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Software/IT Services/Business Process Outsourcing
captured $6–7 billion of the business. McKinsey forecasts the RIM outsourcing industry
to reach $26–28 billion by 2013, with India accounting for as much as 55%, or $13–15
billion, and a workforce of 375,000.
Offshoring Restructures
If, as expected, India can execute this upward shift successfully, its role in the global services
market will change significantly. While India will likely remain the world’s leading site for call
centers and back office services, the low-end “captive” and third-party outsourcing operations
that sparked a job “offshoring” debate earlier in this decade are declining in relative importance.
A 2007 report by Zinnov, a management consultancy, places the number of such centers,
opened and operated by transnational firms for their exclusive use, at about 600, with slightly
over half located in Bangalore. The “captives” generated $5.8 billion in annual business, compared
to $3.5 billion generated by some 450 centers operated by third-party vendors—mainly a
combination of large Indian IT firms (Infosys, Wipro, HCL, Tata Consulting Services); large
multinational players (IBM, Accenture, Genpact); and smaller Indian niche IT service providers,
engineer/programmer body shops, and call/data center operators. More than half of the market
involves software product development.
Many foreign firms that opened low-skill back office centers with a focus on cost savings alone
have, in large part, fared less well than expected. Specifically:
• Education, language proficiency, and basic skill levels have often been lower than expected
(offshore phone agents, for example, can take longer to handle a customer query than
agents located onshore), and training has cost more and taken longer than anticipated.
• With 10-hour overnight shifts (to allow for time differences), data security audits and
practices workers view as intrusive, verbal abuse from foreign customers, uninteresting
work, and few career opportunities, average attrition rates have risen to 15–30% industrywide,
and 30–40% among captives; recruiting, training and HR management has increased
costs further.
• Manpower shortages and better conditions in other sectors are drawing workers away
from IT. Competition to attract and retain trained workers has bid up captive center
wages from about $136 to $204 per month, according to market research firm Gartner
Inc., and by an average 12% a year; Zinnov sees wages rising an average 14.3% annually
through 2013.
• The average cost per full-time software product development employee had risen to
$41,000 annually by 2008.
• Scarcity of built-out sites and property price spikes of as much as 100% in major cities
have also increased costs, pushing new facilities out of Tier 1 urban centers to Tier 2
cities and outlying areas.
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