Category Archives: Outsourcing

India’s outsourcing industry – From jugad to strategy


2011 – 20 years of the economic reforms. 20 years of the India story. A story scripted to a large extent by the booming service industry. India became the IT, ITES, BPO outsourcing hub of the world. Low costs, a huge talent pool contributed to make India the darling of the sector. The sector has generally ridden over issues such as language barriers, attrition rates, service complaints and scams such as the 2005 BPO scam involving Citibank accounts. To stay in a position of supremacy. Until recently when Phillipines pipped India to be the number one BPO destination. Greater China threatens to pip India’s KPO supremacy. The Indian IT players have been hit by global recession and a tightening of outsourcing rules in the largest markets: Europe and North America. India in general is struggling with the ghosts of corruption, red-tapism and a general policy paralysis. Factors such as low cost and a surplus of human resource are not working anymore. A failing global economy and rising competition from Latin America, East Europe and the Asian counterparts mean there are more players now competing for a slice of a smaller pie. And the Indian companies are forced back to the drawing boards to devise counter strategies. And jugad is not one of them.

Indian IT and BPO industry has consistently been a volume play. Leveraging the strengths of low costs and surplus of human resources. A closer look at the resource pool however does not present such a rosy picture. A high percentage of graduates passing out of colleges are still not employable. Nasscom puts the employability figure at a meager 25%. The huge diversity in India and the lack of uniformity in education policies have undermined a consistent profiling of resources. Inflation, consumerism and attrition have all pushed up salaries, operational costs. The factory shop-floor kind of approach which powered the IT juggernaut has started showing its clinks. The emphasis had traditionally not been on differentiation. The strength factors were cost and volume. Not insignificant factors. But when there are countries like China competing on volume and Latin America/ East Europe competing on cost plus the advantage of less distance(near-shore) and more cultural congruity; cost and volume will not be our tipping factors. The juggernaut has to change gears. The emphasis has to shift to quality of service, differentiated offerings, positioning up the value chain. Offer what no one else can offer. At competitive costs. Offer for example umbrella offerings covering every aspect of a process chain for a given sector. Concentrate on the value of the outsourcing deal brings to your clients. As the west grapples with unemployment and recession, outsourcing will be a carefully thought out decision. India has to go beyond being a low cost destination. It has to start with a comprehensive structural change from bottom up. Invest in skills by partnering with educational institutes. Lobby for educational reforms. Invest in new ideas and products/offerings. Move from a ‘I will do it anyhow’ to a ‘What is the most effective way to do it’ approach. Example you may want to create platform based solutions which will accelerate the process and reduce the probability of human errors. Move up the value chain by positioning yourself as a strategy partner. Your customer then opens up a larger part of the pie to you. Tighten operations and quality control – stiffer competition means the leeway for error is almost zero.

For all this to happen, the change has to be driven not just top-down but bottom-up as well. The leadership now has to be shown at the middle management level whose targets need to move from mere volume to emphasise quality, sustainability and innovation. Middle management has been the weakest link in the service outsourcing industry as it has struggled to bridge the gap between upper management vision and the operations on ground. This has to change. The vision and mission statements have to come down from the walls to water-cooler conversations. The change I am talking about is not a change in the boardroom policies alone. It is a collective, conscious and shared change to overhaul the perception. From a cheap provider of services. To a cost-effective provider of value.

Ofcourse as the emphasis shifts to moving up the value chain, margins will reduce. Niches will be carved out. Volumes will be hit. However let me tell you all this is already happening due to the global realities. Taking initial cuts and making strategic investments to tide this storm is now a survival decision. The choice hinges on whether we will be beaten at the own game by players who are better prepared than we thought. Or change the game by reinventing ourself as a more strategic player?