Nine
ReasonS for Selecting India
August 2004
TRENDS UPDATE
By
Kumkum C. Dalal “Your Guide to Overseas Outsourcing and Doing Business in
India”
India has been
in the news now for many months as the
destination for overseas outsourcing of
services. India is not the only
destination for IT and BPO (see our February 2004 Trends Update newsletter for more on
BPO) and now bio-tech services, but it is the most desirable. How so?
Not too many countries can provide equally low
cost and high quality. One of the countries that
has become attractive for both high quality and
low cost is India. For
a comparative analysis on the potential pool of
supplier countries including India see reports
by Forrester Research and McKinsey Company. Both
consulting and research companies have been
providing regular analysis on this area since
1999.
While India enthusiastically subscribes to its
current outsourcing opportunity, America is slowly
waking up to the possibility of India as a huge
export market for American companies. Instead of
viewing India with hostility for appearing to be
taking jobs away from the white collar American,
India’s recent economic growth has created a huge
export market for telecommunications gear and
computer equipment used by the sector engaged in
providing IT and BPO services. An article in The Economist (on Offshoring, More Gain than
Pain,
July 17, 2004) points out that every dollar of
corporate spending shifted offshore by an American
firm, generates $1.13 in new wealth for the US
economy. Aside from the spending by the
services sector, India’s economic growth has created a small but significant population with a
disposable income - the figures jumped from 14% to
30% in the 1990s with expectations of a rise to 40%
by 2006-2007. Some savvy Fortune 500 companies -
Coke, Pepsi, GE, GM and Whirlpool – are already
benefiting from the Indian retail marketplace which
is flooded with foreign (mostly US) consumer goods.
It makes good business sense to view India not only
as a supplier destination for outsourcing but also
as an export destination – the more India grows, the
fatter becomes its middle class with cash to spend.
India is
powered by small and mid-sized business, not the
conglomerates that we see in the US. The possibility
of partnering with a like-sized Indian firm to enter
the Indian market is an area more US businesses
should explore.
In
this newsletter we offer a short overview evaluating
India in nine key areas. The complete
article is available on our website.Our purpose is to save our clients valuable research
time and engage us as subject matter experts to help
them do business with India.
Demographic
and Economic Information:
India
USA
Population
1.1
billion
290
million
Political Structure
Parliamentary Democracy
Constitution based federal republic
Political Parties
6
“national” and numerous regional
2
“national” parties
Legal
System
Based on
English common law
Based on
English common law
Independence from the British
1947
(August 15)
1776
(July 4)
GDP
$501.8
billion
$10.45
trillion
GDP
growth rate
6-8% (in
past decade only)
2.45%
GNP per
Capita (Purchasing Power Parity)
$2,600
$36,000
Language
of Business
English
English
Literacy
Varies
by state 55-90%
97%
Exports
$61
billion (FY2004)
$687
billion
Imports
$75
billion (FY2004)
$1.165
trillion
Education:
Despite economic gains in the 1990s, the
enduring picture of India is that of a very
poor country indeed. With poverty as the
backdrop it is hard to imagine how India can
possibly be such an attractive outsourcing
destination. Nevertheless, India, since
partition and independence from the British has
pursued a socio-economic policy that has
emphasized literacy, basic education for all,
removal of poverty, and the development of
science and technology.
Let’s evaluate
India.
Language:
English
is one of 18 languages
recognized by the Indian constitution.
English is the most important language for
science and technology education and
national, political, and commercial
communication.
Character of
labor pool:
The middle class is estimated at 275-300
million people. 54% of Indians are under
the age of 25. India is presently producing
on average of 1 million college graduates
and 200,000 engineers per year. With numbers
such as this one begins to understand why
India provides a seemingly never-ending pool
of English speaking, computer literate
manpower.
Labor cost:
In general Indian salaries in the service
sector tend to be one-fifth of US salaries.
A fresh call-center worker or programmer
might earn $2500 – $3000 a year.
Time
difference:
The time difference between India and the US
is almost 12 hours. Many US based companies
see this as a huge bonus for 24/7 customer
support.
Subsidy,
Government support:
In the last 15 years more and more trade
and industry controls and restrictions on
foreign companies entering India have been
removed, gradual privatization of the public
sector is occurring and foreign investment
is encouraged. The IT services industry has
been largely free of government
intervention.
Intellectual
Property:
Indian firms are extremely cognizant of IP
security for their BPO clients and for
high-end software development projects.
Communication
infrastructure:
The communication infrastructure available
in India in general and the business and
software development parks that house the
outsourcing firms are worlds apart. This is
because the infrastructure available to the
public in general is so inadequate for the
conduct of business, that Indian software
and BPO vendors have created self contained
business campuses with new and gleaming
buildings with immaculate grounds with water
purification systems, power backup,
satellite communications and transportation.
Political
stability:
India is a stable democracy and has been
since 1947. See
our Trends Update link for a special report
on the recent elections in India and its
impact on business. The Economist in its May
29, 2004 edition provides a nice chart on
country risk for emerging markets.
Process
maturity and quality initiative:
When US companies, in the late 1990s, faced
a shortage of programmers, software
developers from Indian bailed out the US
software industry. Later during the
millennium scare, software companies in
India contributed heavily to the software
conversion needs. One might say that Indian
IT companies have been paying their dues
by contributing extensively at the bottom of
the value chain for a while. During this
time the seasoned Indian companies have
become ISO certified and later CMM/SEI
certified. Recognizing the value of quality,
the smart Indian companies and
multinationals have been plowing through the
levels of CMM certification, such that many
of the CMM level 5 certification holders are
in India.
All of these
factors contribute to India being an attractive outsourcing destination. The outgrowth of the recent
economic growth is attracting US firms seeking
new export destinations. Compared to the US and indeed
other G7 countries and even China, India’s
economy is in the infancy stage of growth – just
compare the GDP and export numbers of India with
the US. India presents an opportunity that
small and mid sized US companies can grasp
rather than feel threatened by.
Sources:
US
Department of State– Bureau of South Asian
Affairs: India
