Outsourcing has altered the foundations of global business practices. Until recently, outsourcing was implemented solely to reduce operational costs. Now, however, with the increase in competition and emergence of new players on the scene, forerunning organizations rely on outsourcing as a strategic move, to get an edge on their competitors whilst simultaneously extending their global reach.
By contracting out non-essential processes to a third-party with proven expertise in the field, focus can be redirected to a company’s core activities so as not to interfere with growth in size and operations. Peripheral services such as data entry, employee database, customer support, content creation, and design work can effectively and efficiently be managed externally with no extra risk to the business. In doing so, companies are able to turn fixed costs into variable ones whilst simultaneously reducing the burden of managing, maintaining, and extending benefits to a large workforce.
The Grant Thornton International Business Report (2014) results show that outsourcing is a popular option for businesses, with 40% of business leaders globally and 43% of larger businesses either currently outsourcing or planning to outsource business processes.
Some regional markets are also more likely to outsource and offshore than others, showing an image of service transactions that is consistent with global trends:
The same study indicates the processes that businesses are most likely to outsource:
The two main reasons why companies outsource are to cut costs while being able to focus on core business. The primary goal of outsourcing is to massively reduce the costs associated with employing additional in-house teams, and in doing so, gain value for the host organization. In order for outsourcing to be economically viable, savings from the lower wage rate must exceed the increased cost of management and any associated risks.
Companies often overlook the additional benefit of generating higher customer retention rates through outsourcing services. The combination of innovative practices, intelligent and talented subject matter experts, and speedy execution leads to remarkable increases in customer retention.
Additionally, outsourced services provide a certain amount of flexibility. Signing on for the services of an outsourcing company with extensive lists of vendors in their arsenal enables companies to scale up or down based on customer demand whenever the need arises. This is a valuable asset during the peak and valley periods of the year.
While companies across the globe turn to outsourcing for the reasons mentioned above, there are equally as many reasons for service companies to take an interest in offering business support.
Some economies around the world have become major players in the outsourced service game and have subsequently determined critical changes in their countries business environment, as well as in the work ethic of their people. This is particularly true of countries which went through a development boom in recent decades, and as a result, have benefited of the following:
India is the second largest player in the freelancing game after the USA. According to an online employment report by Elance, more than one third of its freelancers are based in India.
India has traditionally been the preferred choice for offshoring and outsourcing, especially for English language operations and a global hub for multi-location sourcing strategy.
A recent (2014) study by PwC states that India is one of the most mature global sourcing destinations with the widest range of options, highlighting that:
As a result of these factors, India has maintained its leadership position despite constant challenges from emerging destinations, with India’s share in global offshore revenue being over 50% since 2009, in the study’s target timeframe.
Multiple studies across the last years confirm India’s leadership position in the global outsourcing market.
According to a recent Deloitte survey, 59% of businesses that were interviewed are already outsourcing to India, with an additional 22% planning to go or considering it.
India is leading the AT Kearney Global Services Location Index. Offshoring to India remains a highly attractive proposition for many companies, and is the undisputed industry leader, with top financial attractiveness, people skills and availability and business environment.
India proves to be the most mature market for business process outsourcing, having set cornerstones in the history of outsourcing. A brief history of Indian business service providers shows how the nation has progressed within the global economy, from mainly data processing and data entry services offered, to high-value consulting, development, design, virtualization and other top-notch convergent services.
India is the leader in outsourcing worldwide, with 6 out of the top 10 outsourcing destinations, according to Tholons 2015 Top 100 Outsourcing Destinations (the organization has been tracking outsourcing destinations for over a decade).
Alternative sources confirm: ‘Cities in India Top List of Cities Attracting Technology Talent’, a study by Linkedin, shows the top 10 cities attracting members with tech skills: Bangalore, Pune, Hyderabad and Chennai are the top 4 positions, ahead of San Francisco and Seattle.
Established IT outsourcing destinations that offer variety and high end skills such as Bangalore and Hyderabad are less expensive than similar destinations across the world. According to the same source (PwC, 2014), emerging tier 2 BPO destinations such as Kochi or Indore offer a 20-30% cost advantage over tier 1 Bangalore, keeping India’s cost-value proposition strong.
According to all sources, Bangalore is the world capital of outsourcing. The city grows tech talent faster than Silicon Valley, according to LinkedIn, with more software programmers moving to Bangalore in 2014 than to the US tech hub. While Bangalore clocked 44% new residents with technical talent active on Linkedin, the San Francisco-Bay Area region only had 31%.
By picking up large jobs from other countries, organizations in India are able to provide a compendium of services in not only the IT field but several others as well.
According to PwC, the talent pool in India is highly qualified to respond to the needs of the IT/ITeS industry:
IT/ITeS industry in India supports businesses across verticals such as banking and finance, manufacturing, healthcare, retail, government and utilities, having a very diverse skill base in the industry, including graduates from engineering and non-engineering background, finance specialists, doctors, lawyers, etc.
However, the same study notes that in recent years companies have been finding it little more difficult to get the right talent. With the development boom in the country, job demand in other sectors as banking, engineering, and manufacturing has increased.
The most common forms of outsourcing to India relate to IT or BPO. Software developers, infrastructure engineers, and technical support teams are highly sought-after. These professionals are able to provide a service from their end of the world that is as effective and valuable as employing a local team – though, of course, their services are much cheaper. Provided that a standard process is in place, managing the relationships between sites can be done successfully and efficiently.
BPO, the practice of working with a Business Service Provider in India, facilitates the outsourcing of an entire, full-scale service. BPO often refers to complete services such as back office administration or contact centres. KPO (Knowledge Process Outsourcing) and RPO (Research Process Outsourcing) are often used by outsourcing companies to distinguish their high-value services from “regular” BPO which is often thought to be limited to contact centres or data entry work exclusively.
Trends suggest that companies are moving towards outsourcing 10% - 25% of their workforce. This is due to companies thinking about their supply chain strategically. By retaining core teams and building leadership talent internally, companies work smarter when using external resources for projects that require niche skill sets that are not financially viable to build internally.
India ranks third in Asia on English proficiency, according to the EF English Proficiency Index.
Although English is often considered to be a second language to the people of India, the fact is that many Indian people consider it more of a first language. This is largely due to the language's long history with the continent, which over the centuries has spread and developed to the point where it's spoken as well as in England itself.
India is expected not only to have the largest workforce in the world, with around 2 billion English-speaking people by the end of 2020, but it is also on it’s way to becoming the country with the largest and youngest employable population in the world (in 2020, the average age of an Indian will be 29 years, compared with 37 for China and 48 for Japan). These people, brought up as global citizens in a true digital environment will represent a key part of the workforce in the business service market.
India has an advantage over China in the global labour market as its young and English-speaking workforce is much more relevant on the global level, as per leading human resource consultancy giant Manpower Group.
“In terms of human capital benefit, India has a highly literate and very driven young people. We see that the big benefit for India is that it has a much bigger young, literate English speaking relevant workforce, which is more relevant on the global level, as compared to the Chinese young people for instance. That’s going to be the biggest strength in future for Indian labour market.” Manpower Group President (Global Corporate and Government Affairs) David Arkless said.
The BPM outsourcing industry in India is a stable sector, enjoying sustained growth over the years, while also developing new capabilities and value added services.
The National Association of Software and Services Companies (Nasscom), the voice of the Indian IT industry, has published the NASSCOM Strategic Review report for 2015, the most relevant assessment of the current State of the BPM industry in India, which outlines:
In revenue numbers, trends are also clear:
By all accounts, the Indian industry continues to develop capabilities around traditional and emerging markets, verticals and customer segments, expand global delivery presence, and increase focus on high value services including product development.
As for the industry structure, NASSCOM reports the following breakdown by revenue in FY2014:
Entry level salary in these emerging destinations is around USD 3000 per annum and office rental USD 0.65 per sqft per month. Loaded costs per FTE could be as low as USD 8000, thus offering significant cost advantage.
The many advantages to offshore outsourcing include domain expertise, outsourcing non-core functions, improved control over expenses, and round-the-clock service availability.
Further advantages include:
With the momentum of globalization, the world is shrinking into an ever-more familiar village environment. A direct result of this is that companies need to look to outsourcing work in an effort to remain competitive in the global market.
The outsourcing industry has grown within the last decade with over 2 million jobs being outsourced in 2013 alone. The numbers show that a large quantity of these opportunities were made available to freelancers in India and China. In the 2013 financial year, the IT sector outsourced 43% of its work, the distribution industry outsourced 26%, while 12% of call centre agents and 38% of R&D workers found employment through outsourcing.
The benefits of outsourcing don't stop at its cost-efficiency. By outsourcing effectively, corporations have access to a global pool of talented and experienced experts who all have something unique to contribute. Working towards a common goal from many different points of view can create a holistic and useful result with global appeal and influence.
While the uninitiated may find fault with the notion of outsourcing by saying that it costs local jobs, this is an unbalanced view. Outsourcing actually has the potential to aid the economies of both the outsourcer and the freelancer. The outsourcer's economy benefits from more affordable products and services which lower the cost to the consumer as well. The freelancer's economy is boosted by the influx of job opportunities, giving the previously unemployed a new way of finding success.
Companies may choose to outsource their needs for many reasons that range from simple financial constraints to more tangible and complex motivators. The following section offers a brief summary of a few of these alternate motivators.
Naturally, opportunities for saving money will always appeal to companies in their pursuit of better margins and better practices. Outsourcing can really help here, as many countries have a lower cost of living than others, which means that big companies can do business more intelligently, while helping to promote growth in under-appreciated economies.
This could have as much of an impact upon a business as is desired, from individual project components to entire departments being outsourced. It is not uncommon to see customer support, development, or product testing divisions based remotely.
Localised outsourcing within the company's own country can also lead to significant savings. Companies in large cities with a high cost of living have the opportunity to employ individuals who live in more economical environment who demand a lower hourly rate.
In this way, outsourcing offers businesses skilled, experienced workers at a lower cost, while giving those struggling with poor job markets a chance to tap into a vast array of online opportunities.
Statistically, India is the preferred choice for outsourcing talent when compared to Eastern Europe, the Pacific Rim and Latin America. India is the most compelling choice for several reasons.
1. Achieve more with less
Business all over the world are expected to constantly boost productivity by using their existing teams. A clever approach is to use current team members to manage the remote workforce which in turn boosts each member's productivity rate, and by extension the company as a whole. The lower cost of living in India makes it the obvious choice for the cost-conscious company.
2. Access to educated professionals with skill sets
Indian freelance workers are well-educated and often hold degrees from respected universities around the globe. While one may have reservations with regards to the language barrier, the figures show that Indian experts are more fluent in English than other popular outsourcing countries.
3. Focus on core business competencies
With the growth of any business comes the need to continually support an increasing number of clients, research and develop new products and services, all while maintaining a steady growth rate. In-house limitations mean that these peripheral tasks can often detract from the core business. Outsourcing to India allows you to delegate these non-core tasks to experienced professionals, which creates the opportunity for more time to be spent on the in-depth functions of the company. India offers a varied landscape of service providers which means that you are sure to find the perfect fit for your needs.
4. Become more scalable
Business can be a wildly unpredictable landscape with dizzying highs followed by crushing lows. The real risk here is maintaining profitability while maintaining a steady workforce, even in the tough times. The fantastic part of outsourcing to India is the ability to make use of these professionals as they are needed, without the traditional and very valid concern of low staff retention. Outsourcing service providers can scale your support on an as-necessary basis, which really takes the edge off when it's needed most.
5. Better pricing flexibility
The cost of living in countries like the United States is a lot higher than in many other countries. This makes American labour more pricey, especially when each individual's taxes, pay package, benefits package, equipment, and insurance are added together. Outsourcing to India drastically cuts overhead costs by removing these burdens. A skilled developer from the USA could cost a company between $50 and $80 per hour, compared to the estimated Indian average which can be as low as $15 per hour. The pricing flexibility offered by India's outsourcing industry allows for dynamic budget and staffing strategies that save money when cash is tight.
6. Determine appropriate staff levels
It can often be a challenge to ensure that there is a sufficient staff base to cover the workload, while protecting those members of the team from growing bored or feeling undervalued at times when the business is experiencing a slump. On the other hand, having too few team members when business improves is also a disaster waiting to happen. Outsourcing to India offers great flexibility in terms of maintaining the correct number of workers at any stage of your business cycle. A smart approach is to maintain a base team that you will always need active in your business, and then add the uniquely skilled individuals you require on a task-by-task basis. The benefit for your in-house team is that they will not be overworked at certain times and then bored at others - outsourcing to India will help you to boost your team's productivity, morale, and quality of work.
7. Advantage India: India has a critical advantage over Eastern Europe and other outsourcing destinations because of its industry maturity. Having been the first large scale exporter of BPM services and the market leader for decades, India has come to deliver state-of-the art services. Over the last 25 years, India has achieved a national business ethic developed over an entire generation, well-established practices and business relationships, and a national growth strategy where the export of services are one of the most important factors. All these create a thriving environment for businesses looking to outsource their processes, as opposed to Eastern Europe, where the IT-BPM sector is much less developed.
As an outsourcing destination, India is subject to the same pro’s and con’s as any other country.
Key attributes to the Indian outsourcing market are tightly tied to the economy and geography of the country. We can speak of two main disadvantages that are specific to India and have a significant influence on the country’s outsourced services exports:
Other than the two challenges mentioned, outsourcing as a process has its own downfalls, which can be very challenging for businesses. While these are not necessarily disadvantages, but business aspects that can be improved on, they are undoubtedly more prevalent in outsourcing contexts than in in-house operations.
However, for an objective business perspective, it is important to note that these challenges can be overcome through efficient and effective project management. Forward-looking service providers, as well as business owners, should be keen to find the perfect balance in their partnerships, to build constructive relationships that last.
With India setting itself up as such an advantageous outsourcing destination, it hardly seems surprising that various well-known MNCs have established a foothold in what to them must be a veritable goldmine of opportunity.
The outsourcing markets in India can be measured by multiple standards:
Leading multinationals with captive centers in India: Airbus, Amazon, AT&T, Barclays, Caterpillar, Cisco, Continental, Dell, Exxon, Ford, GM, HP, IBM, McKinsey, Mercedes Benz, Pfizer, Shell, Reuters, World Bank, Yahoo and others.
Outsourcing consultancy and research firm Everest Group published their rankings of the top 20 service providers worldwide (at the beginning of 2016) based on their performance in 26 different categories, including key business lines, geographies, and technologies. The rankings were as following:
Cognizant (US based, but now India’s second largest outsourcing provider) claimed the top spot, followed by Accenture and IBM. Rounding out the rest of the top five were India’s TCS and Wipro.
While Cognizant consolidated their position as market leader by way of year-on-year growth, TCS and Wipro performed particularly well in banking and financial services, which account for more than half of their revenues. Cognizant’s strategic advantage was based on the company’s increased coverage in the increasingly important areas of healthcare and life sciences.
On the 6th position, Indian company HCL was honored as “star performer” of the year, having transformed itself, particularly on the infrastructure services side. The Indian company is known to have one of the most aggressive sales forces in the industry as well. However, the authors are cautious about the new entry and their sales policy: “What we don’t know yet is the quality of the deals they’ve signed on for. It’s not clear yet whether they’re compromising or they are truly bringing something new to the table.”
McKinsey in India
Over 20 years ago, McKinsey was the first global consulting firm to make its mark in India. In 2016, this McKinsey works with most of the largest companies in the country, assisting them in becoming global powerhouses. Additionally, this consulting firm works closely with the government in efforts to promote growth across the Indian subcontinent with the aim of raising living standards, strengthening education, and boosting their health systems. McKinsey has also be instrumental in developing top quality data, knowledge, and analytics on a large number of global and Asia-specific topics.
FTI Consulting Global
With offices in Mumbai and New Delhi, FTI Consulting is a business advisory firm focussed on Forensic and Litigation Consulting, Economic Consulting, and Strategic Communications. Their team of professional consultants have amassed a wealth of knowledge regarding the challenges faced by both Indian companies and foreign companies with a foothold in India. FTI Consulting specializes in governance, mergers and acquisition, litigation, investigation, reputation management, governance, and compliance, among others.
Morgan Stanley’s presence in India extends to both domestic and international clients, providing a range of services in the realms of capital markets, investment banking, commodities, fixed income, equities, and research services. For many years, the firm has been an active investor in Indian Infrastructure as well as Real Estate and Private Equity project.
Since opening its doors in 1994, Bechtel has worked on several large projects in India. Three of these projects include the Jamnagar refining complex, the Dabhol power plant, and the KG D6 gas development project.
BPO and outsourcing companies in India are increasingly embracing technological processes such as increased standardization, automation and cloud computing, showing a trend towards a ‘best-of-breed’ positioning on the global market.
Experts share some highlights on the coming trends in the outsourcing/offshoring world. India will undoubtedly be one of the early adopters, as the global leader of the market.
Security- as connectivity and data sharing are a key part of business operations, security is a major concern for all industries, not only outsourcing. Companies of all kinds are ever more aware of the necessity of a high level of security regarding business information, and BPO providers need to be able to answer to that need, by ensuring their systems and infrastructure are bulletproof. For most of them, this means having a Information Security department as well as security certifications and audits periodically.
Cloud locations - data centers will understand that their physical location is vulnerable and will seek out multiple cloud solutions to secure their client’s information, as well as their work processes.
Cloud services providers such as Amazon Cloud, Microsoft Azure and Google Cloud Platform will become trusted partners for outsourcing companies. Moreover, the ‘as-a-service’ outsourcing model of most providers points to a flexible combination of infrastructure, software, and business process as the best way to create modular, scalable and intelligent platform.
Integration - emerging digital technologies with enhanced connectivity options led to a shift in business models as well as in clients’ expectations. However, the increased elements of connectivity (internet of things, global networks, multiple layers of technology) will require a substantial integration effort. The complex systems that result from these integrations will need service, incident and change management - a maintenance service package that will most likely be outsourced. This is seen by experts as one of the coming trends in the following years.
Automation - Outsourcing started out as an opportunity to move work to lower-cost, more qualified people. However, with globalization, these opportunities are slowly leveling out. Operations outsourcing providers will look to automate as much of their workflow as possible - the current growing trend of robotic process automation (RPA) for time consuming, repetitive work. This will lead to redefining the roles for humans, most likely by starting to offer innovation services.
Leading advisory firm Grant Thornton carried out the study Outsourcing: Driving Efficiency and Growth which hauled business leaders in 45 economies in the world to understand their business views in outsourcing. The Grant Thornton International Business Report (IBR) is the world’s leading mid-market business survey, interviewing approximately 3,300 senior executives every quarter in listed and privately-held businesses all over the world.
According to the research, 40% of the companies globally are considering to outsource one or more business processes. Their motivations are the functional drivers of the market. Though there are variations in the survey results for the said economies, the study outlined the needs that fuel the global market for service outsourcing to be:
From a functional, business management perspective, the key drivers that turn companies to outsourcing may vary over geographies and market share, however, they all meet under a single term: ‘business-wise’. As long as outsourcing will keep being business-wise for one reason or another, the market will thrive.
Market research shows the key drivers that contribute to market growth and business diversification in the outsourcing business. A recent look at the Indian market as a destination of outsourcing (PwC, 2014) shows the main technological advances in the field:
Globally, business say cloud computing, BPO as a service, hosted virtual desktop, big data and enterprise mobility are the key technological developments impacting future outsourcing decisions.
The indian outsourcing industry is a major economic sector in the country and has been subject to research for many years. Challenges to the sector have been acknowledged by major market research companies, as well as the government:
Furthermore, India faces new emerging challenges, as the market develops:
Maybe the major opportunity for service providers is to take advantage of the growing trend of robotic process automation (RPA). The working world as we know it may well be over, and that doesn’t need to be a bad thing to clients and providers, to employers and employees. On the contrary.
Taking RPA seriously and adding it to their offer may propel IT-BPO companies to the top position of early adopters in the industry. This alone is an important business achievement, not to mention the opportunity to improve economic outcome. Research has shown that for companies outsourcing their BPO needs, robotic automated processes are nine times more cost-effective that an on-shore FTE (full time equivalent), as compared to an offshore FTE, which is only 3 times more cost-effective.
Aside from this simple comparison, ‘robots’ are also improving the operational efficiency, by contributing to quality, accuracy, risk mitigation, flexibility, multi-tasking, and management information.
The outsourcing industry isn’t slow to embrace RPA, with clients saying that service providers:
Adopting RPA can be the key factor keeping a provider on the market, especially in the highly competitive and developed market in India, the global leader in IT-BPO.