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Impact of IT Outsourcing in India

International Business

Prasanna Balaji.V
Gautam Kumar Sahani
 Outsourcing is subcontracting a process, such as product design or
manufacturing, to a third-party company.

 The decision to outsource is often made in the interest of lowering firm

costs or to make more efficient use of land, labour, capital, (information)
technology and resources.

 India has enormous opportunities emerging from globalization and

consequent lowering of tariff barriers.

 Information Technology has given India formidable brand equity in the

global markets.

 Indian companies have a unique distinction of providing efficient business

solutions with cost, quality and skilled manpower base as an advantage by
using state of art Technology.

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Players in IT Industries
 Large Companies
– E.g.: SWITCH (Sathyam, Wipro, Infosys, Tcs, Cts, HCL)
– High Stability
– Size matters: A 50 member team is insignificant
– Low Transparency
– High employee retention

 Small Companies
– Niche companies under 100 people
– Gold level customer service at a very low cost
– High Transparency & flexibility in operation
– Retention and hiring is exceedingly difficult
– Lack of a perspective on large scale projects or process
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Players in IT Industries

 Mid Sized Companies

– Providing best of both worlds
– Very technology-savvy
– Gold level customer service at a reasonable price
– Ability to hire and retain top talent from the best Indian
– Striving hard to establish their brand name

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SWOT Analysis
 Strengths
- Highly skilled, English-speaking workforce
- Abundant & Cheaper manpower
- Lower attrition rates than in the West
- Round-the-clock advantage for Western companies due to the
huge time difference
- Lower response time with efficient and effective service

 Weaknesses
- Recent months have seen a rise in the level of attrition rates
among outsourcing
- The cost of telecom and network infrastructure is much higher
- Local infrastructure
- Political influence
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SWOT Analysis
 Opportunities
- To work closely with associations like Nasscom to portray India as
the most favoured IT destination in the world
- India can be branded as a quality outsourcing destination
- $69 billion ITES business by 2010
- $97.5 billion IT (consulting, software solutions) market by 2010

 Threats
- The anti-outsourcing legislation in the US states
- Workers in British Telecom have protested against outsourcing of
Work to Indian companies
- Other IT destinations such as China, Philippines, Vietnam and
South Africa could have an edge on the cost factor

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Growth of Information Technology in India

 10th Five year plan

 Gateway to foreign companies

 Foreign Direct Investment

 Dramatic Increase in Economy with Technological Improvement

and Global Market Recognition

 Employment

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PEST Analysis of India
 Political Factors
- Counter-trade Agreement to Benefit Indian Companies like Wipro,
Tata Consultancy Services (TCS), Infosys Technologies Ltd etc.
- Increase in Globalization, Liberalization and Privatization
- Liberalizing the rules and trade barriers levied on Foreign Software

 Economical Factors
- The fourth largest economy in the world (measured in terms of
purchasing power parity)
- Has the second largest group of software developers after the U.S.
- Lists 6,600 companies on the Bombay Stock Exchange;
- The IT industry as a whole represents 2.87% of GDP

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PEST Analysis of India
 Social Factors
- Comparative advantage of English speaking & technically educated
- Indian engineers settled abroad are returning back to India to
add to the skill set available in India
- Sends more students to the U.S. colleges than any other country in
the world. In 2007, over 84,000 Indian students enrolled in the U.S.

 Technological Factors
- Moving up the Outsourcing Value-chain
- 100 of the Fortune 500 have R & D facilities in India
- One of six countries that launches its own satellites
- One of only three countries that makes its own supercomputers

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Why India?
 India's slowly opening economy coincided with the global boom
in the technology sector providing valuable source of cheap,
educated labour for the world market.
 In 2002, software exports and services made up 2% of India's
GDP. Some analysts expected the sector to grow above 7% of
GDP by 2008 and make up 30% of India's foreign exchange
 Taking advantage of the technology-savvy, English-speaking
workforce, American companies began outsourcing information
technology (IT) and back office operations to India.
 More than 40% of the world's Fortune 500 companies
outsourced a portion of their services operations to India in
 Having the advantage of a nine-hour time difference, Indian
operations made 24-hour service possible.

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When & How?
 It all started with the collapse of the Soviet Union in 1991 which
affected India badly.
 India's account deficit had risen above 3% of its GDP and its
reserves had depleted to less than US$1 billion which forced
India to seek the help of IMF.
 IMF granted the loans but only on the condition that India
begins making major economic reforms consistently under
"Washington Consensus“ policies.
 This gave way for lot of foreign investments, which include lot of
IT sectors as well.
 Encouraged by the loosening restrictions on the import of
technology and the absence of taxes on software exports, Indian
entrepreneurs began building their own IT firms, including such
notable firms as Wipro, Tata Consultancy Services, and Infosys.

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 India provides a range of services, including programming, conversions,
testing, debugging, installing and maintaining while specialists in
industrialized countries continue to write core software

 This led to concerns that the Indian software industry despite its
apparent successes has returned to the production pattern of the 1960s

 Foreign tie-ups, foreign brand names and access to the latest imported
technology were once again the most important considerations and most
so-called Indian computer companies actually just produce software for
integration with imported hardware

 India is exporting inexpensive lines of code and importing expensive

foreign software whilst trapped at the low end of the division of labour

 Competitive strength is based on low wages rather than productive

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 A growing number of MNC’s followed the pioneers in setting up
offshore development centres in India in the 1990s
 In 1990 onsite sourcing constituted 90% of revenue in the
software sector. This figure had fallen to 38.9% in 2002/03
 In contrast off shoring increased from 5% in 1990/91 to 57.9%
 32 Indian firms received the prestigious SEI-CMM certification
by the late 1990s
 In 2001 about 40% of India’s software exports came from
 As the industry has expanded in terms of employment, revenue
per employer has been increasing, from $6198.5 in 1993/94 to
$15,600 in 1998/99.

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