Tuesday, December 12

Is India’s Dominance in Outsourcing Starting to Fade?

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India has long dominated the outsourcing space particularly in the fields of information technology and contact center outsourcing services.  But as we pointed out in our last article, Southeast Asian country, the Philippines, has managed to close in on India’s lead, at least in the call center outsourcing space.  Which then begs the question, is India’s outsourcing dominance starting to fade?

More and more countries have opened its arms to the outsourcing industry with various different governments encouraging foreigners to invest in their locales as the next top outsourcing destination.  Emerging destinations such as countries in South America, notably Brazil and Mexico, have gained in popularity these past few years, and has even been cited by consulting, technology and outsourcing provider, Capgemini (EURONEXT:CAP), as one of the third most popular outsourcing destinations in a survey released last September of this year.  The company has even expanded its delivery capacity in the region, with expansions in Chile, Brazil and Guatemala, as announced last November 9.  Indian outsourcer, Tech Mahindra (NSE:TECHM) alongside Satyam Computer Services (NYSE:SAYCY), also announced that it is looking for acquisitions in the region, in order to better facilitate its growth in Latin America last November 30.

Another country gaining favor in the outsourcing industry is China, who research and advisory firm XMG Global forecasted would be closing 2010 with a 28.7% share in global outsourcing, more than half of India’s 43.7%, and with a growth rate of 30% as compared to India’s 14%.  While the Philippines is forecasted to weigh in with 7.1% share in global outsourcing with a 23% growth rate.

XMG Chief Analyst Lauro Vives cites that, “India’s weakening lead is due to the substantial efforts of China, the Philippines, and other offshoring destinations in building their capacity to attract significant amount of investment… While India continues to remain the leader, the rest of the offshore countries are now beginning to mature.”

Wipro (NYSE:WIT) BPO’s Sanjeev Bhatia even goes so far as to predict that, “Ten years down the line the Philippines may be a hotter destination,” when commenting on Everest’s (NYSE:RE) forecast that the Philippines will overtake India in call center outsourcing revenues.  A forecast that is backed up by a report by IBM (NYSE:IBM) which found that the Philippines is now the world’s leader in business support functions including shared services and business process outsourcing functions, pushing India, for the first time ever, into the number two spot.

Some are attributing India’s waning growth to past events in India’s outsourcing history that majorly affected the outsourcing services sector, such as the Satyam Scandal.  According to the Economic Times, this rises from Forrester Research’s (NASDAQ:FORR) coining of the phrase ‘India plus one’ which encouraged having outsourcing operations to at least one other country aside from India. Not to mention that other countries have continued their efforts into promoting themselves as well as specialized in certain areas of outsourcing where India has problems.

The Philippines has capitalized on its westernized culture and English language proficiency to capture the call center outsourcing market, with destinations nearer to the US and UK such as the Latin America’s also capitalizing on language skills as well as accent and fluency.  Meanwhile, China is capitalizing on its manpower especially in its engineering and technological capabilities, in order to promote itself as an outsourcing destination.  These are markets that are dominated by India but are now slowly being overtaken, piece by piece by other destinations.

With more and more countries entering the outsourcing services market, and established outsourcing countries learning to maximize and develop on their own strengths such as the Philippines who is set to overtake India in call center outsourcing revenues, then we may be witnessing the start of India’s decline in the outsourcing market. Perhaps 24/7 co-founder Shanmugam Nagarajan puts it best when he lamented that, “It’s very sad that India could not keep up with its neighbors.”


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