Friday, February 19, 2010

IT outsourcing in India

Chen Lou

Edited by Chen Lou

With low expense, skilled workforce and business environment, India is attracting more overseas IT outsourcing companies. In 2009, India continued to be the most preferred destination for companies seeking offshore development in IT industry.

Despite the global slowdown, the exports in Indian’s IT and business process outsourcing services (BPO) is expected to rise 5.5% in the current financial year to $ 49.7 billion – a historic moment as it touches the US $ 50 billion landmark, according to India’s software and services industry body --National Association of Software and Service Companies in New Delhi (NASSCOM) on Feb. 4, 2010.

Offshore development or outsourcing has always been used by companies to achieve greater profits through cost reduction. During this process, one company hands over part of its work to the contractor company, such as making it responsible for designing products under the requirements of the outsourcing company.

Significant cost saving can be achieved by IT outsourcing to India, owing to the wide gap between the workers’ salary and that of the customer companies. IT workers in India are obviously more “cheaper” compared to their counterparts in western countries.

As the second most populous country, India has a big labor pool for its IT labor force. “Out of 10 newly graduates from Indian colleges, 4 to 7 will choose to work in the IT industry,” Anjali Shrivastava said, who graduated from Nagpur University majoring in electronics.
IT outsourcing workers of India in 2009. Photo from: World Records.

Anjali worked in the TATA Consultancy Services Limited Company (TCS) for four years, which is the largest provider of IT and business process outsourcing services in India. There she designed software and websites for clients from both India and abroad.

“I got 36,000 Rs per month as an assistant software engineer in the TCS, which is about $ 600, but workers doing the same job in America will get $4,000 a month.” Anjali said.

A salary like $ 1000 a month (close to Rs 50,000) in U.S., is considered as a very good pay for a qualified IT workers in India, according to Rakesh Gosangi, an Indian research assistant and Ph.D. student majoring in Computer Science at Texas A&M University.

“Availability of cheap, good-quality, and English-speaking workforce in India is the most competing strength of India’s IT industry.” Assistant professor Krishnendu Roy at Valdosta State University said, who graduated from the University of Calcutta, India with a bachelor degree in Information Technology and a Ph. D. in Computer Engineering from Louisiana State University.

“I think this is true for most parts that considerable IT workers in India are still cheap labor producing low-technology products,” Roy said.

But, Anjali thought most of the workers were cheap labors making high-tech products, as most of them have at least a bachelor degree or master degree and make high quality products.

Besides, NASSCOM observed that IT/BPO industry will continue to be a net hirer and the direct employment is expected to grow by 4% and outnumber 2.3 million with over 90,000 new jobs in the current 09-10 financial year. With its galloping outsourcing IT-BPO industry in particular, India remains the second-fastest growing economy in the world in 2009, according to its Interim budget for 2009/2010 by the Indian Consulate.

“With the worst-ever crisis behind, the Indian software industry would come out strong to seize the opportunities.” Infosys Technologies Limited chief executive S. Gopalakrishnan said. Infosys as one of the largest IT companies in India is planning to expand in Brazil, Mexico and China in the next.
Infosys in Bangalore, India. Photo from:Business Week.

On the other hand, Roy warned that as prices of IT-work increase in India, companies including the Indian ones will look towards other untapped countries as outsourcing destinations.

“It might be booming one day and it might just disappear the other – the job market is very feeble.” Rakesh said. “As India is more independent on offshore companies, if they do well, we’ll do better.” Anjali said, “But the risk is not too big, we also have a huge domestic market.”

While in a predictable short term, compared to some developed countries’ IT industry costs, outsourcing in India will continue to be valued with its high cost efficiency.

“The Industry has reinvented itself by increasing its cost efficiencies, utilization rates, diversification into new verticals and markets and new business and pricing models.” Pramod Bhasin, Chairman of NASSCOM and president & CEO of Genpact said.

Besides the lower costs and skilled workforce, rigid quality control has been the key factor for success of Indian IT outsourcing companies. A great number of companies strictly follow the Capability Maturity Model Level for software and the quality awards like ISO.

“A lot of people focus on India for lower costs, what is remarkable in India is the caliber of the computer engineers.” Larry Ellison said, founder and CEO of Oracle in an interview. Microsoft and Oracle have their biggest offshore software departments in India.

“Besides the cheap labor, the system has worked. Indian employees have been working well over the last decade or so to meet with the requirements of American companies thus creating a trust.” Rakesh said.

When concerning about a certain backlash against IT outsourcing in India from U.S, Roy thinks the controversy in USA about whether outsourcing is having a negative impact or not on US economy is not going to die down any time soon.

“It is very difficult for those here in U.S. to find jobs in IT companies, because many companies are taking the cheaper way out by moving their jobs and some facilities overseas.” Sean A. Williams said, a senior Ph.D. student majoring in Computer Science at Arizona State University who is hunting a job now.

“I still think it is a win-win situation for both India and America.” Roy said.