The death of Indian outsourcing? Don’t make me laugh…

Following hot on the heels of "34% Buyers Axe Their BPO Deals", I woke up to an even more breakfast-choking shocker this fine morning with Forbes.com’s Sramana Mitra declaring "The Coming Death of Indian Outsourcing"

So I checked out the credentials of the author.  I couldn’t find any other outsourcing literature, but plenty of Yahoo-Microsoft commentary, which was pretty informative.  However, I did find Sramana’s blog where she comments that the "Indian BPO industry is very much at risk because of the SaaS trend, and if they do not start to get their act together and respond to the trend, they are going to get punished".  This is incorrect. SaaS applications actually enable delivery of BPO services for certain processes.  Where software can be delivered as a pure web application, and does not require onsite maintenance and development, what better for a global delivery model where services are delivered from remote locations?  True, SaaS threatens the traditional software model, but it actually compliments an outsourcing model.  And surely SaaS is much more threatening to software providers than services firms, which dominate India’s outsourcing economy.

Moreover, Sramana claims "Yet, India, for all its glory, is still the world’s back office. India’s tech industry is a "services" industry. The Indians don’t do the thinking. The customers do. India executes".  Er… isn’t that the point?  However, what she plainly fails to discuss is the fact that the better the Indian services become, the greater the number of services that require the "thinking". It is no coincidence that IBM, Accenture and HP have employed 10% plus of their workforces in India today to perform tasks that go beyond pure execution work.  When you look at the scale and type of services being delivered from India today, as opposed to 5 years’ ago, the move up the value-chain of services being delivered from India is impressive.  Services such as remote infrastructure management, financial reporting, insurance claims adjudication and industry-specific application development were a far-flung fantasy back then, but today are high-growth outsourced services being delivered for enterprises today.

Sramana picks on on ADP’s global sourcing model, which only has 2,500 staff in India.  However, what she doesn’t comment on is that fact that very few firms outsource payroll to India, largely as this industry was established long before India came to prominence, but also because of the regulatory and privacy concerns tied to sending payroll data offshore. 

I empathize with her concerns over wage inflation, staff attrition and rupee appreciation.  These are the challenges the Indian industry is dealing with, which we discussed here last year, and it will slow down the breathtaking growth in the long-term, however, to proclaim the "coming death" of Indian Outsourcing is absurd. 

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11 Comments

  1. Posted March 4, 2008 at 11:59 am | Permalink

    The death that is occurring in the Indian BPO space is the result of absurdly labor-intensive services provided by the hundreds of small Indian firms that don’t have the capital or technology capabilities to provide lasting, technology-driven performance improvements.

    The dollar-rupee exchange and labor rate inflation has changed the value proposition of these smaller firms and their client relationships. The difference between India and the Philippines is that the Philippines doesn’t have the same over-expansion of outsourcing companies that India has. In addition, the Philippines has a higher ratio of call center services than India does.

    In India, it appears that anyone with a T1 connection and a building runs an outsourcing operation.

    With clients looking for vendors to provide solutions other than labor arbitrage, I expect we’ll see some consolidation of the lower-end of the Indian BPO industry or simply client migration to more technically sophisticated firms.

    That’s certainly a far cry from the purported death this journalist has sensationalized. The very thought of Infosys, Tata, and Wipro vanishing is comical, frankly. Acquired, maybe. Chapter 7 (or the Indian equivalent), no.

    Tony
    http://360vendormanagement.com/

  2. satyanarayanarao
    Posted March 4, 2008 at 9:25 pm | Permalink

    government of india should wake up and propose suitable subsidies/methods to solve
    this problem rather than taxing industry

  3. Posted March 5, 2008 at 12:24 am | Permalink

    Death is too strong a word, even literally.Even legacy systems are not dead. The author looks at the Indian outsourcing industry through the lens of a Silicon Valley enterprise technology analyst. The key difference between the enterprise technology industry and the outsourcing industry is that the former is made up of products while the latter is made up of processes and people that surround these products to make a service delivered business to business.

    In the Silicon Valley, a new trend like Saas or Web 2.0 or SOA causes much excitement and is pronounced to create the disruptive shift that will change the game. But none of it happens overnight. Every new trend in enterprise computing will sure have its ramifications in the outsourcing space. And this is the point. The outsourcing industry is quick to embrace new technologies if it helps value-add to the client. Take the example of virtualization- a technology that is at the point of getting mainstream. Guess what- the largest outsourcing companies in the world and even the mid-size and smaller ones offering managed services or remote infrastructure management are at the cutting edge in using virtualization technologies, be it to manage server farms or handle enterprise software deployment.

    Coming to the topic, the BPO industry is still emerging – the full scope of services has not yet been imagined. Therefore, pronouncing its death is an unwelcome thought.

  4. Pat O'Brien
    Posted March 5, 2008 at 6:44 am | Permalink

    Hi Phil,
    I read that article yesterday (on Forbes! Have they gone mad?) and was appalled. As a former journalist, I can well understand the desire to nail some recent stories together and desperately try to hang a trend on it. Analysts do it too (oh yes they do), but they are under a different set of pressures, and have the time to make more considered, though often less exciting opinions. This however, is a particularly bad attempt and her scattered attempts to justify the headline are frankly, bonkers. I’ve had a few “oh-no-5-minutes-to-dealine- and-I’ve-got-nothing” moments myself, but in such cases I’ve ususally steered clear of forecasting the death of a thriving multi-billion dollar industry.

  5. Posted March 5, 2008 at 3:33 pm | Permalink

    Phil, perhaps she meant the death/re-incarnation cycle of Hinduism in India -)

  6. Posted March 6, 2008 at 11:54 pm | Permalink

    Sramana’s article is just a cheer-good article aimed at Western audiences. It is easy to fantasize things about Indian IT and predict its doom sitting in Silicon valley stratoshphere.

    Indian IT is not a static entity. Companies are constantly moving up the value chain. They may not yet be the finished article, but they will get there. For starters, check out http://www.atc.tcs.com. The kind of work they are doing rivals the research centers of other industrial labs

  7. Posted March 10, 2008 at 7:31 am | Permalink

    Phil,

    Your response to Saramana Mitra’s article is accurate and precise.

    Thanks

    Utkarsh Rai
    Author of “offshoring Secrets”
    http://www.happyabout.info/offshoring-secrets.php

  8. Posted March 13, 2008 at 11:47 am | Permalink

    I agree with ED, “Death” is certainly a stronger word in this case. Probably the author has over-estimated the recent bumps.
    The industry has always been in the media for some or the other reason. What I see these guys don’t have an in depth knowledge of the industry and the various challenges involved.

    I think these chaps need to adapt a bit more mature thinking and a closer look in order to judge the industry.

    It’s easy to react for any one, but the guys who make news need to show more sense of responsibility.

    Simply jumping out of the bed (guess out of mind as well) in the morning and start writing a “NEWS” is certainly not journalism.

  9. L. Ravenhill
    Posted April 30, 2008 at 4:08 pm | Permalink

    In a recent RFP response, the vendor’s mentioned offshore capabilities but it is unclear to me that the benefit is falling to the customer. How much impact should offshoring have on the implmentation of HRO deals? Instead of 10% of Total Contact Value should we be seeing 5% or lower with offshoring in the near future given the numbers discussed above? That to me is where the rubber hits the road with all the variables being tossed about.

  10. Posted June 17, 2008 at 4:50 am | Permalink

    What you say is true – but the nature of life is evolutionary – I think India will move up the value chain slowly – there will be a shakeout, weaker IT companies will go bust, but India will go up the value chain slowly,no one would have predicted we would have reached so far till a few years back, but we have despite all odds & with little help from the government, now it is laying the foundations for the next social change. Have faith – you will see changes happening in India, they will be at a slow & steady pace rather than at a galloping pace like the western world is used to. Everything is not as gloomy as you make it out to be.

  11. Posted September 29, 2008 at 10:58 am | Permalink

    While I do not agree with the title of Sramana’s article, the text of the article resonates for me.

    The top-tier Indian vendors are playing a variation of the commodity play – one I call capacity leasing. Many of them have no ownership for results and get a large part of their revenue from effort-based billing.

    The newly arrived workforce (post Y2K) find the going too easy, and complacence is an understatement (I see it all the time here in Bangalore).

    There is trouble in paradise. And Sramana is on to something which most of you have missed!

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