There”s Still Time For “India plus One”

Posted on December 7, 2010 in Business and Economy

By A M Radhika:

Forrester Research in a report released in September this year that came up with a recommendation to apparently reduce the risk factor in companies by distributing their outsourcing operations to at least one other country than India. And that is apparently how the term ‘India plus One’ was born. The reason for this shift is attributed to terror attacks like in Mumbai, and the recent corporate fraud scandals like that of Satyam. Companies hold the opinion that mission-critical outsourcing should be ‘distributed’ (or moved out) first.

The costs here are projected to inflate and resource allocation may not be feasible for them in India. For the bigger firms, political influence is a matter out of their control and in any case, being too dependent on one country is quite risky as more than half of the outsourcing business is to India’s credit. A modified version of this trend being considered is to base the main outsourcing centre in a major city like Bangalore and create subsidiaries in Tier II or Tier III places and then a third base in another geography which may or may not include India (India 2+1 as it’s called).

More than 60% of the companies surveyed by Capegemini and Harris Interactive in partnership have outsourced their operations entirely to India, 27% to China and 25% to Latin America. The employment generated through outsourcing, BPOs and call centers is huge. Has the bell curve reached post its peak? The good news is, most probably not. The entire outsourcing industry (IT+BPO) which is currently at $60 billion is expected to have a $225 billion worth by 2020 on the other hand. If the larger companies do roll their outsourcing off India and turn to new avenues, it would devastatingly affect the revenues (for us), employment and almost bring the grand Indian outsourcing scenario from exponential growth down to a constant and at a later stage, decline with the same rate.

Notable is the fact that all the other potential client bases will incur a much greater amount of training and set-up cost for companies (especially in places where English is not prevalent) even though those nations have projected themselves as a highly potential market using various funding (source), e.g., China, Brazil and Vietnam. Since the training setup for the larger companies is already existent in India, all they have to look for is better HR allocation, if you may. Again, with the recent global recession, India has proved maybe with a little struggle, that it can in fact withstand a dip in the markets while their US counterparts fell apart. Of course, there’s a much lesser ‘telecommunication redundancy’ in the other nations (except China of course) to add on and that is compensated with employment costs for all of these nations. When the IT ‘boom’ came into India originally, it was very clear that IT and outsourcing were here to stay, almost forever. And that was because India provides the right balance in terms of output vs. inputs. Yes, protection of customer’s data needs to be VERY heavily emphasized even in India, but modifying an existing setup in that context will not be much difficult. Also, finding a ‘fit’ alternative vendor is way easier here than anywhere else. As far as quality of the processes is concerned, we’re definitely on the right track (though on an uphill). As far as availability of technical workforce is concerned, please look around, they are in extreme abundance.

The point here is, India for outsourcing is nothing but durable. If one has a company with an existing outsourced headquarter here in India, think twice, or at least wait for a VERY long duration before distributing the operation into any other country and look for better ways to tap the other potential markets. Diversify, but expand your outsourcing base locally.