Software Outsourcing India - Why?
Leading global business intelligence and consultancy firms such as Giga, Forrester Research and McKinsey & Co. have cited various reasons for the increase of remote development to India by MNCs. Software Outsourcing in India (IT Outsourcing) is expected to grow to at least 23 percent during 2002. As Giga predicts, India will continue to be the most preferred destination for software outsourcing, remote programming and offshore software development. Cost and quality benefits play a positive role in making India a choice destination for outsourcing of technology.
Meanwhile, Forrester Research indicates that by 2003, technology budgets will grow rapidly, from 12 percent to 28 percent in 2003, indicating a higher participation from companies in IT outsourcing. According to a study conducted by Forrester in November, 2001, India's edge over other competing nations in the software outsourcing business is based on the country's decade old experience in this area, fluency in the English language, corporate friendly atmosphere created by liberal policies of the Government and above all quality consciousness of the industry.
Today, there is a greater focus by MNCs on the Indian IT outsourcing and software outsourcing market. While a large number of companies are outsourcing their software development to Indian companies, others are establishing a presence in India and participating actively in the software export game. India can be an ideal offshore destination for software outsourcing, remote programming and IT outsourcing due to a number of factors which are categorized into:
India offers significant strengths in the areas of remote development of software and IT outsourcing.
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Large Human Resource
Every year out of the 2.4 million graduates 97 percent find jobs in the IT industry. This talent caters largely to remote development, IT outsourcing and high quality domestic software development. At this rate there can be approximately 17 million people available to the IT industry by 2008. The IT outsourcing and remote development industry which currently employs 0.5 million people, will employ over 2 million people directly and create indirect employment opportunities for at least an additional 2 million people by 2008.
Indian Education System
The Indian education system places strong emphasis on mathematics and science, resulting in a large number of science and engineering graduates. Mastery over quantitative concepts coupled with English proficiency has resulted in a skill set that has enabled the country to take advantage of the current international demand for remote development and IT outsourcing.
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Investor Friendly Atmosphere
The investor friendly atmosphere created by the liberalized policies of the Government, has resulted in huge inflows of FDI from NRIs including Overseas Corporate Bodies (OCBs) owned by NRIs, and also made foreign technology accessible.
Keeping up the pace the Indian Government has passed the IT bill in the year 2000, which provides a legal framework for the recognition of electronic contracts, prevention of computer crimes, electronic filing of documents etc. Most of the states in India have come up with the concept of Software Technology Parks for the promotion of IT outsourcing, ITES and remote development companies.
All these initiatives by the Government have ratified the perception that India is the destination of choice for IT enabled services as well as IT outsourcing and Remote development.
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Economy
By realizing its long-term potential, the Indian IT and IT-enabled services industry could be one of the most powerful drivers of India's economic growth. As per the NASSCOM-McKinsey study 2002, the share of IT and ITES in the GDP is going to increase substantially from 1.4 percent in 2001 to 7 percent by 2008. By achieving its long term potential, the IT industry including remote development and IT outsourcing industries will dramatically boost Indian economy.
Increase in Foreign Exchange Inflows
In addition, revenues from IT outsourcing, remote development and IT enabled services exports are likely to grow at a significantly higher rate than other exports and invisible and by 2008 will exceed all other invisible combined. IT outsourcing and remote development and IT enabled services exports, which currently account for 8 percent of foreign exchange inflows, will contribute more than 30 percent of foreign exchange inflows in 2008.
Market Share
In terms of market share, the long-term potential for India translates into a 4 percent market share in IT services IT outsourcing, remote development and IT-enabled services.
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Quality
In the past few years, the Indian IT industry has pursued the goal of attaining the highest international standards of quality. A World Bank funded study conducted as early as 1992 to discuss Indian software strategies had concluded that more and more vendors in the US prefer to get their IT outsourcing and remote development needs addressed by India for its quality and cost advantage.
Indian players have created a strong value proposition in the IT software, IT outsourcing, remote development and services arena. Today India can boast of vendor sophistication --with more than 200 companies being quality accredited and serving the needs of over 255 Fortune 500 companies. Today, the world looks towards the Indian IT software and services industry for its good quality and high performance.
According to McKinsey & Co., India has and will continue to have a growing number of vendors successfully working on complex projects across all areas of software and services, and performing at levels comparable to those of leading global players.
As of 31st March 2002, India had 42 companies at SEI CMM Level 5 assessment. The quality & maturity of the Indian software industry can be measured from the fact that already 316 Indian software companies have acquired quality certifications and more companies are in pipeline to do so.
The other heartening feature has been the growing acceptance and adoption of the newly emerging People-Capability Maturity Model (People-CMM) by the Indian software industry. For a country like India, with its large assets in the form of skilled human resources, the relevance of People CMM needs no emphasis. A large number of Indian IT software and services companies have been quick to realize this and have either implemented or initiated these programs. The high quality apart from its low cost has resulted in making India a choice destination for IT outsourcing, remote development and IT enabled services. Remote development India has become the buzzword for many business managers in UK, Europe main land and US.
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IT Enabled Services
The Nasscom-McKinsey, study 2002 states clearly that the ITES industry is poised to take off. With global customer increasing offshoring and Remote development to India.
The Indian IT services industry landscape is being fundamentally reshaped by changes in customer and competitor behavior, and the emergence of new opportunities along service lines, verticals and geographies.
Sustaining future growth will call for new capabilities, an expanded business footprint, and radical changes to existing business models. India needs to take several initiatives to sustain its lead in exports of IT outsourcing and remote development services.
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Competitiveness and Remote Development India
Indian IT outsourcing and remote development industry is on track to achieve its long term aspirations of US$ 50 billion in export revenues by 2008 and remain the preeminent destination for exports. The remote development India and IT outsourcing industry has grown at a CAGR of 46 percent since 1999, which is higher than the growth rate required to reach the target set in the first NASSCOM-McKinsey Study.
Based on location and people attractiveness, ten countries were identified as strong contenders for the global ITES market in 1999-- India, Ireland, UK, Australia, Singapore, Hong Kong, China, the Philippines, the Netherlands and Mexico. Among these, only two countries, India and Ireland, have created a substantive presence till date.
The Indian ITES industry has grown at more than 70 percent over the last two years and currently employs over 1,00,000 people. India is fast emerging as the "new" leader, especially in traditional services such as call centers, back office processing, etc. India is also the first country to see significant third party activity. India is a choice destination not only for remote development but for the remote services model. Remote development India is the mantra that has resulted in the phenomenal growth for IT and IT enabled services in India.
Philippines and China could pose the strongest competition to India and challenge India's supremacy in the medium to long term. Only China and the Philippines, other than India, have a sizeable, low cost talent pool, which could meet global ITES manpower needs. Governments in both countries are taking significant steps to improve their attractiveness for the ITES industry. India has a distinctive advantage especially in remote development and IT outsourcing due to its huge presence of English speaking professionals.
Other countries like Malaysia, the Caribbean, South Africa, Hong Kong, etc. have seen some ITES activity. However, the small size of their talent pools and lack of reference customers severely constrains their ability to emerge as hubs for IT outsourcing and remote development.
The IT Enabled Service industry including the IT outsourcing and Remote development services, look forward for a proactive role by the Government of the day, to stay ahead in the competition.
India's abundant, high quality and cost effective services and its vast resource of skilled software human power makes it an attractive location for global software clients looking for IT outsourcing and remote development services.
There has been a healthy growth in the number of India's IT professionals over the last decade.
Educational institutions and polytechnics, as well as the prestigious Indian Institutes of Technology (IITs) are the principal sources of newly qualified graduates/postgraduates
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IIIT (Hyderabad)
One of the remarkable initiatives undertaken to increase the Information Technology workforce in India was during 1998. This was the setting up of the Indian Institute of Information Technology (IIIT), involving Government-Industry partnership. This emerging trend of collaboration between the industry and Government in the area of formal education in developing IT is again a proof as to why India becomes a hotspot for IT out sourcing and Remote development. Apart from formal education IIIT provides short training modules for professionals to handle complex technological issues and update them about latest technological changes in the emerging areas, including IT out sourcing and Remote development.
The IT out sourcing and Remote development industry needs experts to provide these services, the industry has to re-train its experts accordingly, the existing infrastructure in institutions like IITs, IISc,RECs should be used productively for this purpose.
SUMMARY
The tendency to out source is being driven by a combination of cost and speed. Indian companies are out sourcers of choice for many U.S and European Corporations.Many MNCs also have research and design subsidiaries in India, where IT workforce is perceived as well educated but inexpensive. The availability of low-cost, skilled English speaking manpower in India is likley to remain a compelling factor for, IT outsourcing and Remote Development services. |
