Procurement Intelligence Unit

The past decade has seen the Indian economy elevated from its previously ponderous ‘Hindu rate of growth’ of 4% to a major challenger on the world stage. Technology and business process outsourcing in particular, have delivered massive development across the sub-continent. While wage rises have increased the price of outsourcing, opportunities still exist to cut costs.

Recent IMF data indicate that India has the 13th largest economy in the world and although growth figures produced by the Economist Intelligence Unit forecasts Indian growth will consistently fall below that of China, with 2010 predictions standing at 7.9% and 9.9% respectively, the Indian economy is expected to outpace most of its neighbours, with ASEAN countries expected to grow by only 5.6% this year. A 2009 country risk report produced by the PIU found that infrastructural weaknesses and the threat of political instability are likely to continue causing a lag behind Chinese growth.

Although China's meteoric rise has attracted more media attention, India’s steady accumulation of contracts and business successes has delivered savings for companies throughout the developed economies. India’s historic edge came from a low cost-base via a cheap and educated workforce which could massively undercut Western remuneration rates. However, as the economic development spreads throughout the economy, wages are steadily increasing.

A recent report found that India was still the most attractive destination for 70% of US- and Europe-based companies. However, the increasing concern for the bottom-line has generated greater interest in other, low-cost destinations, such as the Philippines or Vietnam. PIU's report found average wage increase for 2009 stood at 15.1%. Indeed, the increasing buoyancy of the Indian employment market has produced recruitment difficulties for the major firms. Infosys currently has vacancies for 36,000 employees, and Tata Consultancy Services is advertising for 40,000. These companies are forced to provide pay rises, training opportunities and engage other cost-inflating initiatives to remain competitive in the market.

Other companies are seeking to further exploit the successes of the past model, with the BPO industry beginning to move to rural regions. HarVa, an outsourcing company that focuses on providing rural outsourcing services, believes that it can tie sustainable development and other CSR benefits to a client, whilst undercutting rates prevalent in urban operations.

These moves represent Indian outsourcing companies intention to diversify the focus from IT and call centre-based services to a broader business and consultancy offerings. English language skills, and high numbers of skilled graduates are providing more scope for more professional outsourcing deals. Large law firms in London and New York offer clients with a service to process legal documents with an Indian lawyer for a highly discounted rate.

Wipro, a Bangalore-based outsourcing company, is now providing Microsoft for its legal process outsourcing. The technology giant’s intellectual property and licensing services is now entirely serviced under the new deal. Microsoft has already outsourced its entire internal IT support to Infosys, in which the Indian IT provider manages its IT helpdesk, desktop management and provides infrastructure support to the US-based firm.

The future for Indian outsourcing lays not so much in reproducing past successes, but in entering new markets and exploiting its strong graduate base and knowledge base gained over years of international contracts. For those companies interested in continuing cutting expenses from their processes, they may consider other, cheaper alternatives to an increasingly costly Indian outsourcing market. However, for those organisations that are considering the ‘next generation’ of outsourcing contracts, India may represents saving in more value-added functions, such as legal and management consultancy. Further to this, the PIU's report forecast growth for India's burgeoning procurement outsourcing industry. The sector has been growing at 22% per annum, and with greater buying intelligence sited in the sub-continent, this is likely to be an attractive investment opportunity for foreign companies in the future.