Wiktor Doktór: India is the biggest outsourcing market worldwide. For many years this location has been growing and changing. How did outsourcing in India started and what is the current size of the market?
D. K. Sareen: When we talk about outsourcing, it is important to distinguish between outsourcing in manufacturing and services sectors. Manufacturing sector in India has had outsourcing at least 300 years ago. During the British rule, which spanned over three and half centuries, India was considered as a hub for outsourcing manufacture of some of the intermediate goods that were used for manufacture of final goods, particularly in the field of textiles, light engineering etc. The dynamics of outsourcing in the manufacturing sector is different in many ways. That is driven mostly by comparative advantages, such as easy availability of raw materials, proximity to the market and of course, labor advantage.
Outsourcing in services sector is of relatively of recent origin and can be traced back to early or mid 1980’s. But it has picked up steam only in early 1990’s. Happily, this had grown in leaps and bounds and now occupies an important plank that generates foreign exchange for the country and importantly provides gainful employment to teeming millions directly or indirectly. We in ESC are proud to be associated with the IT revolution in the country and our origin in 1980 was the fulfillment of the dream of the nascent IT industry to have a body to safeguard the interests of the IT exporters of the country.
Interestingly, the first outsourcing business in the services sector in India came up in the aviation sector. Some global airlines began outsourcing their back office work to India—and then IT companies followed. Some of the earliest players in the Indian outsourcing market were Texas Instruments, American Express, Swissair, British Airways and GE, who started captive units in India. Over the years, the industry has built robust processes to offer world class IT software and technology-related services.
Now we have between 4.000 to 5.000 IT companies in the country. Ninety percent of this critical mass is tiny, small and medium companies. There is also huge disparity among the so called SMEs. There are one man outfits to corporations having several hundred workers in this league. The other important feature of the Indian services export market is that the large corporations, which are very few in number, control over 90 percent of the export business.
Unlike in the case of merchandize exports, quantum of exports cannot be precisely measured since there are many ways in which the IT solutions and software can be transacted overseas. Using different parameters, experts are of the view that India’s outsourcing market, cutting across all segments like computer software and solutions, healthcare, accounting and finance, engineering drawing etc. could be between USD 125 and USD 150 billion annually, though the official estimate puts it in the vicinity of USD 100 billion per year.
It is expected that the growth of this segment will be significant in the coming years. There are underlying reasons for bullish expectations from this sector. The US economy, which is a major importer of services from India is looking up, going by the macroeconomic fundamentals. The worst period for the euro zone seems to have been bottomed out and in the near future, these two major markets will fuel India’s outsourcing segment. Also, India has developed a global approach for tapping the services market. It is investing time and resources to develop new markets and products. For instance, our organization – ESC - has been working relentlessly for developing markets in Latin America, CIS, Africa, Middle East, SAARC etc.
Wiktor Doktór: When it comes to outsourcing services there is also a significant range of them. What are the key services provided from India – is it call centre or perhaps finance, accounting or IT?
D. K. Sareen: As I mentioned, the services sector in India is the largest one and is way ahead of manufacturing and agriculture sectors. This is a unique phenomenon. Not many countries in our league of development matrix have this feature. We construe this as our strength. Regarding the expanse of growth of the services sector, I must say that it is quite impressive. India has come a long way from being a back office hub for ticketing of major airlines. Its digital services now include medical services, legal services, education, financial solutions, complex engineering drawings, ERP and what have you.
We are adding new services to our export basket every year. For instance, tuition services, which we provide globally is one of the best and cheapest. A mathematics teacher in Chennai or Allahabad can have on his/her rolls students in the US or UK for special coaching in mathematics, physics or chemistry. Many of us are perfecting the virtual media to teach students abroad through the interactive and multimedia approaches. This can not only rake in resources but also give an opportunity to our experienced teachers and scholars to share their expertise globally. The other area is the content writing and entertainment. With the proliferation of internet and mobile telephony, there is an increased demand for quality contents to be fed to the discerning users on a chargeable basis. Many in India, particularly the youngsters, are heavily into this business.
Call centers, and export of software solutions etc. are still the mainstay of our services export market. But this pecking order may change with the induction of new technologies and concepts. I will take a few examples to explain how the changes are sweeping across the country mainly in three segments, viz healthcare, tax administration and mobile messaging. With the unprecedented focus on healthcare in the country, the government is building up huge databases for ensuring universal health. Some of these projects are under private-public partnerships. Many small and medium enterprises are heavily into the sector not only for compilation of data, but also for segregation, analytics and delivery of services in time. This expertise that we are perfecting will be relevant to many countries including some of the developed countries to tone up their health infrastructure.
Similarly, with the introduction of Goods and Services Tax (GST) in India, there is going to be qualitative change in the tax administration. There is a special digital network created exclusively for this purpose by Infosys. Hence forth many Indian IT companies can look forward to executing such businesses across the world. Similarly, India has the highest incidence of mobile telephones. According to some reckoning, almost one billion mobile telephones are used in India and the number is increasing day by day. The government is wanting to flash some of the messages regarding welfare measures like credit availability, health check up facilities, preventive care in health, weather reports and forecasts etc through mobile phones using it as an effective tool for inclusive growth. This is another area that Indian companies will be able to give quality services to the outside world.
Wiktor Doktór: The outsourcing centres are usually located in large cities. What are the main outsourcing locations in India? Tholons report points such cities as Bangalore, Mumbai, Delhi, Chennai, Hyderabad, Cebu, Chandigarh, Kolkata, Coimbatore, Jaipur, Bhubaneswar, Ahmedabad and Thiruvananthapuram. Are those the only outsourcing destinations or there are more of them?
D. K. Sareen: There are three layers of IT hubs in the country. The first layer consists of Bangalore, New Delhi, NOIDA, Gurgaon, Hyderabad, Chennai, Mumbai and Kolkata. The second layer consists of cities like Kochi, Trivandrum, Mysore, Mangalore, Jaipur, etc. There is a slow process of developing a third layer away from the mainline cities and towns. This has become now a necessity on account of the high rentals to be paid in the cities and towns, which sometimes peak up to hysterical figures adversely affecting the viability of operations. Also, it is found that the labor mobility in smaller towns will be much less with the prospect of retaining the employees for a longer period in one company. The third driver for developing newer hubs is the proliferation of technical institutions, which have sprung up in smaller towns and even in rural areas. There will not be any constrain in getting the manpower in these locations since some of the job seekers prefer working proximate to their home.
From an inclusive point of view, our effort is to develop as many digital hubs as possible to ensure that the job opportunities are well spread out and are not confined to major cities. That way, development of these centers will decongest the cities and ease the constraints on the civic life. The new policy envisaged by the central government to promote start-ups, incubators, innovation centers etc. will help spreading out digital hubs across the length and breadth of the country.
Wiktor Doktór: Globally the largest source of outsourcing contracts is in US. What are the other Countries who use outsourcing services in India?
D. K. Sareen: India exports its services to almost all countries in varying quantum. Of course, 60 percent of its digital services are to the North America, the lion share is contributed by the US. When the IT exports started in the late 1980’s, almost 100 percent of the exports were to the US. ESC, as I mentioned earlier, is engaged in developing newer markets. Our dependence on the US market has been considerably reduced with the penetration in Europe, Japan, etc. Though we have the advantage of first mover in markets like Latin America, CIS, Africa and Middle East etc, these markets have to be carefully nurtured. It will take time and we will continue with our effort. We are also focusing on SAARC our immediate market and ASEAN, which is growing to be a huge market. Similarly, India also will have to make a major dent on the growing Chinese and Japanese markets. There are language problems that we face in this regard. Many Indian companies are still working in these locations. My hope is that in the next 10 to 15 years, we will make major impact in these growing markets.
Another important thing to be kept in mind is India has now become a major IT market. With the increased digitization, the trend will pick up. There are many global companies which are implementing IT projects of India. Many are looking forward to enhance their digital foothold in India.
Wiktor Doktór: As India is very matured outsourcing market, there are a number of industry events organized where outsourcing is being discussed. In ESC you are also organizing important and valuable events. What are the main outsourcing conferences organized by you and why is it important to attend them?
D. K. Sareen: Let me flag mark the event that has been developed by ESC over the years and that is INDIASOFT, an international B2B Strategic IT Meet between Indian IT entrepreneurs and global buyers, which is entering the 17th edition with the grand show scheduled to take place in Hyderabad in February 2017. Over the years, we played host to thousands of foreign delegates, who visit us every year at different centers to take a close look at the type of digital solutions India has. I am happy that these shows had generated businesses worth several millions over the years for the Indian companies, particularly in the small and medium sized segments. We also organize conferences to coincide with the exhibition of Indian products, where speakers from all over the world, will give a sweeping view of the changing trends in important markets and how Indian companies can take advantage of it. We bring experts from various countries who can give detailed market studies and penetration strategies that are needed from time to time.
Of late, we have also started a similar exercise for the hardware also. We want to address the growing mismatch in the exports of software and hardware from the country. The hardware show, which we have launched two years back is rewarding. Many foreign hardware buyers are coming for the event to source goods from India.
ESC also mounts delegations to attend important fairs and exhibitions in both software and hardware sectors. Our delegates keenly participate in the shows and conferences held simultaneously and enrich from them.
Wiktor Doktór: Thank you
Pro Progressio Business Talks is the cycle of interviews with global key managers. Interviews are run by Wiktor Doktór, the CEO of Pro Progressio Foundation. In Pro Progressio Business Talks there are covered current business trends, analysis of business cases, hits and tips as well as discussions concerning process development of European and Global companies.
About D K Sareen:
Executive Director of Electronics and Computer Software Export Promotion Council (ESC) in India.
About ESC:
Electronics & Computer Software Export Promotion Council (ESC) India’s apex trade promotion organisation is entrusted to facilitate India’s electronics and information technology exports to global markets. As a link between the Government and member exporter, ESC provides a platform for interaction on policy issues. It has around 2300 member companies engaged in export of
(1) Electronics Hardware; (2) Information technology and services; (3) IT enabled services; (4) Telecom hardware & software. ESC has successfully steered the direction of India’s Electronics and Software Exports to achieve the export volumes of over USD 108 billion during 2015-16.
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