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OUTSOURCING INDUSTRY IN INDIA
Date of Submission:10th^ of October 2014
Hidaytullah National Law University Raipur
Outsourcing industry in india
1ECONOMICS
Table of Contents
Acknowledgement c
Statistical Tools d
Research Methodology d
Introduction 1
Outsourcing Industry in India 4
Growth of Outsourcing Industry in India 6
Legal Process Outsourcing in India 11
Future of Outsourcing in India 15
Conclusion 19
Referencecs 20
ACKNOWLEDGEMENTS
Outsourcing industry in india
2ECONOMICS
This research paper is descriptive & analytical in approach. It is largely based on secondary & electronic sources. Books & other reference as guided by faculty of Economics are primarily helpful for the completion of this project.
In making of this Project in form of statistical tools only graphs are used.
Outsourcing industry in india
4ECONOMICS
In business, outsourcing is the contracting out of a business process to another party. The term "outsourcing" became popular in the United States near the turn of the 21st century. Outsourcing sometimes involves transferring employees and assets from one firm to another, but not always. Outsourcing is also used to describe the practice of handing over control of public services to for- profit corporations.
Outsourcing includes both foreign and domestic contracting, and sometimes includes off shoring or relocating a business function to another country. Financial savings from lower international labor rates is a big motivation for outsourcing/off shoring.
The opposite of outsourcing is called in sourcing, which entails bringing processes handled by third-party firms in-house, and is sometimes accomplished via vertical integration. However, a business can provide a contract service to another business without necessarily in sourcing that business process.
Two organizations may enter into a contractual agreement involving an exchange of services and payments. Outsourcing is said to help firms to perform well in their core competencies and mitigate shortage of skill or expertise in the areas where they want to outsource.
In the early 21st century, businesses increasingly outsourced to suppliers outside their own country, sometimes referred to as offshoring or offshore outsourcing. Several related terms have emerged to refer to various aspects of the complex
may be greater for U.S. companies due to unusually high corporate taxes and mandated benefits, like social security, Medicare, and safety protection (OSHA regulations). At the same time, it appears U.S. companies do not outsource to reduce executive or managerial costs. For instance, executive pay in the United States in 2007 was more than 400 times more than average workers—a gap 20 times bigger than it was in 1965. In 2011, twenty-six of the largest US corporations paid more to CEO's than they paid in federal taxes. Such statistics imply that the reason companies outsource is not to avoid costs in general but to avoid specific types of costs. 1
Outsourcing is one of the fastest growing industry on the world platform. It mainly involves transfer of components or large segments of the companies' internal
1 http://en.wikipedia.org/wiki/Outsourcing
production processes, businesses, infrastructure, etc. to the external service providers. It can cover a wide range of components depending upon the core competency and the requirements of the outsourcer. It may be broadly classified into information technology (IT), human resource, customer service, engineering, knowledge services, legal, R&D outsourcing, etc.
Owing to its advantageous factors like presence of one of the world-best intellectual and internet resources, lower cost structure, multi-lingual capabilities, etc., India has emerged as the 21st century's software powerhouse, offering many advantages as a global sourcing hub, especially for IT enabled Services (ITES) and Business Process Outsourcing (BPO). The main motive behind outsourcing has been that it allows a company to invest more time, money and human resources in core active items without losing quality and name. Call centres have also mushroomed in India serving various foreign airlines and banks.
Further, economic success of the BPO industry has taken many firms to their advanced knowledge work to off shore destinations. Knowledge Processing Outsourcing (KPO) is one step extension of BPO and can be defined as high added value processes chain where the achievement of objectives is highly dependent on the skills, domain knowledge and experience of the people carrying out the activity. The KPO typically involves a component of BPO, Research Process Outsourcing (RPO) and Analysis Proves Outsourcing (APO). United States (US) and United Kingdom (UK) are the key markets for Indian IT-KPO exports.
As a result, India continues to dominate global outsourcing market with market size estimated to be worth about $52 billion. Banking and financial services contribute nearly 40 percent to India's outsourcing industry. But, outsourcing industry has been facing many challenges, like, cut-throat competition, severe shortages of trained and skilled manpower, more investment needed in KPO infrastructure, need of higher level of control, maintenance of higher quality
captive units in India. Over the years, the industry has built robust processes to offer world class IT software and technology-related services.
India offers a unique combination of attributes that have established it as the preferred destination for IT-BPO. Advances in technology and communication have allowed transnational companies to rapidly globalize at a very low cost. The cost of managing workers in a distant location had fallen drastically, and the need to outsource became stronger. Significantly, India also began efforts to open up its economy to the world. Since the onset of globalization in the early 1990s, successive governments have pursued programs of economic reform committed to liberalization and privatization. The government started easing restrictions and
liberalizing the economy, which has helped the country see rapid economic growth.
Developments in telephony, fiber optics and satellite communications made Internet-based communication and transfer of data possible, paving the path for outsourcing to India. The telecom industry in India used to be a government- controlled monopoly and the market was small. By 1999, the government introduced policies which played a key role in reshaping the structure and size of the telecom Industry, allowing commercial entities to participate in almost every industry segment. The new telecom policy brought in further changes with the introduction of IP telephony and ended the state monopoly on international calling facilities. The government's liberalized investment policies have resulted in several foreign companies entering Indian markets, which has been a major contributor to the growth of the Indian economy.
In addition to the central government's intervention, state governments are also competing with each other to offer more favorable business environments in order to attract IT/ITES companies to set up development units in their states. This kind of competition is helping the industry grow at an astronomical rate.
Indian companies are enhancing their global service delivery capabilities through a combination of Greenfield initiatives, cross-border mergers and acquisitions,
partnerships and alliances with local players. Global software giants like Microsoft, Oracle, SAP and many others have established captive development centers in
India over the years. Indian authorities have made efforts to further strengthen the information security environment in the country, and special initiatives have been taken to enhance the legal framework. Many companies in India have already
aligned their internal processes and practices to international standards such as ISO, CMM, Six Sigma, etc. which have helped establish India as a credible outsourcing destination.
The IT & BPO sector has been a key beneficiary in India's growth, with the cost of international connectivity declining rapidly and quality of service improving significantly. India's National Association of Software and Service Companies (
NASSCOM) has played a critical role in outsourcing by acting as a coordinating body for the industry. It conducts surveys and conferences which help in the dissemination of knowledge and research in the outsourcing industry. As per
NASSCOM, "While India's low-cost talent pool has helped its businesses grow, global incumbents have also recognized India's inherent advantage and have mastered this capability by off-shoring more work out of India." India's
competitive advantage lies in its ability to provide huge cost savings and thus enabling productivity gains.
According to NASSCOM, the major reasons behind India's success in ITES/ BPO industry are:
the industry in particular, and the Indian economy in general. As per studies by NASSCOM:
Today, Indian companies offer a wide variety of outsourced services ranging from medical transcription, customer care, medical billing services, database marketing to Web sales/ marketing, accounting, tax processing, transaction document management, telesales/ telemarketing, HR hiring and biotech research.
Outsourcing to India has been a satisfactory and profitable experience for most companies around the world. Indian outsourcing vendors have continuously adapted to internal and external challenges and the credit for this goes to Indian outsourcing companies and the successive enabling governments. Outsourcing in India has faced adversities due to the state of the world economy and the ongoing recession, but it is surely here to stay.^3
3 http://www.outsource2india.com/why_india/articles/outsourcing_history.asp
Today, India is one of the most important destinations for LPO (Legal Process Outsourcing). The LPO industry in India is expected to grow at an average rate of 30% annually and, according to a NASSCOM-CRISIL study, LPO in India is the fastest growing segment. Driven by an impetus from a post-recession environment characterized by higher bankruptcy cases, regulatory compliances and cost pressures, LPO is also expected to grow by USD 1.3 billion globally by 2015. In India, over the same period, it is expected to reach 18,000 professionals with annual revenue of USD 960 million. NASSCOM also indicates that the Indian KPO sector has engaged more than 250,000 KPO professionals in the last year.
After the economic meltdown of 2008, the Indian LPO industry witnessed a major
have also added LPO to their service offerings.
Interestingly, cost-cutting has proven not to be the only reason for the increased outsourcing of legal work to Indian providers. Clients have found that India, with its free trade policy, advanced networking technology and English-speaking, educated workforce, delivers significant value by offering domain-specific processes and business expertise, not just improved efficiency. The expertise and analytical skills of Indian LPOs are in-demand from global providers, who see India as a reliable, established destination for outsourced service delivery.
As Indian LPOs move up the value chain, legal research that was initially limited to finding case laws, statutes, rules and regulations is witnessing more requests to prepare preliminary drafts of legal documents for use in foreign courts. Tasks such as patent drafting, prior-art searches, due diligence and even litigation support, in the form of document review, are also being outsourced to Indian LPOs. Industry analysts say that though countries like Vietnam, China, Hungary, Czech Republic and the Philippines are all pitching for business against Indian companies, outsourcing to India will continue to boom due to the quality Indian LPOs offer, rather than their lower costs.
At this growth rate, an industry that heavily relies on domain knowledge and expertise is in need of highly educated professionals from the legal fraternity. Overall, the KPO industry is projected to hire 3.5 million fresh recruits next year, according to a report by ASSOCHAM, making it a promising and emerging career option for law graduates.
With LPOs looking for highly educated and capable legal professionals, an increasing number of Indian lawyers, paralegals, and law graduates are seeing the advantages of a career path in LPOs. Today, many India-based professionals in LPOs are working on complex tasks such as contract management, drafting and review; due diligence for mergers and acquisitions; patent support for intellectual property; etc., with opportunities for advancement into management positions. This not only provides a scope for fresh law graduates just beginning their careers, but also enables lawyers in their mid-careers to enjoy a more corporate lifestyle and an opportunity to hone their managerial skills.
To further increase India’s appeal as a potential and preferred market for LPOs, companies are working towards attracting greater numbers of US-based lawyers to train the teams of junior lawyers in India, which will enable them to offer more number of services. Although still in a nascent stage, the LPO market in India has already managed to win the confidence of its overseas clients by moving up to the next level and providing a plethora of sophisticated services. As a result, Indian outsourcers are now helping UK and US firms hire experienced Indian legal talent to meet this demand.
During the '90s, the BPO sector attracted lower-rung clerical jobs that later evolved into higher-end analyst positions. The LPO sector presently seems to be going through a similar cycle, and with the success of its BPO sector to boast of, India is hastening the evolutionary process for its LPOs. If the industry develops as per analysts’ expectations, LPOs could very well join BPOs and other KPOs to become the backbone of India’s booming service industry. 4
4 http://www.sourcingnotes.com/content/view/913/1/
offshore solutions to manage their network operations, support systems, billing software, OS integration and business process re-engineering.
India sees this potential and is working towards meeting future demand for knowledge workers at home and abroad. India produces 3.1 million college graduates a year, which is expected to double by 2010. The number of engineering colleges is slated to grow 50%, to nearly 1,600, in four years. There's a growing movement to boost faculty salaries and reach more students nationwide. India's rich Diaspora population too is chipping in. Prominent Indian Americans helped found the new Indian School of Business, a tie-up with Wharton School and Northwestern University's Kellogg Graduate School of Management that lured most of its faculty from the U.S. Meanwhile, the six IIT campuses are tapping alumni for donations and research links with Stanford, Purdue, and other top science universities. "Our mission is to become one of the leading science institutions in the world," says director Ashok Mishra of IIT-Bombay, which has raised $16 million from alumni in the past five years. Since 2001, Delhi has been furiously building a network of highways. Modern airports are next. Deregulation of the power sector should lead to new capacity. Free education for girls to age 14 is a national priority. "One by one, the government is solving the bottlenecks," says Deepak Parekh, a financier who heads the quasi-governmental Infrastructure Development Finance Co.
Outsourcing is big business, generating global revenues of $298.5 billion in 2003, according to Gartner Inc. Some Americans have realized they can actually make money on this and grabbed the opportunity. "We didn't create the market, we are following the market," says Michael Parks, CEO of Deerfield-based Revere Group
Ltd., a mid-sized consultancy that acquired a 70-employee firm in Bangalore recently, in order to compete for outsourcing contracts. Outsourcers reap gross margins of 25% to 50% on projects sent overseas, says Jai Shekhawat, CEO and co-founder of Fieldglass Inc., a Chicago-based firm that advises companies on outsourcing. A contractor typically pays between $11.70 and $16. per hour, including benefits, to a computer programmer in Mumbai, India, and charges its American client between $18 and $25 hourly for that worker, says he.
A small fraction of people from the US and Europe are seeking jobs and are willing to work in India. Experts say there are about 30,000 foreigners working in India. And this number is expected to grow in coming years. Kris Lakshmikanth, founder and CEO of Head Hunters India says, "We need overseas people to work in our country. In fashion, healthcare, biotechnology, there are areas where India needs special knowledge that is available in the US and Europe. The other thing we need are people who can speak different languages, American English, French, German."
But, while margins are high, so are the risks. Political fury has been aroused that could make potential clients rethink outsourcing plans even as observers claim that no signs of dampened demand is visible. Pricing these complex arrangements is tricky and a great hurdle. Most contracts lose money in the first year as buyer and seller work out logistical and cultural kinks. Accenture's gross margin (gross profit as a percent of net revenue) dipped to 34.1% in the quarter ended Dec. 31, from 39.4% in the year-earlier period, largely the result of lower-than-expected margins on three outsourcing contracts. Finally, consultancies that invest heavily in
