax under the Finance Bill of 2003.
These measures have led to a steady inflow of investments by large foreign compa
nies such as Reuters, for establishing large captive ITES/BPO facilities across
India. Moreover, the existing ITES/BPO operations of major multi-nationals are a
lso being ramped up to cater to the ever increasing demand for better and speedi
er service. Almost all of India's top ITES/BPO giants have announced some form o
f expansion and are in the process of hiring manpower to fill the additional sea
ts. India's competitive advantage lies in its ability to provide huge cost savin
gs thereby enabling productivity gains and this has given India an edge in the g
lobal ITES/BPO marketplace. NASSCOM studies pinpoint the following factors as th
e major reasons behind India's success in this industry (Source: http://www.nass
com.org):
o Abundant, skilled, English-speaking manpower, which is being harnessed e
ven by ITES hubs such as Singapore and Ireland.
o Improving telecom and other infrastructure which is at par with global s
tandards.
o Strong quality orientation among players and their focus on measuring an
d monitoring quality targets.
o Fast turnaround times and the ability to offer 24x7 services based on th
e country's unique geographic location that allows for leveraging time zone diff
erences.
o Proactive and positive policy environment which encourages ITES/BPO inve
stments and simplifies rules and procedures.
o 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 transact
ions/number of total transactions; total satisfaction factor; number of transact
ions/hour and average speed of answer. Surveys by NASSCOM also revealed that Ind
ian companies are better focussed on maintaining quality and performance standar
ds. Indian ITES/BPO companies are on an ascending curve as far as the quality st
andards are concerned. Organizations that have achieved ISO 9000 certification a
re migrating to the ISO 9000:2000 standards and companies on the CMM framework a
re realigning themselves to the CMMI model. Apart from investing in upgrading th
eir CRM and ERP initiatives, many Indian ITES companies are beginning to acknowl
edge the COPC certifications for quality and are working towards achieving COPC
licences.
Despite being a fledgling in the global ITES/BPO industry, the Indian ITES indus
try recorded a growth rate in excess of 50% in 2002-03. Industry experts conside
r 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 glob
al ITES/BPO industry was valued at around US$ 773 billion during 2002 and accord
ing to estimates by the International Data Corporation worldwide, it is expected
 to grow at a Compounded Annual Growth Rate (CAGR) of 9% during the period 2002-
2006. NASSCOM lists the major indicators of the high growth potential of the ITE
S/BPO industry in India as the following (Source http://www.nasscom.org)
o During 2003-04, the ITES-BPO segment is estimated to have achieved a 54
percent growth in revenues as compared to the previous year.
o ITES exports accounted for US$ 3.6 billion in revenues, up from US$ 2.5
billion in 2002-03.
o The ITES-BPO segment also proved to be a major opportunity for job seeke
rs, creating employment for around 74,400 additional personnel in India during 2
003-04.
o The number of Indians working for this sector jumped to 245,500 by March
, 2004.
o By the year 2008, the segment is expected to employ over 1.1 million Ind
ians, according to studies conducted by NASSCOM and leading business Intelligenc
e Company, McKinsey & Co. Market research shows that in terms of job creation, t
he 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 lik
e 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 th
e industry's dominant players.
Payment services: This segment has also been identified as a high growth area wi
thin the industry, and is expected to generate revenues of around US$430 million
for 2003-04, up from US$210 million in 2002-03.
Administration: Revenues from the administration services segment are expected t
o increase from US$ 310 million in 2002-03, to US$540 million during 2003-04.
Content development: The content development services segment which includes eng
ineering and design services, digitization (GIS), animation, network management
and biotech research, is expected clock a turnover of around US$520 million in 2
003-04.
The availability of technically trained and skilled manpower in India is making
companies across the world look at the country as a profitable base to shift the
ir high-end support services. Companies like COLT Technology Services are consid
ering outsourcing their technical back-office support work to India. Other areas
are high-end network engineering/management support. Another field which is sho
wing immense potential is that of digital content creation and animation. Animat
ion studios like Walt Disney, MGM and Warner Brothers are already outsourcing lo
w-end work like clean-ups, tweening and modelling to India. The availability of
skilled and trained manpower and India's ability to keep in step with the latest
technological advances in the industry is prompting foreign studios to consider
India as a base to shift other high-end animation work like storyboarding and d
eveloping original content for animated films ad TV series. Tele-radiology is th
e next segment that holds great promise, mainly due to the time zone differences
and the availability of highly skilled radiologists and companies like Teleradi
ology Solutions have been offering their services to US and South-East Asian hos
pitals for the past two years. Engineering services like CAD/CAM 2D, 3D and CAE
modelling and design automation are the latest additions to the ever increasing
list of processes being outsourced to India.