Is the Indian Offshore Outsourcing Industry Losing Steam?

Some experts are of the opinion that rising rupee and increasing costs in Indian metros is impacting BPO and IT industry. The market is clearly moving towards a state of equilibrium with increasing competition from different geographies and a fast depleting pool of qualified resources.

What is the future of corporations like TCS, WIPRO, Infosys? Will they continue to have an India centric operations strategy with these changing times? Will the Indian government take note of the challenges faced by these behemoths and take some action. Countries like China and Japan have kept their currencies at a particular level to retain the competitiveness of there enterprises. This is not really a strategy that I would recommend for the India based enterprises as this portrays protectionism, but there is a need of a well thought of action plan to help these enterprises.

Indian corporations are trying to tackle the issue by various mechanisms:

a) Opening up development centers at onshore or near shore locations, recent decision of Wipro to open a center in Georgia is a step in this direction.

b) Utilizing financial tools like hedging to safeguard there margins.

c) Moving up the value chain where price is not the only key differentiator but domain knowledge that would help enterprises in reducing costs is, Infosys starting up a consulting arm is a step in this direction.

d) Starting development centers in feeder centers like Chandigarh, Hyderabad, and Noida within India where the cost of resources is lesser than in Metros like Bangalore.

How to move beyond a transaction based relationship

Many service providers highlight the cost arbitrage as a major reason for corporations to offshore work. This is was a good approach when the industry was just initiating the offshore practice.

But even then if we go back in history we can observe that outsourcing really took off after the y2k scare, and at that point in time as well, cost was not a major concern but ability to rapidly convert legacy system to become compatible to the changed scenario was the key motivator.

So providers in present times with major cost focus are not portraying any key differentiator. As cost even in normal days would be key only in the first year of off-shoring operations as after a certain period when the cost saving starts getting reflected in the balance sheet stakeholders would want to look at continued cost saving and this can be achieved only by business process reengineering.