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Offshoring And Outsourcing In India The Global Business Debate

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