Offshoring and Outsourcing in India:  The Global Business Debate Poonam Barua Director  PAMASIA Global Corporate Advisory ...
Economic Indicators <ul><li>Largest democracy: 1.1 billion population </li></ul><ul><li>1991: Wide-ranging reforms to open...
<ul><li>India’s Market </li></ul><ul><li>India’s economy is expected to grow over 6% - faster than any other country in th...
 
<ul><li>Goldman Sachs Report of 1 October, 2003 –  &quot;Dreaming with BRICs: The path to 2050“ </li></ul><ul><li>India’s ...
India Corporate Profile … <ul><li>Market Cap No. of Companies </li></ul><ul><li>(April 2006) </li></ul><ul><li>>  $ 20 bil...
<ul><li>IT –led sectors </li></ul><ul><li>McKinsey and Nasscom: India's revenues from IT industry will reach $87 billion b...
<ul><li>New emerging areas </li></ul><ul><li>  bio-informatics, bio-technology, genomics, clinical research and trials – R...
<ul><li>Worldclass Manufacturing – ctd. </li></ul><ul><li>Hyundai India will become global small car hub for Korean giant ...
<ul><li>Business Acquisitions: 2005-6 </li></ul><ul><li>Tata Tea: acquires Energy Brand USA- $677 m. </li></ul><ul><li>Wip...
<ul><li>Videocon India: takes over Daweoo Electronics in South Korea for $648 m.; buys CPT Thomson, France, for Euro 240 m...
<ul><li>Global BPO and process-engineering </li></ul><ul><li>Geneva-based STMicroelectronics is one of the largest semicon...
Market Dynamics… <ul><li>Mobile phones are growing by about 1.5 Million a month. Long distance rates are down by two-third...
Talent Dynamics… <ul><li>Top 5 American employers in India: </li></ul><ul><li>General Electric: : 17,800 employees Hewlett...
<ul><li>India’s Talent Advantage </li></ul><ul><li>India has the world’s largest pool of English-speaking software enginee...
Advantage India.. Global Outsourcing Trends:  IT-enabled Services – BPO’s & KPO’s
<ul><li>Key drivers for Global offshore/ outsourcing as a strategic alternative </li></ul><ul><li>Increasing global compet...
India holds 55% of the global Offshore BPO Industry More than ½ of Fortune 500 companies have outsourced to India India BP...
The  real  economics of offshoring * Estimate based on historical U.S. reemployment trends Source: McKinsey Global Institu...
 
 
 
<ul><li>India’s Value Proposition for ITES-BPO Industry:  PQRS – Productivity, Quality, Rate, Scalability factor </li></ul...
<ul><li>Key markets: </li></ul><ul><li>U.S : 2/3rds of total market </li></ul><ul><li>Western Europe, mainly U.K. : 20 % a...
<ul><li>Ecosystem:  </li></ul><ul><li>View from SAP Labs- Offshoring India Center </li></ul><ul><li>Bangalore is one of th...
 
<ul><li>Cost Factor </li></ul><ul><li>India is the one of the most cost-efficient locations for many mnc’s from Europe and...
Offshoring Engagement Models <ul><li>Outsourcing:   contracting a single supplier to perform full range of Application Dev...
Phobias of Outsourcing :  … view from IBM
The Seven Phobias of Offshoring
People
Geo-Political
Service Provider
Fear Of Unknown
<ul><li>What Executives are asking about India? </li></ul><ul><li>Will economic reforms continue…India’s noisy democracy p...
China Vs India <ul><li>Average Wage costs:  </li></ul><ul><li>China > India </li></ul><ul><li>HR Managers: China $16,600; ...
<ul><li>Poonam Barua </li></ul><ul><li>Director </li></ul><ul><li>PAMASIA </li></ul><ul><li>Global Corporate Advisory </li...
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Offshoring And Outsourcing In India

  1. 1. Offshoring and Outsourcing in India: The Global Business Debate Poonam Barua Director PAMASIA Global Corporate Advisory New Delhi email: pamasia@vsnl.com
  2. 2. Economic Indicators <ul><li>Largest democracy: 1.1 billion population </li></ul><ul><li>1991: Wide-ranging reforms to open and deregulate the economy </li></ul><ul><li>GDP growth over 8% in 2005-6 – fastest growing economies in the world, with compounded growth at 5.7% </li></ul><ul><li>Gross GDP - $3 trillion – fourth largest economy in the world – after USA, Japan and China </li></ul><ul><li>Annual per capital income is $2,880 – one of the lowest in the world </li></ul><ul><li>Indian’s remit about $18.3 b. back to India annually – one of the highest in the world </li></ul><ul><li>In 2003: total of 9, 500 listed companies on the BSE and NSE (23 registered stock exchanges) </li></ul><ul><li>Total market capitalization is 22 –25 % of GDP </li></ul><ul><li>Top 100 BSE companies represent almost 86% of market cap </li></ul><ul><li>State-owned enterprises account for nearly 32 % of BSE market cap </li></ul>
  3. 3. <ul><li>India’s Market </li></ul><ul><li>India’s economy is expected to grow over 6% - faster than any other country in the world ( Duetshe Bank Research) </li></ul><ul><li>India is one of the fastest growing markets in the BPO space </li></ul><ul><li>India is the world’s fourth largest economy- adjusted for purchasing power parity (PPP) – next only to U.S, China, Japan </li></ul><ul><li>There is a large potential in the SMB, and mid-market space, and for solutions enabling the (offshore) services industry </li></ul>
  4. 5. <ul><li>Goldman Sachs Report of 1 October, 2003 – &quot;Dreaming with BRICs: The path to 2050“ </li></ul><ul><li>India’s GDP will reach $ 1 trillion by 2011, </li></ul><ul><li>$ 2 trillion by 2020, $ 3 trillion by 2025, </li></ul><ul><li>$ 6 trillion by 2032, $ 10 trillion by 2038, and </li></ul><ul><li>$ 27 trillion by 2050, becoming the 3rd largest economy after USA and China. </li></ul><ul><li>In terms of GDP: </li></ul><ul><li>India will overtake Italy by the year 2016 </li></ul><ul><li>France by 2019, UK by 2022, Germany by 2023, and Japan by 2032. </li></ul>
  5. 6. India Corporate Profile … <ul><li>Market Cap No. of Companies </li></ul><ul><li>(April 2006) </li></ul><ul><li>> $ 20 billion: 3 </li></ul><ul><li>> $ 10 billion: 9 </li></ul><ul><li>> $ 5 billion 18 </li></ul><ul><li>> $ 1 billion 62 </li></ul><ul><li>> $ 500 m 74 </li></ul><ul><li>** Growing over 100 Global Indian mnc’s that will be above $1 billion – </li></ul><ul><li>** 50% of the over $1 billion companies are currently in public sector </li></ul><ul><li>No. of listed companies on BSE 10,000 </li></ul><ul><li>No. of companies on Nasdaq </li></ul><ul><li>No. of companies on NYSE </li></ul>
  6. 7. <ul><li>IT –led sectors </li></ul><ul><li>McKinsey and Nasscom: India's revenues from IT industry will reach $87 billion by 2008 </li></ul><ul><li>Profile of IT-led Sector: </li></ul><ul><li>Tier 1 companies – ie. Top 5 firms </li></ul><ul><li>Account for 32 % of total software export </li></ul><ul><li>Tier 2 companies –ie. Revenues Rs. 1 billion - Rs. 10 million </li></ul><ul><li>Account for 24 % of the industry </li></ul><ul><li>MNC – back-ends </li></ul><ul><ul><li>Account for about 26 % of the industry </li></ul></ul><ul><li>Focused companies – domain/ service line/ products/ </li></ul><ul><li>Account for about 3-4 % of revenues </li></ul><ul><li>Small companies – ie. less than Rs. 1 billion revenues, </li></ul><ul><ul><li>Account for 12-14 % of the market </li></ul></ul>Driving Global Leadership…
  7. 8. <ul><li>New emerging areas </li></ul><ul><li> bio-informatics, bio-technology, genomics, clinical research and trials – Ranbaxy, Cipla, Piramal, Reliance Lifesciences, Biocon </li></ul><ul><li>Worldclass Manufacturing </li></ul><ul><li>Bharat Forge has the world's largest single-location forging facility, its clients include Honda, Toyota and Volvo amongst others. </li></ul><ul><li>Hero Honda with 1.7m motorcycles a year is now the largest motorcycle manufacturer in the world. </li></ul><ul><li>India is the 2nd largest tractor manufacturer in the world. </li></ul><ul><li>India is the 5th largest commercial vehicle manufacturer in the world. </li></ul><ul><li>Ford has just presented its Gold World Excellence Award to India's Cooper Tyres. </li></ul>
  8. 9. <ul><li>Worldclass Manufacturing – ctd. </li></ul><ul><li>Hyundai India will become global small car hub for Korean giant -- supplying half a million cars to Hyundai Korea, HMI and Ford – by 2010 </li></ul><ul><li>Aston Martin latest luxury sports car, AM V8 Vantage, is being prototyped by an Indian-based designer. </li></ul><ul><li>80 of the World’s 117 SEI CMM Level-5 companies are based in India. </li></ul><ul><li>5 Indian companies recently received the globally acclaimed Deming (TQM) prize. </li></ul><ul><li>Retail Sector: Late Riser </li></ul><ul><li>Largest retail density worldwide: about 15 million retail outlets </li></ul><ul><li>Retail trade will be 10-11% of GDP </li></ul><ul><li>Growing at 158 % between 2003-5 – compared to 40 % in other emerging markets </li></ul><ul><li>Valued at $19 billion currently compared to China’s $50 million </li></ul>
  9. 10. <ul><li>Business Acquisitions: 2005-6 </li></ul><ul><li>Tata Tea: acquires Energy Brand USA- $677 m. </li></ul><ul><li>Wipro: cqired mpower, Cmangao, and Quantech USA- $58 m. </li></ul><ul><li>ONGC: takes over Ominex, Columbia -- $45 m. </li></ul><ul><li>Tata Steel: $8 billion bid for Corus Steel </li></ul><ul><li>Aban Llyod: buys Norwegian firm Sinvest for $425 m. </li></ul><ul><li>Dr. Reddys: acquires Betapharm Germany for 571 m. </li></ul><ul><li>Mahindra & Mahindra: takes over Jeco Holding in Germany for Euro 140 m. </li></ul><ul><li>Sulzon Energy: Buys Hanson Transmission in Belgium for $565 m. </li></ul><ul><li>Ranbaxy Labs: Takes over Terapia in Rumania for $324 m. </li></ul>
  10. 11. <ul><li>Videocon India: takes over Daweoo Electronics in South Korea for $648 m.; buys CPT Thomson, France, for Euro 240 m. </li></ul><ul><li>What are they buying: </li></ul><ul><li>Oil and Gas </li></ul><ul><li>Pharma and Healthcare </li></ul><ul><li>IT & IT enabled services </li></ul><ul><li>Food and Beverage </li></ul><ul><li>Manufacturing </li></ul><ul><li>Others </li></ul>
  11. 12. <ul><li>Global BPO and process-engineering </li></ul><ul><li>Geneva-based STMicroelectronics is one of the largest semiconductor companies to develop integrated circuits and software in India. </li></ul><ul><li>Texas Instruments was the first to open operations in Bangalore, followed by Motorola, Intel, Cadence Design Systems and others. </li></ul>
  12. 13. Market Dynamics… <ul><li>Mobile phones are growing by about 1.5 Million a month. Long distance rates are down by two-thirds in five years and by 80% for data transmission. </li></ul><ul><li>Wal-Mart sources $1 billion worth of goods from India - half its apparel. Wal-Mart expects this to increase to $10 Billion in the next couple of years. </li></ul><ul><li>GAP sources about $600 million and Hilfiger $100 million worth of apparel from India. </li></ul><ul><li>There are about 200 call centres in India with a turnover of $2 billion and a workforce of 150,000. </li></ul><ul><li>100 of the Fortune 500 are now present in India compared to 33 in China. </li></ul>
  13. 14. Talent Dynamics… <ul><li>Top 5 American employers in India: </li></ul><ul><li>General Electric: : 17,800 employees Hewlett-Packard : 11,000 employees IBM : 6,000 employees American Express : 4,000 employees Dell : 3,800 employees </li></ul><ul><li>Top 5 Indian employers: </li></ul><ul><li>Infosys: 40,000 </li></ul><ul><li>Wipro: 35,000 </li></ul><ul><li>TCS: 100,000 </li></ul><ul><li>Reliance: 120,000 </li></ul><ul><li>Satyam: 35,000 </li></ul>
  14. 15. <ul><li>India’s Talent Advantage </li></ul><ul><li>India has the world’s largest pool of English-speaking software engineers, permitting fast and large-scale project ramp-ups </li></ul><ul><li>Flexibility, eagerness to learn, and technical proficiency are key characteristics </li></ul><ul><li>More than 700,000 software professionals </li></ul><ul><li>250,000 of them in top-tier companies </li></ul><ul><li>Access to talent from top universities available in the country </li></ul><ul><li>at low cost </li></ul><ul><li>With more than 250 universities, 1,500 research institutions and 10,428 higher-education institutes, India produces 200,000 engineering graduates and another 300,000 technically trained graduates every year. 2 million additional graduates qualify annually. </li></ul><ul><li>The Indian Institute of Technology (IIT) is among the top three universities from which McKinsey & Company, hires most. </li></ul>
  15. 16. Advantage India.. Global Outsourcing Trends: IT-enabled Services – BPO’s & KPO’s
  16. 17. <ul><li>Key drivers for Global offshore/ outsourcing as a strategic alternative </li></ul><ul><li>Increasing global competitiveness </li></ul><ul><li>Access to global talent </li></ul><ul><li>Economies of scale </li></ul><ul><li>Process engineering and enhancements </li></ul><ul><li>Wage arbitrage </li></ul><ul><li>Increased profit margins </li></ul><ul><li>Improvements in quality </li></ul>
  17. 18. India holds 55% of the global Offshore BPO Industry More than ½ of Fortune 500 companies have outsourced to India India BPO Services grew by about 49% in 2004 Indian BPO is growing at 7 times the domestic GDP Indian outsourcing is moving up the value-chain LOB’s developing: HR and Finance Indian KPO (knowledge process outsourcing) to grow from $1.2 billion to $15.5 billion in 2010 (ie. 75% of the global KP market) Advantage India..
  18. 19. The real economics of offshoring * Estimate based on historical U.S. reemployment trends Source: McKinsey Global Institute <ul><li>. . . and makes the global pie that much bigger </li></ul><ul><li>. . . creates new value from reemploying U.S. labor* . . . </li></ul><ul><li>$1 previously spent in U.S., now offshored to India . . . </li></ul>0.33 <ul><ul><li>Taxes ($0.04) </li></ul></ul><ul><ul><li>Revenues ($0.20) </li></ul></ul><ul><ul><li>Local suppliers ($0.09) </li></ul></ul><ul><li>. . . delivers value to India . . . </li></ul>0.67 <ul><ul><li>Cost savings ($0.58) </li></ul></ul><ul><ul><li>Goods/ services sold ($0.05) </li></ul></ul><ul><ul><li>Profits from Indian ventures ($0.04) </li></ul></ul><ul><li>. . . brings savings and returns to U.S. . . . </li></ul>1.45-1.47 0.45-0.47 $1.00
  19. 23. <ul><li>India’s Value Proposition for ITES-BPO Industry: PQRS – Productivity, Quality, Rate, Scalability factor </li></ul><ul><li>Abililty of Indian vendors to ramp-up operations rapidly </li></ul><ul><li>Widening breadth of services </li></ul><ul><li>Shift towards high-value services </li></ul><ul><li>Sustained cost advantage – nearly 40-50 % cost savings in India offshore operations </li></ul><ul><li>Delivery process enhancement and improvement </li></ul><ul><li>Access to an abundant skill pool : India has the largest english speaking IT talent pool in the world, over 120,000 trained IT professionals and about 3 million other graduates added each year. </li></ul><ul><li>Global quality credentials –ISO,TQM, 6 SIGMA </li></ul>
  20. 24. <ul><li>Key markets: </li></ul><ul><li>U.S : 2/3rds of total market </li></ul><ul><li>Western Europe, mainly U.K. : 20 % approx. </li></ul><ul><li>Market profiles: </li></ul><ul><li>Customer Care: 35 % of the sectors employee base at 122,000 employees, and 1/3 of revenues </li></ul><ul><li>Finance: 25% of revenues </li></ul><ul><li>Administration: 16 % of revenue </li></ul><ul><li>Content Development: 13 % of revenue </li></ul>
  21. 25. <ul><li>Ecosystem: </li></ul><ul><li>View from SAP Labs- Offshoring India Center </li></ul><ul><li>Bangalore is one of the world’s top IT clusters </li></ul><ul><li>System Integrators can be enabled to implement SAP NetWeaver and the Business Process Platform for customers </li></ul><ul><li>Independent Software Vendors (ISV) can provide platform-based composite solutions </li></ul>
  22. 27. <ul><li>Cost Factor </li></ul><ul><li>India is the one of the most cost-efficient locations for many mnc’s from Europe and U.S. </li></ul><ul><li>Mckinsey Study: </li></ul><ul><li>and will be below 50% cost of Germany at least for the next 5 years (--SAP Labs) </li></ul><ul><li>“ Context” can be outsourced to a large spectrum of service providers </li></ul>
  23. 28. Offshoring Engagement Models <ul><li>Outsourcing: contracting a single supplier to perform full range of Application Development and Maintenance </li></ul><ul><li>Selective Sourcing: contracting a vendor to perform a portion of Application Development and Maintenance </li></ul><ul><li>Co-Sourcing: a partnership that is developed on a shared management arrangement to cooperatively build applications or systems </li></ul><ul><li>Out-Tasking: engaging suppliers to perform a specific task whilst the organization maintains control of the strategy and integration </li></ul><ul><li>Skills Infusion: integrating experts into the team of impart & build expertise within </li></ul><ul><li>Resource services: hiring of delivery staff to manage performance bottlenecks </li></ul><ul><li>Advisory Services: ad-hoc services to fulfill gaps &/or specialist advice </li></ul>
  24. 29. Phobias of Outsourcing : … view from IBM
  25. 30. The Seven Phobias of Offshoring
  26. 31. People
  27. 32. Geo-Political
  28. 33. Service Provider
  29. 34. Fear Of Unknown
  30. 35. <ul><li>What Executives are asking about India? </li></ul><ul><li>Will economic reforms continue…India’s noisy democracy perplexes many MNC Executives </li></ul><ul><li>Are the multinationals really welcome? </li></ul><ul><li>Isn’t China the richer opportunity? </li></ul><ul><li>How do successful multinationals approach India? </li></ul><ul><li>Is offshoring in India worth the political risk? </li></ul><ul><li>Will infrastructure be a problem? </li></ul><ul><li>Will India protect intellectual property? </li></ul>
  31. 36. China Vs India <ul><li>Average Wage costs: </li></ul><ul><li>China > India </li></ul><ul><li>HR Managers: China $16,600; India $ 7,900 </li></ul><ul><li>Financial Experts: China $ 6,900; India $ 4,400 </li></ul><ul><li>Rate of Wage Increase: India 11.5%; China 7.5% </li></ul><ul><li>Employment Culture: China.. Driven by personal accomplishment, fair pay and benefits; India.. Driven by confidence in senior management and organizational reputation </li></ul>
  32. 37. <ul><li>Poonam Barua </li></ul><ul><li>Director </li></ul><ul><li>PAMASIA </li></ul><ul><li>Global Corporate Advisory </li></ul><ul><li>New Delhi </li></ul><ul><li>email: pamasia@vsnl.com </li></ul>
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