Title: Offshoring and Outsourcing in India: The Global Business Debate
1Offshoring and Outsourcing in India The Global
Business Debate
Poonam Barua Director PAMASIA Global Corporate
Advisory New Delhi email pamasia_at_vsnl.com
2Economic 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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5- 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.
6India 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
7Driving 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.
13Market 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.
14Talent 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.
16Advantage 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
18India 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..
19The 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
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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
28Offshoring 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
29Phobias of Outsourcing view from IBM
30The Seven Phobias of Offshoring
31People
32Geo-Political
33Service Provider
34Fear 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?
36China 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