I- INTRODUCTION

What started off as the shifting of manufacturing goods to countries providing cheap labor
during the Industrial Revolution, has taken on a new connotation in today's scenario. In a
world where information technology has become the backbone of businesses 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 certain
business process under the requirements and specifications of the outsourcing company.
Outsourcing can be defined as a process in which a company delegates some of its in-house
operations/processes to a third party. Thus outsourcing is a contracting transaction through
which one company purchases services from another while keeping ownership and ultimate
responsibility for the underlying processes. The clients inform their provider what they want
and how they want the work performed. So the client can authorize the provider to operate as
well as redesign basic processes in order to ensure even greater cost and efficiency benefits.

The world is discovering the fact that India is a super power when it comes to developing IT
solutions as outsourcing to India have their own unique strengths and capabilities. India has
many of the key ingredients for making this transition. It has a critical mass of skilled,
English-speaking knowledge workers, especially in the sciences. It has a well-functioning
democracy. Its domestic market is one of the worlds largest. Swept by the current of the
latest trend "IT outsourcing to India”, many fortune 500 companies like Microsoft, Oracle,
Citibank, Morgan Stanley, Wal-Mart, AT&T, General Electric, Reebok, General Motors,
Sony, Boeing, Coca-cola, Pepsi, Swissair, United Airlines, Philips, IBM, Lucas and British
Aerospace beneficiaries. But it is also facing the wind of high labor attrition, poor
infrastructure and lack of data protection laws.

As global competition and pressure on margins increases, a company’s outsourcing

relationships are assuming ever-greater significance, becoming more strategic than they were
originally thought to be. Outsourcing in the world today is seen as a strategic management
option rather than just a cost cutting operation. It aids companies to achieve their business
objectives through operational excellence and a better market position. In order for
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companies to focus on their core competencies, all companies today outsource one or more
of their operations. In order to compete in the global economy companies need to focus their
resources on their core operations.
The current economic recession has hardly spared any country on earth and for India, it is
even a bigger problem because India is the land of IT outsourcing and a lot of large western
companies outsource their services to Indian companies.

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II- HISTORY OF INDIAN OUTSOURCING INDUSTRY

Many thousands of years ago, people had understood the need for outsourcing. They realized
that it would be impossible for them to fulfill all their needs by themselves, but they would
have to depend on someone else to serve them. The service provider possessed specialized
skills, which enabled him to do the work faster, cheaper and more efficiently. Thus, we
observe that in early societies, every man had a part to play – he could be a farmer, a
merchant, a soldier or a barber. He was, in modern aspect, a client as well as a service
provider. However, just before the Industrial Revolution, the trend of companies was to
retain all activities for themselves. They nearly never relied on outsourcing to look after their
sales, storage and transportation, legal affairs, and taxes. The company performed all of these
by itself.

The great Industrial Revolution between 1750 and 1900 that took place in Europe provided
much emphasis to the development of outsourcing. The history of outsourcing shows that
through specialization contracting began to be more popular, especially in the service
industry. This in turn led to the first wave of outsourcing during the industrial revolution
pushing the large-scale growth of services such as insurance services, architecture and
engineering services, among many others. At this time the companies doing the outsourced
work were mostly located in the same country, often in the city, just like the customers. The
period saw a manifold increase in the production of goods; the market for them widened and
profits were like never before. These firms were within the country and not offshore. At this
point of time, outsourcing was exploitative and ugly. For instance, the Indian farmers were
forced to provide raw materials like cotton and indigo for the British companies when they
would rather produce food grains which was the need of the hour .The Indian cloth weavers
could not match the foreign made cloth, which was much superior with regard to quality and
much cheaper. The British free trade policy ruined the Indian farmers and weavers and
resulted in poverty, unemployment, and starvation. .

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Middle of the 20th century saw many political and economic changes combined with the
development of faster means of transportation. Distances began to matter less. Manufacture
of low costing toys and electronic goods, apparels, etc were outsourced to less developed
countries. The political set up had changed considerably. Many countries in Asia had become
free. Outsourcing was a welcome development as it benefited the developing economies by
increasing employment and income levels of the workers. The education and skill levels too
improved. The governments in these developing countries took care to develop adequate
infrastructure necessary for manufacturing companies to maximize profits.

The IT revolution and the improvement in computer technology had a great part to play in
the next stage in the outsourcing history. In the 1990s, many companies began to outsource
activities that were essential for them, but these did not include their core activities.
Outsourced activities included data processing, human resources and accounting. All these
enhanced profits for their clients. They clung on to ownership and management of core
activities.

Since the onset of globalization in India during the early 1990s, successive Indian
governments have pursued programs of economic reform committed to liberalization and
privatization. Until the year 1994, the Indian telecom sector was under the control of the
government. The state owned units in India enjoyed a monopoly in the market. In the year
1994, the government announced a policy under which the sector was liberalized and private
participation was encouraged. The ‘New Telecom Policy’ of 1999 brought in further changes
with the introduction of IP (internet protocol) telephony and ended the state monopoly on
international calling facilities. This brought about a drastic reduction heralded the golden era
for the outsourcing industry. This in turn ushered in a slew of inbound call
center/telemarketing services and data processing centers.

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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 services was
medical transcription, but outsourcing of business processes like data processing, medical
billing, and customer support began towards the end of the 1990s when MNCs established
wholly owned subsidiaries which catered to the outsourcing requirements of their parent
companies.

The outsourcing industry is a young sector in country of India. Despite recent arrival of the
Indian scene, the industry has grown phenomenally and has now become a very important
part of the export oriented Information Technology environment. The initial movement of
industry began as an activity confined for MNC's, but today it developed with a broad based
enterprise platform backed by leading Indian Offshore Outsourcing in IT and software
services.India's competitive advantage lies in its ability to provide huge cost savings thereby
enabling productivity gains and this has given India an edge in the global marketplace as
outsourcing is now an indispensable part of any large organization, almost every activity –
customer service business, telemarketing, logistics, computer hardware, software, IT
services, finance and accounting, medical transcription, research and development, legal,
human resource development is being done.

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III- INDIA COMPETITIVENESS AND COMPARISON WITH
THE WORLD MARKET

• India has been a pioneer in providing outsourcing solutions and has been providing a
range of outsourcing services to countries across the globe. Today, India can be called as the
world’s outsourcing hub. Outsourcing to India can help an organization benefit from cost-
effective services, high-quality services, reduced operating costs, greater flexibility and
faster-time-to-market amongst others. These are just a few reasons why companies outsource
to India. Another reason why outsourcing to India makes good business sense is because
India has high-end technology and best-of-breed infrastructure. India has now become the
world’s most preferred outsourcing location. India is also the global hub for software enabled
services and software development.

Outsourcing to India can give your organization a competitive edge. The following are a list
of reasons why companies outsource to India.

1. Cost-effective services

The number one reason why global organizations outsource to India is because India offers
cost-effective services. India has a large, educated, trained and technically skilled manpower
and this number only keeps growing every year. Unlike the west, where technical talent is
rare, India has a large pool of highly-skilled professionals. Having a large technically skilled
manpower has enabled India to provide cost-effective services without compromising on
quality. Outsourcing to India, can help save on the operating costs, while increasing the
productivity, quality and efficiency.

2. High-quality services

India uses the latest in software, technology and infrastructure to provide global customers
with high-quality outsourcing solutions. India has proved that it is technically superior when
compared to other countries that provide outsourcing solutions. So, when work is outsourced
to India, one can be assured that the best technology and software would be used for services.
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India has the largest English-speaking population after the U.S. India also has a highly
educated manpower that is talented, educated, experienced, technically-skilled and computer
literate. Outsource to India and be assured of high-quality services.

3. Time Zone Advantages

The time zone advantages between India and countries in the U.S and U.K has proved to be
another important factor why companies outsource to India. Organizations who wish to
provide their customer with 24x7x365 days customer support or helpdesk services outsource
to India.

4. India’s stable government

India has celebrated more than 60 years of democracy and has one of the world’s most stable
governments. Building up the IT sector has been a top priority for the Indian government.
India has a ministry of information technology that quickly approves the implementation of
IT projects and streamlines regulatory processes. The Indian government has even released a
bill termed as the “IT act 2000” India has been rated to have the most excellent investment
potential in the coming years. The Indian government has given complete support to the IT
industry in India. With ample support from the government, Indians have been able to build
high-tech IT parks which has the best in technology and infrastructure. The Indian
government has even permitted 100% foreign equity. India’s fast growing economy has been
yet another reason why companies are outsourcing to India. The tax incentives offered to the
investors by the Government of India are a boon for firms involved in IT outsourcing to
India.

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5. The Indian Advantage

Cost-effective services are one of the primary advantages that India offers, but it is not the
only advantage of outsourcing to India. Outsourcing to India can give access to professional
and skilled outsourcing solutions within a fast turnaround time. By outsourcing to India,
organization’s can concentrate on core business activities and save on time, effort, manpower
and infrastructure. India also has the highest number of ISO-9000 software organizations.
Outsource to India and give an organization a competitive advantage.

6. Global organizations most preferred choice

India has been the most preferred choice among global organization when it comes to
outsourcing. The U.S has also recognized India as an outsourcing superpower. The number
of organizations outsourcing services to India has only been increasing over the years. This is
reason enough to outsource to India.

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• While India remains the most popular location for corporations looking to offshore
services, the phenomenon is a global one. India’s booming economy has led to rising wages,
and as the country struggles to find a way to distribute the benefits of growth to its still-poor
population, it is finding it difficult to graduate enough skilled professionals to fill the
positions the international outsourcing industry demands. In response, an increasing number
of countries are attempting to capture a share of the global market, investing in infrastructure
and education and courting U.S. and European firms with tax incentives and favorable
business zoning regulations.

At present, the Indian software development sector is way ahead of others in the global
outsourcing market. However, latest Information Technology Industry news indicates that it
is to face stiff competition from other emerging outsourcing sectors, in the near future. New
companies from China, Philippines and Russia are emerging in the global market, posing
hard competition for the Indian Software Development sector.

China has now emerged as the second most preferred destination for overseas IT services,
though it is still far behind from India in the field of software and services. Also, the growth
of Indian outsourcing sector is much too rapid compared to other countries. More and more
overseas investments are taking place in the country in the field of Information Technology.
Big IT Brand names such as IBM, Accenture, Microsoft and many others have huge
investments in India. Local brand names such as TCS, Wipro, Satyam and many others are
also doing well at the international level. The Chinese Government and the IT service
providers are working at various levels to compete with the dominant Indian participants in
the global IT outsourcing market. China shares many of India's advantages in the outsourcing
market such as cheap labor costs and favorable government policies. However, the Chinese
lack English language skills and the expertise in western business practices. The Indian
Government has gained from years of investment in IT education and from lenient policies
toward the IT industry. While the Chinese IT companies are increasingly bidding for
international outsourcing projects, they are also leveraging on their proximity to markets
such as Japan and South Korea, where they have an advantage both due to the geography and
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language. Nevertheless, China has to still gain expertise in project management as well as
achieve economies of scale before it can compete with countries such as India in the global
outsourcing market. Some of the trends in favor of Chinese expansion in the outsourcing
market are the liberalization of government regulations, the growing middle class, large-scale
investments in technical education, a vibrant economy, and the availability of cheap labor
force. However, China needs to build its workforce capabilities in terms of English language
proficiency and project management skills in order to emerge as a viable alternative to India
in the global outsourcing market.

There are many other competitors to India other than China like,
Canada which is popular with United States firms interested in near-shore outsourcing,
despite its high salaries. The Canadian business environment is somewhat like the U.S.,
though with lower real estate prices, and lower salaries as compared to average American
salaries and taking into account the favorable exchange rate. The growth of Canadian
outsourcing, however, may be limited, as it is constrained due to a declining birthrate and a
shortage of IT university graduates. The shortage of skilled workers may force companies to
seek workers and locations in other countries.

The Czech Republic has become a popular destination for European companies seeking the
economic advantages of outsourcing while remaining in a “near-shore” environment
culturally. While the Czech Republic is trying to capture a larger share of the global IT
market, it may also find itself in a position to attract more manufacturing contracts.

Poland is attractive to European and international firms because of cultural similarity and its
educated workforce like the Czech Republic, but it’s known for having a somewhat difficult
business environment, relatively underdeveloped infrastructure, and a lack of intellectual
property security. Poland’s success in the outsourcing industry is contingent on whether
companies and the government can attract qualified workers to stay in Poland.

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Brazil is known as the outsourcing leader in South America. Brazil’s services focus mainly
on application development and application maintenance. IT activity in Brazil was limited to
that being done by large, multinational companies. Now, however, local companies are
beginning to develop their own IT services capability, and the industry as a whole is looking
to expand its software development capabilities, though overall education levels and English
language skills remain a barrier to further growth.

Chile is a newcomer to the global outsourcing community. Due to low English proficiency,
Chile’s growing industry is a sign of the growing interest in Spanish-speaking offshore
services. Chile’s government has established a registry to identify and certify English
speakers for the labor market.

Singapore has one of the highest per capita income levels in the world and would seem an
unlikely choice for offshore industries. To compete with lower-cost locations, Singapore has
made intellectual property security its main concern, and the country offers the highest
standards of protection. It also offers significant tax incentives to businesses. Singapore has
also begun targeting high-value industries such as remote robotics management, healthcare,
and genetic diagnostics.

Malaysia is a rising star in the realm of global business outsourcing, especially in the
competitive information technology market. To help spur this expansion, Malaysia has been
offering foreign corporations the benefits of government tax breaks.

The Philippines quickly becoming one of the major global outsourcing contenders — has
created economic zones designed to entice businesses to move to the Philippines. Within
these zones, the government offers incentives such as income tax holidays and duty-free
imports.

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IV- THE CHANGING TRENDS AND CHALLENGES

• The Changing Trends

Starting in the mid 1980’s, the ways of doing business changed forever. The business world
was for the first time introduced to the concept of ‘outsourcing’ whatever it thought was not
core to profit making. Slowly, through the subsequent decades, we have learnt how to make a
sharp demarcation between what makes profits for the business and what is simply
undifferentiated cost.

As time passed, most businesses came to understand that non-core activities i.e. those things
that were not important to the money making machinery in a business could be given to
someone else to do. It was a smart thing to do. One could get more time and investment to
spend on ‘profit centers’ rather than diluting efforts with the time and management effort
needed to manage ‘cost centers’. Moreover, simultaneously moving work to the low cost
production locations helped to cut down costs further. This phenomenon gave us the multi-
billion dollar outsourcing industry. Eventually, somewhere down the line, we will have
translated all those enterprise functions such as HR processes, customer administration,
finance services, manufacturing etc. into a set of transactions that could be processed by
someone else at a lower cost. However, a number of reasons are changing this industry,
helping it to evolve and taking it beyond just low cost transaction processing.

The number one reason for this is a change in the nature of customer demands. As global
competition and pressure on margins increases, a company’s outsourcing relationships are
assuming ever-greater significance, becoming more strategic than they were originally
thought to be. Companies are taking a more strategic view of outsourcing. It is true that
global sourcing can lead to substantial cost savings, but often the primary reason today for
sourcing is to gather the expertise that a company may lack. This expertise applied in the non
core functions can directly or indirectly lead to gains in efficiency, productivity, and
revenues that can be achieved by fully leveraging outsourced talent.

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Therefore, customers of outsourcing companies are becoming more focused on service,
competence and creating value as customers are looking for business process excellence,
speed to market, improvement in quality and benchmarking to world-class standards.
Outsourcing decisions are now being considered far more strategic than they were years
earlier. Businesses realize the long-term value that outsourcing can add to the bottom-line
profitability. Moreover, as quality becomes the most important differentiator in competing
organizations, how an organization handles its non-core as well as core functions will decide
the fate of the business in the long term. Therefore, sourcing organizations will need to bring
about a cultural reinvention of these non-core functions and transform them so that they
generate substantial value addition, not just cost reduction.

Secondly, in the context of India specifically, as more of these ‘low cost’ destinations sprout
up, a veteran in the business such as India will need to turn to a service-based value
proposition. Making ‘service’ its core strength, the country needs to move from delivering
processes to delivering services. This will require thinking beyond ‘transactions’ and creating
a high level of service, a philosophy that is closely intertwined with the Indian culture.
‘Restructuring’ the approach to value creation will surely call for some radical thinking on
the part of business processing service providers. The third important reason in India is the
workforce potential that the industry has. It is clear that Indian people value achievement.
They want to learn and they want to develop. They also value scientific and rational
disciplines which make India an ideal location for a global IT and business process centre of
excellence. Such young minds filled with vibrancy and the desire to make a difference, do
not wish to be packed away in a place that is the ‘back office’ for someone. If the industry
wishes to keep pace with its growth, it will need to offer them something more than a ‘back–
office’. One will soon see these back offices turning to front offices. And in a way, with
specialized certifications being introduced for the business processing work force and with
the likes of lawyers, engineers, academicians and medical experts joining the industry, it will
be the most logical step to effectively use their potential.

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Over a period of time, the word ‘outsourcing’ has attained quite a negative connotation. In
layman’s terms, it today stands for a low cost producer that does the non-core work at least
cost regardless of quality. The word still creates a narrow, two-dimensional opinion in the
minds of many. This is why one sees companies moving away from this terminology. Few
entrepreneurs who had a vision of bringing the rural India into the mainstream of knowledge
economy have found an opportunity here - setting Rural BPOs, which was a change in usual
trend. The transformation of rural India started with the emergence of these Rural BPOs. The
major hurdle that these BPOs faced is quality man power. As a result these rural BPOs have
remained targeting low end jobs like data entry. Business processing, the talent it has
acquired and the potential, that the market offers today, has redefined the scope of the
industry. Soon it will no longer be driven by the accuracy of transactions, but by the levels of
service it can deliver, by the value that these non-core activities add to the profit generation
capacity in an organization.

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• Challenges to the Indian outsourcing Industry

Though Indian outsourcing industry boast of a large pool of talent, low labor costs, excellent
telecommunication infrastructure, a relatively mature domestic IT industry, an active industry
association, quality certifications unmatched in the world and more, but it faces massive
challenges which need to be overcome.The major challenges being faced by the outsourcing
industry in India can be classified into internal and external challenges. The internal
challenges include shortage of competent managers for the middle and senior management
and the high attrition rates. The external challenge is in the form of opposition from the US
politicians and the UK labor unions against shifting of the operations by local companies to
India. The threat of real competition from other players like Philippines also exists, but
doesn't seem to need our immediate attention.

There is an importance and value attached to the 'people' aspect in this service industry. The
fact that this industry is still in its nascent stage in India has led to the dearth of experienced
middle management level team leaders and senior managers. The shortage of middle and
senior level managers is in fact a critical issue. Entry-level recruitment and employment has
not been a problem with so many fresh graduates with good language skills, available readily
in the job market. The problem is more intense for the third-party outsourcing companies
which have just ventured into this business. They cannot even invest in training, given their
financial and other constraints. Clients, who can invest substantially in training their
managers, have been facing a problem of a different kind. Their middle and senior level
managers are being poached by the new entrants to the industry. Everyone agrees that hiring
from competition is a cyclical process and will not help the industry grow, but with very few
options available, they resort to the easiest solution - poaching. That brings us to the next
issue - high attrition rates. Attrition means not only loss of talent, but also includes the cost of
training the new recruits. The attrition rate in the industry has been hovering, which is quite
high for any industry. An average Indian call center employee works with a company for 11
months, whereas an average UK call center employee stays in a company for 3 years. It is
expected that the attrition rates would come down once the growth stabilizes. Steep growth is
one of the reasons for the high attrition rates, according to many in the industry. The reasons
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are many -- high stress levels, monotonous nature of the job, demand-supply disparity and
lack of career growth potential on the professional front; loss of identity, mismatch with
normal cycle, complete change of life style and lack of comfort on the personal front. Add to
this, the 'poaching' strategy being adopted by the players in the industry and so a high
attrition rate.

Another important area of concern is the limited growth potential for an employee in this
industry. Organizations should concentrate on individual career growth of employees and
succession planning in the organization. Planning for growth both vertically and horizontally
can bring a little reprieve to the employees. Horizontal growth can be in the form of
promoting the employee from simple to more complex processes within the organization.
This will enhance the learning of the employee and make him "feel-good".

Another threat is the competitors, like Philippines, Ireland and even China are expected to
catch up with India in the future, but they have their own constraints. China, which is being
forecasted by some as the biggest threat to the Indian BPO industry, for example does not
have English-speaking populace who can meet the requirements of primarily English clients.
India outruns all its competitors when it comes to availability of quality services at the lowest
possible rates. However, this does not mean that the Indian outsourcing industry can sit back
and relax. It needs to gear up and prepare itself to face the competition. The strategy of the
Indian industry should be to go up the value chain and offer more specialized services that
can create a special position for it in the global outsourcing industry. It should not completely
bank on the low-end services as they are cost-based and can be transferred to any country
that offers the same services at a cheaper rate.

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Further 2009 is perhaps a very challenging year for the global economy. The only good thing
is that the price of oil is very low. The bad thing is that we are in the midst of economic
recession. Satyam Scandal has come at a time when in the USA, a president who has talked a
lot against outsourcing jobs to India has taken oath. And this is the year of general election in
India. The election is supposed to take place in the month of May. So, it is obvious that until
May, everyone will be busy with the election. Outsourcing will not be a priority for the
government in the next few months. Indeed, this year is really challenging year for India.

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V- IMPACT OF GLOBAL RECESSION AND OTHER ISSUES

For the past many years, Indian outsourcing industry has been enjoying a growth of 30%. It
has set new standards in corporate governance and has been at the vanguard of corporate
ethics, and so this has been India’s poster boy on the world stage.
But the story is different now. Challenges on multiple fronts are putting pressure on the
industry. The economic crisis engulfing the world, the Satyam scam, and the new
administration under Barrack Obama making sharp and strident noises against outsourcing-
all these factors are adversely impacting the outsourcing industry.

• Impact of Global Recession

Indian outsourcing industry is almost solely dependent on American market and American
companies. The condition of American economy at this moment is not good at all because of
the ongoing economic recession. So, there is a lot of worry among Indian technology
companies about the possible impact or negative impact on the outsourcing sector of the
recession. Several companies in the US are closed, less opportunities of outsourcing. One
thing that it is a very big challenge but economic recession in America can have a positive
impact too. Now, American companies feel the need of cutting cost more than ever before
and what can be a better way to cut costs than outsourcing the jobs to India. The main reason
behind this bad impact is that in rich and developed countries, big companies are decreasing
their IT budget and investment. This scenario will not change unless the condition of those
countries improves. As the global economy slows-down, companies will reduce their IT and
BPO outsourcing which will directly impact the Indian outsource vendors. Indian outsource
vendors have been hiring in record numbers for the past several years due to global outsource
demand and this has increased the Employee Attrition Rate in the Indian IT and BPO
market. As the global demand for outsourcing decreases Indian outsource vendors will
reduce hiring new employees and they may lay-off bottom performers. This will significantly
reduce the attrition rate thereby reduce the overall expenses for the companies. Current
slowdown in US will make the Indian IT and BPO companies to reduce their dependency to
US and start marketing their services to other countries like Asia-Pacific and Latin America
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and Europe, Middle East and Africa. At this time, it is not clear how long it will take for
Indian companies to penetrate into those markets, but the current US market will force them
to act quickly.

• Impact of Satyam Scam

Satyam Computer Services chairman B Ramalinga Raju’s admission that he had manipulated
the company’s account, left India’s fourth-largest software exporter struggling to survive the
fallout, but his misdeeds have casted clouds over the clean profile of the entire sector.

For years, Satyam and larger rivals such as Tata Consultancy Services, Infosys and Wipro
were feted as among the new ambassadors of Indian industry with their corporate governance
practices winning accolades around the world and their strong growth rates luring investors.
This looks set to change after Mr Raju announced on Wednesday Satyam’s famed cash pile
was almost non-existent and its revenues and profits were inflated.
While the Satyam episode could temporarily cast a cloud over Indian IT firms, IT in India is
unlikely to be as affected. Large overseas companies will still need to cut costs, and India
will remain a preferred destination for doing so. While the immediate impact on brand India
IT could be negative, some experts believe such things are common around the world and
can be easily restored by further strengthening governance practices in the sector. Satyam's
competitors have a responsibility to behave with some modicum of decency and avoid
aggressively poaching their clients in the current environment. This episode should pass
quickly into the history books, provided there is not a recurrence of this situation with other
serviceproviders.

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• Impact of Obama’s anti-outsourcing policy

Since President-Elect Barack Obama became the next president of the United States, his
ideas concerning outsourcing have the India outsourcing industry a little uneasy. He has
stated that he plans to stop giving tax breaks to companies that send jobs overseas. In 2008,
2.6 million American people lost jobs and now, they hope that Obama will really do
something about outsourcing and ensure that more jobs do not go out of the US. If the
condition of US economy does not witness a significant improvement in the next few months
then there will be more pressure on Obama to keep his promise about working against
outsourcing jobs to India. Indian companies that get the majority of their revenue from
American Companies are worried that this may drastically affect their industry.
Another major front on which India will be affected is the amount of dollar remittances, will
come down as lots of families would have to retour to India once their H-1B visas expire.
But more than India it’s America’s loss as US corporates will lose out on the cost advantage
that the Indian employees have been providing. Though it would lead to return of H-1B
employees, but they are the cream employees who’ll be help in job relocation.

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VI- FUTURE ASPECTS

The growth, the slowdown and the recent challenges are all part of the Indian outsourcing
industry’s story but the real value lies in the fact that what will be its future trend, how the
industry reinvents and redefines itself to play the game in this changed scenario. It is being
felt that the next five years for this industry are going to be very different from the past five
years.

There are some Concerns that would capture more consideration in future;

• Consulting: Outsourcing firms will work towards becoming more strategic and
transformational partners to their clients.
• Capabilities: Building new capabilities in order to tap more opportunities will be the
order of the day for outsourcing companies.
• Creativity: There will be focus on developing new engagement models, business
models, delivery models and pricing models as it is said that no company can survive and
succeed in the current and future using yesterday’s model.
• Cost-cutting: Strengthening operational efficiencies in order to cut costs will be a
prime area of focus for outsourcing firms.
• Casting a wider net: Companies will look more proactively at new markets and
increase their footprint in terms of delivery centers.
• Convergence (of market): As India grows and the world slows down, Indian
companies will take on MNCs that have been focusing on this market.
• Corporate governance: In future, ethics and reputation will be more important.
Customer will expect a far higher level of compliance and disclosure.

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For more success Indian outsourcing industry needs to overcome its attrition rate and
maintain its human resource also after overcoming the crisis, as these aspects are overlooked
at times. For this it needs to consider following steps,

Blend of maturity and youth: While fresh graduates are easy to hire and train, with attrition
a serious issue and maturity linked directly to age, it makes sense to make the industry also
attractive for the slightly older bracket. Incentives like training and career prospects will help
get the best talent from other industries.

Internal branding for commitment: Associates in the industry are known to change jobs
for better prospects and attrition issues are constantly highlighted. This can be controlled by
strong internal employee branding practices which help reward and retain the best talent by
providing opportunities for growth across functions. Make employees the face of your
business – in projecting the image internally and to customers. Inculcating the company’s
culture and sensitivities during induction is important for integration.

Learn from global best practices: While we plan to extend our leadership, it makes
immense sense to expose our industry to global best practices from nations such as China,
Singapore, Canada, the Czech Republic, Brazil, Philippines and Uruguay. The industry
bodies should encourage organizations to participate in cross-cultural exchanges for better
understanding among its workforces.

Along with this appropriate staffing strategies and managing employee morale are the key
areas. Recruiting the right kind of people not only at the entry level but also for the middle
management level can be a big contributing factor. Any fresh graduate in need of a job would
say that working during odd hours and adapting to a new life style is not a problem, but when
it actually comes to adapting to a completely different way of life, they find it difficult to
reorient themselves. Adequate care should be taken in choosing and employing candidates in
the entry level positions. Companies should also be willing to invest in training employees to
take up higher responsibilities as team leads and managers. A strong middle and senior
management helps in arresting attrition at the lower levels and consolidates the
organizational culture and character. Another important area of concern is the limited growth

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potential for an employee in this industry. Organizations should concentrate on individual
career growth of employees and succession planning in the organization. Planning for growth
both vertically and horizontally can bring a little reprieve to the employees. Horizontal
growth can be in the form of promoting the employee from simple to more complex
processes within the organization. This will enhance the learning of the employee and make
him"feel-good".

The current environment is demanding as an immediate priority, though, is a hawk-eyed

focus on operational efficiencies. In earlier times of domestic growth, bad management
practices and operational inefficiencies had typically been overlooked. The luxury is no
longer available. An increased thrust is on creating intellectual property, using tools and
framework-based delivery, new pricing and new business models based on outcome, units
incidents, transactions, software as a service are increasingly important. After every
slowdown, a new wave of technology comes around and generates new demands, new
applications and new users. Indian outsourcing industry is round the corner of some new
waves, like that of cloud computing and software as a service delivery. These could well kick
start a fresh wave of growth.

New waves of working come with their own inherent challenges- of both changing the
mindset and making the required investments. Companies which have the ability and
willingness and willingness to invest for the future and place their bets strategically in new
opportunities and new engines of growth will be the ones to emerge stronger from the
downturn. While people need to focus sharply on their existing areas of operations in this
downturn and extract every possible benefit from them, they also need to strategize for the
long term. With the western markets being the worst affected by the current economic
turmoil and Obama’s anti-outsourcing policy, Indian players need to cast their net much
wider to other parts of the globe. The industry needs to shift its focus and balance its
geographical footprint to get a larger share of revenues from emerging markets. Diversifying
into new markets will not only counter the impact of recession in a particular geography but
will also be a natural hedge against currency fluctuation. The cost of acquisition is much

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higher and margins much lower in new markets, compared to the US, but this investment
needs t be done for the long term.
India, incidentally, could well turn out to be one of the most attractive markets. By and large,
Indian outsourcing firms have ignored the domestic market. The high growth in export
market, the rupee dollar equation in favour of US, and the size and slow growth in the
domestic market have not attracted much interest from Indian IT firms. With the Indian
economy growing and doing far better than other economies around the world, Indian players
are now looking seriously at the domestic market.
Despite current challenges outsourcing industry is upbeat about the future as is can be
pointed out that while the industry’s growth rate has fallen, it still enjoys some growth when
most of the countries are seeing flat and even negative growth.

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VII- CONCLUSION

From the research work we can conclude that Outsourcing refers to the practice of buying
services externally rather than producing them internally. Outsourcing is an attractive
mechanism to achieve strategic aims. The driving force behind outsourcing, narrowly
viewed, has always been and continues to be the desire to lower costs—although it has
additional benefits. India has earned enough pride and honor for outsourcing job. They are
the top listed country for outsourcing work. India is the strongest outsourcing destination as it
has following key success factors;

• Abundance of technically skillful labor force

• Low cost workforce
• Quality of service
• Regulatory environment
• Robustness of infrastructure
• Knowledge of English
• Time zone attractiveness

Philippines, China and Russia are just behind of them. However, India earned huge foreign
revenue on this field. But it is thought that 2009 will be a very challenging year for India.
There is a lot of reasons for them to loss some opportunities of outsourcing. Satyam Scandal
may affect badly on their outsourcing job. Developed countries may reluctance to give them
any work. I hope Indian government can play an important role on this occasion. New
president of USA, Barack Obama has talked a lot against out sourcing. It seems that
outsourcing will be reduced during his period or rule.

The Indian outsourcing industry should consolidate its position in the business of outsourcing
by strengthening its domain knowledge and becoming more specialized in terms of the
services offered. It should aim to go up the value chain without restricting itself to low-
skilled jobs. It has to continuously strive to maintain its position of competitive advantage
over other countries in terms of low costs, quality people and conducive environment. It

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should also realize that unhealthy practices within the Indian industry can affect its
competitiveness in the global arena and therefore curb such practices.

Fundamentally the outsource market is strong and it will not change due to this financial
crisis. Western companies are started viewing India as a strategic place to not only
outsources higher-value research work, product design etc, but also to sell their own products
and services. Indian IT and BPO companies will be in good position to attract more
outsource work from the US businesses. Every cloud has a silver lining and so do the crisis
and the other challenges have, and this will change the further trends. India will explore other
markets other than just western and more importantly it will use its cream to develop the
domestic market. The Indian outsourcing industry has taken the economy on the path of
success and continuous growth and will continue to do so.

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1. Viral Thakker (2009, March 2). Outsourcing Ban: Who gets hurt? The Economic Times.
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2. Deepshikha Monga & Pankaj Mishra (2009, March 23). Anti-outsourcing sentiments
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