India’s true share in the offshoring pie
December 28, 2009
A Professor from the London School of Economics (LSE), Raja Mitra, who is a former World Bank executive has stirred a hornet’s nest with his suggestion that contrary to the hype generally created around India, the country’s share in the global offshore business is only 25%. The earlier McKinsey, NASSCOM, and Everest research estimate was 54%.
Although optimistic of the growth potential in India, Raja, in his paper titled ‘IT Industry in Transformation, Opportunities and Challenges for India’ is also severely critical of the Indian habit of turning predictions into gospel, with the result that often these targets end up being touted as achievements.
The global economic slowdown and the decelerating in demand for IT, along with the intensifying competition from other evolving economies, pose stiff challenges to India’s supremacy, says Mitra in his report. Agreeing with him, a principal analyst at Forrester, Sudin Apte has said that although the Indian prospects look good, Indian BPOs would still have to tweak their strategies and approach to tap the more lucrative European market. His observation is that in Europe, unlike in American, cultural alignment is very important for doing business with local companies and this is an area where Indians really need to brush up their competencies.
An important thing that Indian service providers have to remember is that in order to survive in the post-recession environment, they need to offer value, not just in terms of cost-saving but also quality.
A study by the AT Kearny consultancy is an eye opener in this regard. The study found that 34% of the companies that had outsourced some component of their work abroad did not eventually find the savings they were looking for. Worse, companies that moved operations overseas purely for cost-savings reasons fared worse than companies whose primary motivate was improving performance. Even then, 60% companies didn’t reach their operational performance targets.
There is lesson in this for both service providers and buyers. Already, the offshore legal services industry that had been growing rapidly until 2007 has hit the first roadblock. Growing at a compounded annual growth rate (CAGR) of 40% until 2007, it dropped to 28% in 2007-08, and 16% in 2008-09, according to ‘Legal services outsourcing: Crisis creates new opportunities for LPOs’, a report by ValueNotes. If we don’t belt up fast, and begin to explore alternate markets, as well tap into additional revenue resources, besides cleaning up our quality act, the same predicament may face other BPO sectors as well.