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Offshoring and Outsourcing in India: The Global Business Debate

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Title: Offshoring and Outsourcing in India: The Global Business Debate


1
Offshoring and Outsourcing in India The Global
Business Debate
Poonam Barua Director PAMASIA Global Corporate
Advisory New Delhi email pamasia_at_vsnl.com
2
Economic Indicators
  • Largest democracy 1.1 billion population
  • 1991 Wide-ranging reforms to open and deregulate
    the economy
  • GDP growth over 8 in 2005-6 fastest growing
    economies in the world, with compounded growth at
    5.7
  • Gross GDP - 3 trillion fourth largest economy
    in the world after USA, Japan and China
  • Annual per capital income is 2,880 one of the
    lowest in the world
  • Indians remit about 18.3 b. back to India
    annually one of the highest in the world
  • In 2003 total of 9, 500 listed companies on the
    BSE and NSE (23 registered stock exchanges)
  • Total market capitalization is 22 25 of GDP
  • Top 100 BSE companies represent almost 86 of
    market cap
  • State-owned enterprises account for nearly 32
    of BSE market cap

3
  • Indias Market
  • Indias economy is expected to grow over 6 -
    faster than any other country in the world
    (Duetshe Bank Research)
  • India is one of the fastest growing markets in
    the BPO space
  • India is the worlds fourth largest economy-
    adjusted for purchasing power parity (PPP) next
    only to U.S, China, Japan
  • There is a large potential in the SMB, and
    mid-market space, and for solutions enabling the
    (offshore) services industry

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  • Goldman Sachs Report of 1 October, 2003
    "Dreaming with BRICs The path to 2050
  • Indias GDP will reach 1 trillion by 2011,
  • 2 trillion by 2020, 3 trillion by 2025,
  • 6 trillion by 2032, 10 trillion by 2038,
    and
  • 27 trillion by 2050, becoming the 3rd
    largest economy after USA and China.
  • In terms of GDP
  • India will overtake Italy by the year 2016
  • France by 2019, UK by 2022, Germany by 2023,
    and Japan by 2032.

6
India Corporate Profile
  • Market Cap No. of Companies
  • (April 2006)
  • gt 20 billion 3
  • gt 10 billion 9
  • gt 5 billion 18
  • gt 1 billion 62
  • gt 500 m 74
  • Growing over 100 Global Indian mncs that will
    be above 1 billion
  • 50 of the over 1 billion companies are
    currently in public sector
  • No. of listed companies on BSE 10,000
  • No. of companies on Nasdaq
  • No. of companies on NYSE

7
Driving Global Leadership
  • IT led sectors
  • McKinsey and Nasscom India's revenues from IT
    industry will reach 87 billion by 2008
  • Profile of IT-led Sector
  • Tier 1 companies ie. Top 5 firms
  • Account for 32 of total software export
  • Tier 2 companies ie. Revenues Rs. 1 billion -
    Rs. 10 million
  • Account for 24 of the industry
  • MNC back-ends
  • Account for about 26 of the industry
  • Focused companies domain/ service line/
    products/
  • Account for about 3-4 of revenues
  • Small companies ie. less than Rs. 1 billion
    revenues,
  • Account for 12-14 of the market

8
  • New emerging areas
  • bio-informatics, bio-technology, genomics,
    clinical research and trials Ranbaxy, Cipla,
    Piramal, Reliance Lifesciences, Biocon
  • Worldclass Manufacturing
  • Bharat Forge has the world's largest
    single-location forging facility, its clients
    include Honda, Toyota and Volvo amongst others.
  • Hero Honda with 1.7m motorcycles a year is now
    the largest motorcycle manufacturer in the world.
  • India is the 2nd largest tractor manufacturer in
    the world.
  • India is the 5th largest commercial vehicle
    manufacturer in the world.
  • Ford has just presented its Gold World Excellence
    Award to India's Cooper Tyres.

9
  • Worldclass Manufacturing ctd.
  • Hyundai India will become global small car hub
    for Korean giant -- supplying half a million cars
    to Hyundai Korea, HMI and Ford by 2010
  • Aston Martin latest luxury sports car, AM V8
    Vantage, is being prototyped by an Indian-based
    designer.
  • 80 of the Worlds 117 SEI CMM Level-5 companies
    are based in India.
  • 5 Indian companies recently received the globally
    acclaimed Deming (TQM) prize.
  • Retail Sector Late Riser
  • Largest retail density worldwide about 15
    million retail outlets
  • Retail trade will be 10-11 of GDP
  • Growing at 158 between 2003-5 compared to 40
    in other emerging markets
  • Valued at 19 billion currently compared to
    Chinas 50 million

10
  • Business Acquisitions 2005-6
  • Tata Tea acquires Energy Brand USA- 677 m.
  • Wipro cqired mpower, Cmangao, and Quantech USA-
    58 m.
  • ONGC takes over Ominex, Columbia -- 45 m.
  • Tata Steel 8 billion bid for Corus Steel
  • Aban Llyod buys Norwegian firm Sinvest for 425
    m.
  • Dr. Reddys acquires Betapharm Germany for 571 m.
  • Mahindra Mahindra takes over Jeco Holding in
    Germany for Euro 140 m.
  • Sulzon Energy Buys Hanson Transmission in
    Belgium for 565 m.
  • Ranbaxy Labs Takes over Terapia in Rumania for
    324 m.

11
  • Videocon India takes over Daweoo Electronics in
    South Korea for 648 m. buys CPT Thomson,
    France, for Euro 240 m.
  • What are they buying
  • Oil and Gas
  • Pharma and Healthcare
  • IT IT enabled services
  • Food and Beverage
  • Manufacturing
  • Others

12
  • Global BPO and process-engineering
  • Geneva-based STMicroelectronics is one of the
    largest semiconductor companies to develop
    integrated circuits and software in India.
  • Texas Instruments was the first to open
    operations in Bangalore, followed by Motorola,
    Intel, Cadence Design Systems and others.

13
Market Dynamics
  • Mobile phones are growing by about 1.5 Million a
    month. Long distance rates are down by two-thirds
    in five years and by 80 for data transmission.
  • Wal-Mart sources 1 billion worth of goods from
    India - half its apparel. Wal-Mart expects this
    to increase to 10 Billion in the next couple of
    years.
  • GAP sources about 600 million and Hilfiger 100
    million worth of apparel from India.
  • There are about 200 call centres in India with a
    turnover of 2 billion and a workforce of
    150,000.
  • 100 of the Fortune 500 are now present in India
    compared to 33 in China.

14
Talent Dynamics
  • Top 5 American employers in India
  • General Electric 17,800 employeesHewlett-Pa
    ckard 11,000 employeesIBM 6,000
    employeesAmerican Express 4,000
    employeesDell 3,800 employees
  • Top 5 Indian employers
  • Infosys 40,000
  • Wipro 35,000
  • TCS 100,000
  • Reliance 120,000
  • Satyam 35,000

15
  • Indias Talent Advantage
  • India has the worlds largest pool of
    English-speaking software engineers, permitting
    fast and large-scale project ramp-ups
  • Flexibility, eagerness to learn, and technical
    proficiency are key characteristics
  • More than 700,000 software professionals
  • 250,000 of them in top-tier companies
  • Access to talent from top universities available
    in the country
  • at low cost
  • With more than 250 universities, 1,500 research
    institutions and 10,428 higher-education
    institutes, India produces 200,000 engineering
    graduates and another 300,000 technically trained
    graduates every year. 2 million additional
    graduates qualify annually.
  • The Indian Institute of Technology (IIT) is among
    the top three universities from which McKinsey
    Company, hires most.

16
Advantage India..
Global Outsourcing Trends IT-enabled Services
BPOs KPOs
17
  • Key drivers for Global offshore/ outsourcing as a
    strategic alternative
  • Increasing global competitiveness
  • Access to global talent
  • Economies of scale
  • Process engineering and enhancements
  • Wage arbitrage
  • Increased profit margins
  • Improvements in quality

18
India holds 55 of the global Offshore BPO
IndustryMore than ½ of Fortune 500 companies
have outsourced to IndiaIndia BPO Services grew
by about 49 in 2004Indian BPO is growing at 7
times the domestic GDPIndian outsourcing is
moving up the value-chainLOBs developing HR
and FinanceIndian KPO (knowledge process
outsourcing) to grow from 1.2 billion to 15.5
billion in 2010 (ie. 75 of the global KP market)
Advantage India..
19
The real economics of offshoring
  • . . . and makes the global pie that much bigger
  • . . . creates new value from reemploying U.S.
    labor . . .
  • 1 previouslyspent in U.S.,now offshored to
    India . . .

Estimate based on historical U.S. reemployment
trends Source McKinsey Global Institute
20
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23
  • Indias Value Proposition for ITES-BPO Industry
    PQRS Productivity, Quality, Rate, Scalability
    factor
  • Abililty of Indian vendors to ramp-up operations
    rapidly
  • Widening breadth of services
  • Shift towards high-value services
  • Sustained cost advantage nearly 40-50 cost
    savings in India offshore operations
  • Delivery process enhancement and improvement
  • Access to an abundant skill pool India has the
    largest english speaking IT talent pool in the
    world, over 120,000 trained IT professionals and
    about 3 million other graduates added each year.
  • Global quality credentials ISO,TQM, 6 SIGMA

24
  • Key markets
  • U.S 2/3rds of total market
  • Western Europe, mainly U.K. 20 approx.
  • Market profiles
  • Customer Care 35 of the sectors employee base
    at 122,000 employees, and 1/3 of revenues
  • Finance 25 of revenues
  • Administration 16 of revenue
  • Content Development 13 of revenue

25
  • Ecosystem
  • View from SAP Labs- Offshoring India Center
  • Bangalore is one of the worlds top IT clusters
  • System Integrators can be enabled to implement
    SAP NetWeaver and the Business Process Platform
    for customers
  • Independent Software Vendors (ISV) can provide
    platform-based composite solutions

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27
  • Cost Factor
  • India is the one of the most cost-efficient
    locations for many mncs from Europe and U.S.
  • Mckinsey Study
  • and will be below 50 cost of Germany at least
    for the next 5 years (--SAP Labs)
  • Context can be outsourced to a large spectrum
    of service providers

28
Offshoring Engagement Models
  • Outsourcing contracting a single supplier to
    perform full range of Application Development and
    Maintenance
  • Selective Sourcing contracting a vendor to
    perform a portion of Application Development and
    Maintenance
  • Co-Sourcing a partnership that is developed on a
    shared management arrangement to cooperatively
    build applications or systems
  • Out-Tasking engaging suppliers to perform a
    specific task whilst the organization maintains
    control of the strategy and integration
  • Skills Infusion integrating experts into the
    team of impart build expertise within
  • Resource services hiring of delivery staff to
    manage performance bottlenecks
  • Advisory Services ad-hoc services to fulfill
    gaps /or specialist advice

29
Phobias of Outsourcing view from IBM
30
The Seven Phobias of Offshoring
31
People
32
Geo-Political
33
Service Provider
34
Fear Of Unknown
35
  • What Executives are asking about India?
  • Will economic reforms continueIndias noisy
    democracy perplexes many MNC Executives
  • Are the multinationals really welcome?
  • Isnt China the richer opportunity?
  • How do successful multinationals approach India?
  • Is offshoring in India worth the political risk?
  • Will infrastructure be a problem?
  • Will India protect intellectual property?

36
China Vs India
  • Average Wage costs
  • China gt India
  • HR Managers China 16,600 India 7,900
  • Financial Experts China 6,900 India 4,400
  • Rate of Wage Increase India 11.5 China 7.5
  • Employment Culture China.. Driven by personal
    accomplishment, fair pay and benefits India..
    Driven by confidence in senior management and
    organizational reputation

37
  • Poonam Barua
  • Director
  • PAMASIA
  • Global Corporate Advisory
  • New Delhi
  • email pamasia_at_vsnl.com
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