Indian Outsource industry on notice

June 25, 2009

At last week’s fifth India Innovation Summit 2009, Wipro’s chief executive officer Azim Premji warned that India should not be complacent and fall into the “India advantage” trap and what he referred to as India’s “thumping on the back” mentality as competition was fast catching up (somewhat ironically, this year’s summit was entitled: “The Role of Innovation in an Economic Downturn – The India Advantage.”) He further commented that in the past, engineers never experienced failure in the job market and could switch jobs at will but now that the supply and demand equation has changed dramatically, many new engineering graduates will go jobless – pushing down salaries. Meanwhile, Infosys’s CEO Kris Gopalakrishnan echoed similar sentiments that India needs to stay on its toes and he further stressed the need to improve country’s education system.

However, should India really be all that worried about the competition? Egidio Zarrella who is the global head and partner with KPMG’s IT advisory group and one of the authors of A New Dawn: China’s Emerging Role in Global Outsourcing, recently made the bold statement that China will surpass India to become the global IT outsourcing leader in the next five years. As he puts it, although China is still just a tiny baby in the outsourcing market, it is now fast growing into a teenager because its local outsourcing industry has a huge domestic market to tap and has already penetrated the nearby Korean and Japanese markets.

Now of course, it should be noted that Zarrella is based in China and it is in his own professional interest to tote his home base as the next global outsourcing leader while he also pointed out that Chinese companies tend to have complex internal structures making domestic outsourcing all the more difficult. Furthermore, he states that China lacks a public relations machine to market itself as an IT outsourcing destination – something that India and the Philippines clearly has in the form of NASSCOM and BPA/P respectively. 

Nevertheless, although India ranked number one on A.T. Kearney’s recently released Global Services Location Index™ (GSLI) for 2009, China ranked number two. In fact, India even warranted a small article in the report entitled: “Is India Vulnerable?” The short piece listed the following as India’s major vulnerabilities:

  • Currency Swings – Between 2006 and 2007, the strengthening of the Rupee increased the cost of outsourcing to India by some 30%. Although the exchange rate has returned to more manageable levels, China’s currency remains largely within a stable trading band against the dollar.
  • Terrorism – The Mumbai incidents last November along with the continued tensions with nuclear armed Pakistan have highlighted the risk of doing business in India. Meanwhile, China has largely contained its separatists and democracy movements while any tensions with Taiwan or North Korea largely pale in comparison to the continued India vs. Pakistan problem.
  • Corporate Scandals – The Satyam scandal was India’s equivalent of the Enron scandal and has shaken confidence in the country’s regulatory and corporate governance structures. And although China has similar problems, if a Satyam sized scandal were to happen there, you can be almost certain that the perpetrators would likely be punished in the same manner that those involved in the tainted milk scandal were punished – via the FIRING SQUAD.
  • Quality Issues – Delta Airlines and United Airlines recently pulled the plug on their Indian contact centers and shifted the work elsewhere – although not to China, which of course, has its own quality control and English language issues.  

Either way, the report itself pointed out that India and China share many of the same basic characteristics and made the further observation that the Chinese government is determined to grow its outsourcing industry – just like it was determined to build the Great Wall of China, the Grand Canal and the Three Gorges Dam. Hence, India should be on notice. 


4 Responses to “Indian Outsource industry on notice”

  1. rogerkk on June 26th, 2009 8:55 am

    very nice information,,, really it will helpful for all outsource workers.

  2. Joe on July 1st, 2009 8:09 am

    My perdition is that India will loose market share in the next couple of years to other countries. But Indian outsource vendors will open more outsource centers in other countries just like TCS opened a new center in Mexico. So ultimately some jobs will move from offshore to nearshore

  3. ayushi on October 11th, 2010 6:31 am

    thank you for posting about indian outsource industry . It s more useful for us.

  4. Joomla Website Developers on December 9th, 2010 2:50 am

    Good Articles.its Really Helpful to Who ever doing outsourcing.
    Keep on sharings.
    Thank you

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