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July  2000

 

India: Hot Spot For IT Outsourcing

BY ASHISH CHAND, IT&T LIMITED

India, the world's largest democracy and home to nearly one billion people, has quietly but quickly emerged as a leader in the field of software development and Web-based services. India has a competitive advantage in the software business, as it is a location that offers cost-effective solutions, world-class quality, high reliability and rapid delivery. It is a country to which more and more multinational companies are outsourcing their software requirements to retain a competitive advantage. The Indian software industry has grown from a mere U.S. $150 million eight years ago to a whopping U.S. $3.9 billion in 1998-99. In 1998-99, about 200 of the Fortune 1000 companies outsourced their software development requirements to India.

Having established its presence in the global software development market, India is now emerging as a preferred destination for outsourcing of IT-enabled services, which include call centers, medical transcription, back-office operations, revenue accounting, insurance claims processing, content development, animation, payroll and logistics management.

Several companies such as Bechtel, GE Capital and British Airways have already established facilities for the provision of IT-enabled services from India. In an office block on the outskirts of New Delhi, GE Capital has set up a call center to service its U.S. customers. The facility employs agents who have anglicised their names to ensure that customers based in the U.S. are able to recall their names easily. These agents make calls to and receive calls from customers in the United States throughout the day and night while chasing credit card debtors, assessing medical claims and approving car loans. Most of them have never set foot in the U.S. and have cultivated their American accents by watching American television shows. A large number of agents have college degrees and earn $3,000 to $5,000 a year, while their American counterparts, who are sometimes less educated, earn between $18,000 and $20,000 a year.

Companies in the U.S. or Europe can establish and advertise a toll-free number and have the resulting calls diverted via satellite or over leased fiber optic cables to a call center located in India. The cost of diverting the call to the center is borne by the service provider. When an Indian call center quotes a price, it includes the telephone charge to receive the call in India. Since the overhead costs in India are low, Indian companies can provide call center services to clients based in the U.S. or the U.K. at one-sixth to one-fourth of what it costs in the U.S., U.K. or Australia. A call center in the U.S., for instance, charges on average $12 per call from the company to which it provides call center services. In India, this cost would range between $2 and $4 per call, including the network charges for uplinking a call from the U.S. to India.

Political and Economic Risk Consulting of Hong Kong, in its latest survey, rated India as the best location for call centers in Asia. India is an attractive location for companies to outsource their IT-enabled service requirements for the following reasons:

Language and manpower. India has the second-largest English-speaking population in the world and a technical manpower pool of 4.1 million. This has been instrumental for companies such as Oracle and Microsoft to establish large operations all over India.

High quality. Indian companies are increasingly adapting to international quality standards. It is expected that India will soon have the maximum number of ISO 9000 certified companies in the world for the software sector.

Cost-effective. Outsourcing to India means substantial cost and time saving compared to most of the rest of the world.

Experience/skills. India can offer individuals with excellent project management skills and experience in state-of-the-art software and IT-enabled services.

Stable legislative and legal framework. The Government of India is supportive of the IT-enabled services industry and offers some special policies and tax exemptions to fuel the growth of this industry in India. There is a strong focus by the Government to make India an information technology-driven nation. The total call center business in the U.S. in 1998 was $23.5 billion. Of this, business worth $17.5 billion was outsourced. In the U.S., there are more than 100,000 call centers in which approximately 3 percent of the country's population is employed. By 2003, these services are estimated to reach a figure of $58 billion, of which $43 billion is likely to be outsourced. According to a study done by McKinsey, IT-enabled services can generate a substantial amount of revenue and employment for India in the next eight years (see Table 1).

Realizing the importance that IT-enabled services can play as a growth engine for the Indian economy, India has been making improvements in the quality of its workforce and infrastructure. As a result of these improvements, India is poised to make further inroads into high-value segments of the global information technology market.

Table 1

IT-Enabled Services

1998-99

2008-09 (Projected)

  Employed $ Million Employed $ Million
Back Office Operations 9,700 96 260,000 4360
Remote Maintenance Support 1,600 15 180,000 3100
Medical Transcription 3,800 32 160,000 2530
Call Centers 1,400 9 100,000 1380
Database Services 1,000 10 100,000 1500
Content Development 5,500 62 300,000 5747
Total 23,000 224 1,100,000 18,617
Source: NASSCOM-McKinsey Study: Indian IT Strategy Summit

Ashish Chand is head of Internet and New Projects at IT&T Limited, India. After having lived and studied in both the U.S and the U.K. for more than six years, he moved back to India to help identify new lines of business for IT&T. IT&T is an e-transition company with more than 350 employees and 33 office locations. The company provides Web-based live chat and e-mail-based technical support.

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