Outsourcing India

It was bound to happen, but it's a remarkable story nonetheless. Thousands of jobs taken by India from the west are being re-exported as wages shoot up. The Guardian's Randeep Ramesh reports that India outsources outsourcing:

From his tree-top-high office, Kris Gopalakrishnan, the head of India's giant software company Infosys, explains the rise of an economic phenomenon about to engulf the world: outsourcers are outsourcing themselves.

Once known for sucking jobs out of call centres and IT departments in the west, Indian technology firms are re-exporting them to wealthier nations as wage inflation and skills shortages at home reverse the process.

Infosys spent $250m this year buying the Polish call centres of Philips, the electronics group, manned by workers who speak half-a-dozen European languages. The company is building up a network of offices stretching from Mexico to eastern Europe to China to provide an "anytime, anywhere" solution to its clients. "Our customers are global, so we have to become so," says Mr Gopalakrishnan.

Infosys is not alone. Wipro, another hi-tech titan, has been on a spending spree, buying up companies in America, Finland, Portugal and Europe for hundreds of millions of dollars. Azim Premji, Wipro's chairman, raised eyebrows on Wall Street when he talked this year of setting up divisions in Idaho, Virginia and Georgia - US states he said were attractive because they were "less developed".

Tata, India's largest firm, is running call centres in Britain. ABN Amro, the Dutch bank recently bought by an RBS consortium for £48bn, will pay Tata Consultancy Services $200m to send work halfway across the globe to Brazil, where software programmers will run computer systems.

Indian software companies' skill is that they have been able to take complex tasks from multinational firms, pull them apart and put them together more efficiently. This expertise has reached a stage where it can be done anywhere across the globe - grafting Indian technical knowhow onto white-collar workers in Brazil or Saudi Arabia or even back to the US.

 

Precocious

The ability of an industry in a developing country such as India to export "managerial and entrepreneurial capital" to wealthier nations is unprecedented, say economists. Arvind Subramanian, of Johns Hopkins University in Baltimore, says that India exports 12% of its GDP ($120bn) in foreign direct investment. Professor Subramanian says this is part of India's "anomalous pattern of development". Countries typically specialise in industries such as IT only when their income per head passes $15,000 and they do not export investment until per capita GDP touches $45,000. The comparable figure for India is only $900. "India finds comparative advantage in skills and managerial capital ... how precocious is that?" he wrote this year.

The other strange feature is that the Indian economy, booming at 9% a year, is not driving the growth of India's software firms. Barely 2% of Infosys's income comes from India. Instead Wall Street banks asking for "Spanish language support" or China's booming economy sway investment decisions. Mr Gopalakrishnan says Infosys's "non-English-speaking revenues contribute about a fifth of the total. It is growing fast and we have to build up expertise in languages."

Indian software companies are replicating the model of bigger foreign rivals, such as IBM and Accenture, which have large workforces around the world. Both multinationals aim to have workforces of 100,000 in India in a few years and companies such as Infosys are girding themselves for battle. "Nobody dominates the space yet," says Mr Gopalakrishnan. "IBM is probably the biggest and has revenues of $5bn. They built that up in the age of the PC, which is 25 years old. We came about with the internet. It's a different way of thinking."

The move highlights two converging trends: first the demand for skilled talent in India is sending salaries skyrocketing. One startup in Bangalore decamped to Silicon Valley after finding that programmers were asking for wages of up to 75% of those paid in California. Infosys is on target to hire 32,000 people around the world this year - only Wal-Mart has taken on more staff. Bangalore's biggest companies are now hiring directly from British and US campuses. The second trend is that Indian software companies face a "skills crunch". Although 3 million students graduate from Indian universities each year, only a fraction are considered good enough for companies like Infosys...

Remarkable.

Comments

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An indictment of western business if you ask me, but it goes to show you innovation can happen anywhere.

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Proving that the Global economy exists on a scale that none would have predicted we now have outsourcers outsourcing! As a UK company involved in recruitment of freelance IT specialists, particularly from India, it is fair to say that this area has indeed become increasingly expensive in recent times.

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Outsourcing to India is still an advantage even with little increase in cost of salary.

The reason is.....outsourcing has matured in india and that as a whole has also reduced other cost associated with outsourcing.

Thus,its still worth to outsource to India.

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I think that outsourcing in India has developed over the years. New innovations and technology is now being used to further enhance this industry. Couple it with the many advantages , I don't think the impact of outsourcing will decrease.

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