India’s Outsourcing Revolution: Why China won’t catch up anytime soon

outsourcing to IndiaAs anyone who’s watched the hilarious movie Outsourced knows, India’s success with outsourcing has been outstanding: both because of its relatively cheap labour rates, and because of its widespread fluency in the English language. A recent report suggests, however, that China is racing at full speed to catch up with it’s Asian neighbour, supported by a major governmental push. According to the survey, 79% of IT services firms in China have been in business for less than a decade. On the other hand, top US and Indian IT firms have been around for the better part of the last three decades, in some cases, even longer which is what’s given them their edge. All of this is reassuring news for India’s outsourcing community, for whom the influx of Western employment has proved a lifeline in challenging economic times. But will it stay the course as the Asian Tiger continues it’s push?

Indian IT Services Index up 48% This Year

“Wipro basically confirms the demand recovery that the industry is witnessing,” Kuldeep Koul, an analyst at ICICI Securities, said in response to last weeks news of the positive news of the industries recovery, a slap in the face for naysayers who’ve been predicting the death of outsourcing in India year after year. This year revenues have crossed the $100 billion mark for the first time, boosted by a rise in global technology spending that has led India to capture 58% of the market. Current employment figures make India the world leader in outsourcing, capturing 58 percent of the global market, with almost 250,000 jobs assigned to the sector this year bringing the total to just under three million people.

‘India’s growth rates in the sourcing sector have been extraordinary,’ said digital expert James Vance of Barefoot, who advises on outsourcing for several major British companies. ‘That said, India needs to think about changing it’s strategy a little, by investing in their growth journey. That means investing in better training and higher skillsets for their workforce. It means embracing automation where possible, as well as the latest equipment.

“I do not think India will remain a low-cost destination for long. One is inflation — we just have to go with it. Second is the input cost — we are looking at things like power and property rentals, which are much higher,” Sandip Sen, Gobal Chief Executive Officer, Aegis Ltd, told  the Hindu Business Line.

The biggest single threat to India’s global dominance, Vance added, ‘are American laws enforcing a 90% local employment rate, the like of which we’ve begun to see this year in cases such as Citibank. This law alone has cost India a small fortune in lost labour, a resulting of Obama’s tougher stance of keeping labour American as he struggles to maintain popularity in the poles. There may well be tougher times ahead for the Indian IT and outsourcing communities.