Friday, July 06, 2007

Still king of outsourcing

Source: Economictimes

Cadbury’s reported move (ET, July 5) to outsource a substantial chunk of its accounting and HR functions to Indian BPO Genpact indicates the continuing robustness of the India outsourcing model. There certainly have been stray cases of companies moving jobs and functions to India and subsequently not finding it worth their while.

The cases attract media attention but have had no impact on the broad macro numbers, which suggests that India’s advantage as the world’s back-office remain compelling. One such set of numbers released recently by Nasscom, projects total industry (software services plus BPO) revenues reaching $50 billion in fiscal 2007-08 compared to $39.6 billion in FY 2006-07. Of this exports were $32 billion, up 33%. Buoyant growth in software exports is one reason for the surplus in India’s current account, as per the latest RBI data.

Different segments of the industry face differing challenges. All exporters have to deal with the rising rupee. Large software exporters, the likes of Infosys, Wipro and TCS, will have to tackle rising wages and the management challenges arising from a seemingly inexorable rise in numbers.

They also need to figure out whether they can continue to grow organically or if they need to make big acquisitions as they seek to bag large, complex contracts. These companies are strengthening their front end by hiring in major western markets in order to be closer to their customers. This involves hiring people with sufficient industry knowledge to suggest ‘solutions’ to their customers. MNCs competing with them, IBM and Accenture, have to figure out to apportion work between their growing India-based staff and their ‘legacy’ workforce in major western markets.

Captives of MNCs, will increasingly have to become core to the parents’ operations, otherwise they will be spun off to third party vendors. Large Indian BPOs like Genpact have to tackle issues arising out of a high rate of attrition even as they strive to win large Cadbury-style contracts. They will also have to compete with the BPO divisions of the software giants. A recent McKinsey survey suggested that most clients were satisfied. Future success would depend on what extent India’s software and BPO companies are able to execute.