CHAPTER 4: INDIA- AN OUTSOURCERS HEAVEN :- 4.1 Outsourcing
A significant change in management philosophy is taking place in the 1990s. Organizations are now wise to the need to concentrate on their core activities in order to increase market penetration and become more competitive. It is now widely recognized that to compete effectively, it is essential for business to concentrate on what they do best and where they can add value.
With this, Outsourcing has become a strategy for forward thinking IS managers. It is no longer just a means for reducing costs, but a tool for adding value to business. It enables organizations to concentrate on their core business, carry out business re-engineering and provide information that is valid, timely and adequate to assist decision making at the top management level and quality and cost control at the middle and lower levels.
In the past few years, whenever organizations around the world have outsourced activities to India, the Indian software companies have substantially helped to cut costs in software development projects or MIS environments, while maintaining high quality. Moreover, all these cost and quality advantages are coupled with the use of state-of-the-art technologies.
Indian companies have created value and there by helped organizations around the globe gain competitive edge.
Outsourcing from India
Impetus to growth
Software houses from India have effectively provided many of the Fortune 500 corporations with efficient software solutions. These solutions have helped these companies to be more responsive to their customers and more attractive to their shareholders.
No wonder, companies like Citibank, Morgan Stanley, AT&T, General Electric, Reebok, General Motors, Fujitsu, Boeing, Coca-Cola, Pepsi, Swissair and British Airways continue to remain ahead of their rivals, thanks to the efforts of many software companies in India.
This is a result of the government (In 1991) passing a series of favorable tax laws and building specialized commerce zones in order to stimulate industry activity. A wave of U.S. high-tech companies began rushing to India to set up sales and R&D operations. Companies such as Computer Associates, Microsoft, Cisco, Baan etc have turned to India for high value-add product development including conceptualization. Today the list of software multinationals operating from India reads like a Who’s Who of global software giants - IBM, Microsoft, Novell, Computer Associates, Oracle, AT&T, Fujitsu, Motorola, EDS, SAP, Computer vision, Digital, Hewlett Packard.During 1998-99, more than 203 of the Fortune 1000 companies outsourced their software requirements to India. This has produced an industry realizing a compounded annual growth of 53.84% over the last five years making India a growing source of worldwide software development.
The improved infrastructure, combined with more favorable policies allow companies to begin following an outsourcing model, whereby companies could bring projects (and add more value) back to India. By leveraging India’s inherently large English-speaking technical professionals and lower costs, outsourcing propelled Indian software industry to $3.9 billion in 1998-99 from just $835 million in 1994-95, according to NASSCOM.However the vast majority of this growth has been fueled by India’s export software market using its offshore model. Software exports increased over threefold to $2.65 billion in 1998-99 from only $485 million in 1994-95.The Indian central government has singularly targeted the information technology sector as a strategic source for national growth. The Prime Minister publicly has vowed to make India one of the largest generators and exporters of software in the world ñ within ten years. The government projects software export revenue to grow to $9.5 billion in 2001-02 from $1.75 in 1997-98. This implies nearly 50% CAGR during the forecast period, suggesting the relative importance the government places on stimulating Indian IT production.
The outsourcer’s paradiseThe next time, you buy a pair of Levis or Reeboks, take a few minutes and think of the process that has made it possible for you to acquire them. You may discover that while it just takes seven innocent minutes to stitch a pair of Levis 541s, hundreds of stages are involved in converting the raw denim from the mill to the final product in the shop window. So what is the solution? Information Technology (IT) of course and the driving force behind it is the power of Quality Software Solutions. Millions of people who wear jeans or athletic footwear may not realize that software development houses in India are contributing to the process through which their favorite brands reach them.
It is not surprising that corporate giants in U.S., Europe and Japan are increasingly looking towards India for cost-effective, high quality software solutions. A World Bank funded study in the U.S. confirmed that vendors rated India as their number one choice for outsourcing. For example, thousands of ATM users at Citibank in U.S., Barclays Bank in the U.K. or Hong Kong and Shanghai Bank in Far East are dependent on the software engineers in the Silicon Valley of India for the efficiency and state-of the-art technology of ATM Machines. Even passengers traveling on British Airways, Singapore Airlines, American Airlines, Swiss Air etc, may not realize that they need to thank a group of software engineers from India for helping these airlines to run on schedule. So what is the mystery behind India’s success in providing efficient software solutions?Some say that it is the mathematical ability of Indians. After all, it was India that invented the numeral zero. Others concede that it is the cost advantage. But the truth is all this, plus much more.
Indian software companies have the unique distinction of providing efficient software solutions with cost and quality advantage, using state-of-the-art technologies, having the capacity to handle large projects and, above all, the ability to execute timely