Why Outsource? Why should you outsource?
Outsourcing to India appears to be the biggest trend during the recent past. It has several reasons why more and more companies are looking forward to Outsourcing to India. If we put other reasons apart the strongest reason for Outsourcing to India is the human talent this country has and that too at very low costs. Twelve months ago, anybody suggesting that India's economic growth will exceed 8 per cent in the coming fiscal year (ending March 2006), that its equity market would be up and touch 12000 marks and its foreign exchange reserves will cross US$100 billion, would have met with skepticism, if not utmost disbelief.
Well that is in reality the performance the Indian economy has just turned in. Along the way, it has shattered a many a myths which India-watchers (especially skeptics) have long believed. The first myth while Outsourcing to India is that coalition governments in a noisy democracy like India will fail to deliver high growth. Despite their rivalries and their bickering, all of India's main political parties primarily agree on most structural reforms - the need for a stronger and greater emphasis on growth rather than redistribution; clearer policy frameworks in infrastructural areas like telecom and roads; power, more open policies on external trade and foreign investment; faster fiscal and financial reforms and more aggressive slashing of red tape. Though, in labor reforms and privatization, there are significant differences of view, yet when it comes to Outsourcing to India the companies are getting what they want.
The second myth of outsourcing to India is that high growth is not possible without equal high-quality infrastructure. India's infrastructure remains inadequate (leaving perhaps, the telecom sector), yet, growth has been satisfactory and more and more companies are Outsourcing to India. It is true however, that this is unlikely to be sustained without infrastructure development. But this is now happening in India: the country's construction industry as well as capital goods industries like cement and steel is in overdrive, feeding a frenzy of nationwide road-building program, the building of hundreds of malls, a housing boom, multiplexes, office complexes and industrial parks in cities across the country.
Another myth while Outsourcing to India that the country is strong in services rather than manufacturing. This is not true today than it was a couple of years ago. After having incorporated new technologies, bagging hundreds of OEM contracts and focusing on export markets India's manufacturers have grown up and are now globally competitive in many areas, including autos and auto-parts, pharmaceuticals, chemicals and an array of engineering and capital goods. India's economy is no longer just an IT-services, outsourcing-driven story, back-office, as is widely perceived. The new emerging areas are in the technology related and engineering services area and outsourcing in these areas is projected to grow to $ 40 billion by 2020.
Why India To Be preferred to other countries
Due to a large knowledge pool and a significant cost arbitrage, few countries like India, Philippines and China are front runners in providing outsourced services. After achieving great success in BPO, India is now looking for a big leap in KPO. India automatically becomes a natural choice if we anaylse the comparative costs of various aspects of KPO for different countries.
Basis of the Comparison of following factors in countries: India, Philippines, Russia, China, Canada, Ireland and Mexico
• Labor Pool
• Cost
• Government Polices
• Infrastructure
• Knowledge full / Expertise
Labor Pool
India has many prestigious technical universities and the Indian Institute of Technology stands apart as one of the world's best. India produces over 75,000 IT graduates and 20 lacs English-speaking graduates annually.
The Philippines turns out 380,000 graduates annually, but only 15,000 of have core technology knowledge. The country has cultural affinities with the U.S. and is well-versed in U.S. accounting and customer service standards and has low employee turnover.
Russia can claim the third largest population of engineers and scientists per capita but the bad news is that not many of them speak English.
China's technical schools turn out 50,000 graduates annually, many of whom migrate west. Those who stay generally don't speak English.
U.S. neighbor Canada to the north has solid educational system, with a qualified labor force of more than 16 million.
In Ireland Relatively small; 34,000 graduates annually, 5,000 of them technical.
Mexico provides U.S. companies with millions of Spanish-speaking people to staff call centres.
Labor Costs:
In India Labor costs have crept upward over the years but have been offset by falling telecom rates. Typical salaries range from $5,000 to $12,000 for technical staff, while back-office salaries range from $3,500 to $7,500.
In PHILIPPINES Higher labor costs than India; technical salaries range from $5,000 to $10,000 annually and back office from $3,000 to $8,000.
In Russia IT salaries range from $6,000 to $10,000. The country hasn't yet developed back-office competence. Telecom infrastructure costs are higher than average.
In China IT salaries range from $3,000 to $8,000 annually. No real BPO competency.
In Canada Being a nearshore alternative to the U.S. means IT salaries are much higher than most offshore countries, ranging from $25,000 to $50,000. Being a nearshore alternative to the U.S. means IT salaries are much higher than most offshore countries, ranging from $25,000 to $50,000.
In Mexico Low labor costs; companies can save up to 50% by outsourcing to Mexico. Costs could be offset by unreliable infrastructure.
In Ireland Tech salaries range from $25,000 to $35,000, making Ireland unattractive if primary objective is cost savings.
Government Policies
Outsourcing is so imbibed in the fabric in the country and the Indian government has a national minister specifically for IT. The government favors IT foreign ownership and imposes no export taxes.
In Philippines Government exempts companies from export taxes, fees, dues and licenses if they open in one of the country's IT parks. Government's task force charged with development of IT and knowledge process outsourcing (KPO) services.
In Russia Government is erratic and, for now, sticking by old tax laws and structures that don't benefit business. But a treaty with the U.S. could change things down the road.
China's government has hampered growth due to trade policies and over regulation; intellectual property concerns linger. The hope is that these issues will evaporate as China blends into the World Trade Organization.
In Canada Low or no political risk. Government gives tax breaks on IT exports. NAFTA provides free trade market for IT services.
In Mexico NAFTA has opened up free trade markets, but Mexican government does not offer high level of incentives.
In Ireland Favorable tax laws and $330 million technology-education fund provide incentives. Low or no political risk.
Infrastructure:
In India with redundant telecom and utility infrastructure, there is very good reliability within India's special IT parks. Reliability can be spotty outside the parks or in more remote areas.
In Philippines IT parks that have sprung up over the past 13 years fuel the export industry. Abandoned U.S. military bases left behind dependable telecom infrastructure.
In Russia Infrastructure quality and quantity nosedives when outside of Russia's few IT parks.
In China Infrastructure can be spotty outside major cities, but China is building networks, particularly telecommunications, almost as fast as the U.S.
In Canada Solid telecom infrastructure.
In mexico Solid inside the technology parks
In Ireland Solid.
Expertise:
In India Application development, maintenance, financial processing. Experts see India becoming a hotbed for more critical analytical jobs.
In Philippines Accounting, finance, animation, human resources.
In Russia Web design, complex software development, aerospace engineering.
In China Transaction processing, low-end software development and maintenance.
In Canada Software development and maintenance, tech support.
In Mexico Spanish-language call centers, software development, data center outsourcing.
In Ireland European shared-services centers, software development.
Customers:
For India Citigroup, GE Capital and American Express have a very large presence and have set up their own centers here.
For PHILIPPINES Procter & Gamble, American International Group, Citigroup.
For RUSSIA Boeing.
For CHINA HSBC, Microsoft.
For CANADA Allmerica, Agilent.
For MEXICO AOL Time Warner, General Motors, IBM
For IRELAND Intel, Dell, Microsoft
Why is India the preferred KPO destination?
The analysis of above data shall reveal that India becomes automatically a preferred choice of the outsourcing countries. India has a growing population of educated people capable of handling high-end knowledge-based work and research. With a huge talent pool, India could emerge as a global KPO hub as the sector requires specialized knowledge in respective verticals.With the mushrooming of engineering and technical institutes in India, there will no shortage of skilled manpower in India. A Confederation of Indian Industry study states that India's transition from a BPO destination to a KPO destination is imminent.
The cost advantage:
India also gets advantage in terms of cost advantage and more and more companies are turning to India for offshoring KPO work as quality work gets done at cheaper rates. For instance, drafting and filing of patent applications in the US is very expensive. A typical application costs about $10,000 to $15,000 to draft and file with the United States Patent and Trademark Office. Companies can save up to 50 per cent of the cost by offshoring the work to India.
More foreign firms head for India
The testimony to the fact that India is being chosen as preferred country becomes evident as many companies such as Patent Metrix, Cantor-Colburn and Schwegman, Lundberg, and Woessner & Kluth have already set up offices in India. Offshoring R&D in pharmaceuticals and biotechnology also has enormous potential for KPO. Pharma majors Astra Zeneca and GlaxoSmithKline have set up drug discovery centres at low-cost destinations to boost their research and development activities. Even for R&D in software and chip design, major telecom and IT companies opt for India. Motorola, Intel, IBM, Cisco, Texas Instruments, Nokia and Philips have set up offshore design centres in India.
Further testimony comes from a report of India Times:
"It’s good news for Indian knowledge process outsourcing (KPO) firms. India is the most attractive destination for KPO activities, says a study by independent research company Asset Management in collaboration with Kelly Services. The study shows India will have a higher growth rate in KPO segment of 45% compared with 25% in the BPO segment. The latter will, however, remain the lead revenue earner and job creator due to the volume nature of this industry."
What is KPO?
It is being claimed that KPO is one step extension of Business Processing Outsourcing (BPO) because BPO Industry is shaping into Knowledge Process Outsourcing because of its favorable advantageous and future scope. But, let us not treat it only a 'B' replaced by a 'K'. In fact, Knowledge process can be defined as high added value processes chain where the achievement of objectives is highly dependent on the skills, domain knowledge and experience of the people carrying out the activity. And when this activity gets outsourced a new business activity emerges, which is generally known as Knowledge Process Outsourcing.
Knowledge Processing Outsourcing (popularly known as a KPO), calls for the application of specialized domain pertinent knowledge of a high level. The KPO typically involves a component of Business Processing Outsourcing (BPO), Research Process Outsourcing (RPO) and Analysis Proves Outsourcing (APO). KPO business entities provide typical domain-based processes, advanced analytical skills and business expertise, rather than just process expertise. KPO Industry is handling more amount of high skilled work other than the BPO Industry. While KPO derives its strength from the depth of knowledge, experience and judgment factor; BPO in contrast is more about size, volume and efficiency.
In fact, it is the evolution and maturity of the Indian BPO sector that has given rise to yet another wave in the global outsourcing scenario: KPO or Knowledge Process Outsourcing. The success achieved by many overseas companies in outsourcing business process operations to India has encouraged many of the said companies to start outsourcing their high-end knowledge work as well. Cost savings, operational efficiencies, availability of and access to a highly skilled and talented workforce and improved quality are all underlying expectations in outsourcing high-end processes to India
The future of KPO has a high potential as it is not restricted to only Information Technology (IT) or Information Technology Enabled Services (ITES) sectors and includes other sectors like Legal Processes, Intellectual Property and Patent related services, Engineering Services, Web Development application, CAD/CAM Applications, Business Research and Analytics, Legal Research, Clinical Research, Publishing, Market Research (Market research KPO ) etc.
In today's competitive environment, focus is to concentrate on core specialization and core-competency areas and outsource the rest of the activities. Many companies and organizations have come to realize that by outsourcing non core activities, not only cost are minimized and efficiencies improved but the total business improves because the focus shifts to the key growth areas of the business activity.