India to lead outsourcing bandwagon: TPI

By agencies   |   Thursday, 11 August 2005, 19:30 IST
Printer Print Email Email
LONDON: Offshore outsourcing is set for increased growth and India will continue to be the leading destination on the back of good quality and first mover advantage, according to the latest research by sourcing advisory firm TPI. The research, based on a survey of 100 senior UK executives responsible for outsourcing within large companies, reveals that 81 percent plan to increase their offshore outsourcing over the next 2 to 3 years, while only 4 percent expect to decrease it. While India continues to enjoy its first mover advantage, being used by 75 percent of survey respondents, there is close competition for second place, between Central and Eastern Europe (28 percent) and China (25 percent), according to the study. China is seen as an immature outsourcing market and lacks English language skills. However, TPI reports that many large companies are establishing captive operations there, attracted by government support and a huge potential domestic market. The study also reveals that Indian providers rival Western firms on quality. About 60 percent of those that have had any significant exposure to Indian outsourcing providers believe they offer a service to rival Western providers irrespective of any cost savings. Failure rates, says the study, in outsourcing dramatically is overstated. Only 4 percent of UK outsourcing buyers are dissatisfied with their outsourcing arrangements, while 42 percent are ''very satisfied''. Despite this predicted growth in outsourcing, the study reveals that large companies choosing to ''offshore'' their information technology (IT) and business processes to low-cost locations, such as India and China, are increasingly doing so through wholly-owned subsidiaries (captives) rather than external service providers. The development is just one of numerous trends, including the relocation of some offshored services and a greater diversity in viable offshore locations, which signify increasing maturity in the offshore outsourcing market. To assess the growth of offshore captives, TPI compared employee numbers at the top 20 pure captive operations in India with the total number working there in IT and business process management. Their analysis reveals that the total headcount of the top 20 captives has increased by almost three quarters in the last year from 54,666 in 2003-04 to 95,225 in 2004-05. By comparison, the total number working in India in IT and business process management has increased by just a quarter over the same period. Fifteen of the FTSE 100 now have captive operations in India. Duncan Atchison, Managing Director, International with TPI said: ''As India is the most mature offshore location, it is a good indicator of how trends are likely to develop worldwide. There is already substantial anecdotal evidence that companies offshoring to China and Central and Eastern Europe are eschewing local service providers in favour of captives.'' The build-operate-transfer model is also coming into vogue, particularly in IT outsourcing, with companies using third parties to set up a development team, manage it and finally transfer it, essentially to create a new offshore IT department, he added. It appears likely that Central and Eastern Europe will make up ground on India's lead over the next few years. Central and Eastern Europe are likely to be increasingly used as a location for customer facing services by those companies serving Continental European markets. Contrary to widespread expectations, 48 percent even believe outsourcing has improved customer satisfaction, 64 percent also say that their organization’s contingency planning has improved as a result of their outsourcing; 80 percent say outsourcing has improved corporate governance by clarifying responsibilities. ''These results confirm our experience that outsourcing, when approached properly, is far more successful than the widely quoted failure rates of 25-50 percent suggest,'' Atchison said.

siliconindia