India Making $12 Billion/Year Via Outsourcing

by Ranjit Devraj

(IPS) NEW DELHI -- Despite criticism among many in the United States about the outsourcing of jobs overseas, the practice not only thrives but is drawing more global information-technology (IT) companies to invest in the industry in India.

In April, International Business Machines (IBM), the world's largest IT company and a U.S. corporate icon, announced the purchase of Daksh e-Services, one of India's leading business process outsourcing (BPO) firms. No figures were mentioned, but industry sources estimated the deal to be worth at least $150 million.

IBM's general manager in India, Abraham Thomas, said in a statement that the investment would "leverage local capabilities to extend our leadership position in the business transformation services marketplace."

Translated from 'corporatespeak', that would mean that IBM, a pioneer in the high-technology software and hardware industries, is now ready to invest in the relatively low-brow BPO business in countries like India and other Asian countries such as the Philippines.

Explaining to IPS the phenomenon of IT majors buying up BPOs, Sunita Singh, a top executive with Wipro-Spectramind, India's biggest BPO firms, said: "The value proposition is too irresistible."

According to figures released by the National Association of Software and Services Companies (NASSCOM), an umbrella organization, IT and BPOs together earned India $12 billion this past year and is slated to touch $148 billion by 2012. Estimates put at 200,000 the number of people employed in the BPO sector.

The growth in outsourcing to countries like India -- of services such as accounting, billing, transcription, call centers, medical transcription and diagnosis, number-crunching, administration and anything that is information technology-enabled -- reflects a desire by big companies and the U.S. government to save on costs at home.

But it has also become a political hot potato in the United States, where firms that have been outsourcing these jobs have been accused of being traitors in an election year. Laws were also passed in January to curb outsourcing.

In 2002, the United States spent $450 billion on services outsourced to India and other countries that have educated high-speed data transmission facilities and English-speaking people, such as the Philippines and Ireland.

Still, the outsourcing trend continues to grow. Singh's outfit was itself created two years ago when the Bangalore-based Wipro, one of the world's IT majors, acquired Spectramind, a BPO, in anticipation of the boom in the outsourcing of jobs to India by firms from the United States and other western countries that essentially networks computers over the Internet. Following Wipro's example, IBM will now use its IT strength to move into BPO areas like call centers and customer services in banking, insurance, retail, travel and transportation in India. This would add to capabilities already existing in the Philippines and 22 other centers being developed across Asia.

A clear trend was discernible earlier this week when the U.S. outsourcing firm Keane Inc announced plans to invest an additional $25 million to expand existing BPO and IT operations in India -- where it already has 1,600 professionals on its rolls. "We are seeing increased demand for solutions that leverage application outsourcing, business process outsourcing and offshore delivery to achieve significant cost reductions and business improvement,' Brian Keane, the chief of Keane Inc, said at a press conference.

Keane said his company plans to be employing 5,000 people in India by 2006 and that it was on the lookout to acquire existing BPOs.

Multi-million dollar merger and acquisition deals in India involving BPOs and IT companies in recent months include the purchase of Aegis Communications by a conglomerate formed by Deutsche Communications and the Essar Group and the acquisition of the Detroit-based CorPay Solutions by Datamatics Technologies.

Commenting on the IBM purchase, the London-based 'Financial Times' said: "This initiative could trigger similar mergers and acquisitions as foreign technology companies seek to acquire low-cost service bases in India."

Union Minister for Information Technology and Telecommunications Arun Shourie described the purchase as "great news" but one which demanded that Indian companies now begin to look beyond call centers and IT outsourcing -- and look also at handling legal outsourcing, accountancy, architecture and contract research and development of global companies.

Shourie was not exaggerating. The New Jersey law firm of Sills, Cummins, Epstein and Gross was reported in March to be considering outsourcing the coding and organizing of documents of major litigation cases to India.

"Your will, the legal research for your mortgage or the proofreading of your lawsuit could soon come with 'Done in India' label," warned a report in the 'Newark Star Ledger' newspaper.

Indian companies could also set up companies in the North America Free Trade Area (NAFTA), employ locals and repatriate profits to India, Shourie suggested.

Some of that is already happening. Wipro, for example, works on a large-scale integration project for Nokia, the Finnish cellular phone giant, using centers in Bangalore and the United States although it mostly hires Indian personnel and sends them to work in foreign on-site locations.

But Singh said that in the coming years, as many as a fourth of Wipro's employees in the United States could be from among local people. This, he said, would certainly silence the widespread and politically explosive criticism in the United States -- that jobs are being taken away from that country and moved to India.

For now, the IBM purchase of Daksh e-Services is regarded as helpful. Reporting on the deal, the 'Indian Express' newspaper said Thursday: "The deal before the U.S. presidential elections could cool down some of the temper of those critics of outsourcing who have been blaming India for American job losses."

According to the U.S. business consultancy firm A T Kearney, India continues to be a major destination for outsourcing of jobs because of a combination of two factors -- low costs and the availability of skilled labor.

"Every year, the [Indian] educational system graduates two million proficient English speakers with strong technical and qualitative skills. India also benefits from its experience as it has been an offshore destination for over a decade," an A T Kearney report released last week said.

Significantly, the A.T Kearney study said low wages were not the only reason why jobs were going to the developing countries. Western countries, in particular the United States and Germany, perform poorly when it comes to mathematical, scientific and reading skills, it said.