Why India = Outsourcing?

I was interviewed today by some journalists from the Irish National Television. Very cool, and I can brag about this in my next class. Coming so soon after teaching the Outsourcing course at ISB, I had the concepts clear in my mind.

Since this was for the Irish TV, they were naturally interested in knowing what was behind India’s success, and how would Ireland compare, especially in terms of education, access to Europe, and low corporate taxes.

So what is it? My thoughts:

1. Availability and scalability of talent:

Some numbers reported leave one astounded. 350,000 fresh engineering graduates every year compared to US’s 70,000. Even when these numbers are taken with a pinch of salt, that is still a lot of people. And the billion plus of us have close to 10 million English speaking population. Way more than the population of Ireland. And being a young country (our median age is around 25 years), we are poised to be the talent pool of the world.

2. Distances are in your mind:

So India is far from Europe, and farther from the US. Well, why not use technology, processes, and practices that mitigate these.

And offer a 24 hour work day.

Taking these up one by one.

Yeah, yeah, so CMU came up with CMM. (I know why on  a personal level, junta can not top my association with my beloved alma mater!) But here is a fact:  many of the CMM-5 rated firms are in India. Wipro, for example, was the first firm world wide to be certified at CMM-5. No mean achievement. Indian ITeS vendors have realized that processes can reduce uncertainty and risk, can act as quality signals to clients, and increase quality of output. All desirable in the world of ITeS outsourcing, KPO, or BPO.

Indian vendors also understand that they are geographically and culturally distant from their client base. Hence, the extensive use of technology to communicate with the stakeholders. Not to mention practices like onsite presence and handholding client that help bridge these distances.

3. Tax benefits:

Indian government is pretty bullish on the ITeS. Special economic zones, giving 100% tax breaks for the first five years, 50% for the next, and so on, make for a lucrative proposition.

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So cost advantages, talent shop, processes and tax breaks.But then why would companies continue to stay on? What happens after the cost advantage vanishes, or the tax breaks, err., break?

Tada!

4. Value for money:

Some things never change. As in, clients look for value for money.

Y2K bug, coinciding with the liberalization policies of the 90s put Indian IT service vendors on everyone’s radar. Since then, of course, they have taken advantage of being the first mover and entrenched themselves into the client psyche. Now it is no longer about cost arbitrage (and indeed, given the current pay packages of IT professionals, that is a fleeting advantage). Whether you call it loyalty or the switching cost syndrome, Indian vendors have developed long term relationships with their clients, invested in them, and therefore made outsourcing a value proposition. In fact, over 90% of the business for the Indian Big 5 is repeat business. The vendors are also moving away from the staid old contract structures (fixed price or times and material), and offering the buffet: transaction based pricing> you got it. Value based pricing? Have that too. In fact, stay tuned for more research snippets on the loyalty framework…

Therefore, when you think of outsourcing, you think of India.

I rest my case.

So what do you think? I think I have scared the Irish quite a bit, helped by some of my students from the OITB course (thanks Sujay, Jasnoor, and Yannick from Co2010@ISB!).