Software Outsourcing and India

Wednesday, June 08, 2005

Why Software Outsourcing to India

The majority of fortune 500 companies are considering India as their preferred destination for software outsourcing. India has emerged as a ‘value-for-money’ destination that has both cost advantage and quality that matches the expectation of global multinational companies. Indian universities are producing above 3 million graduates and around 300,000 postgraduates every year. The software outsourcing industry is the highest paying industry in India. So a large percentage of these students choose offshore software development companies as their destination. But India is not just about the number of graduates. Every CEO or CIO wants maximum return on his investment and reduces the cost. So more and more companies in developed countries are sending their software development requirements to low-cost software outsourcing companies in India. Although India has not remained as the lowest cost offshore outsourcing provider, it has based itself on the quality of offshore software development at the right cost.

Others Reasons for Software Outsourcing to India

Many global consulting companies and other organizations have studied factors that should be considered while choosing any software outsourcing destination. And all studies show that there are two main criteria that should be considered while choosing any software outsourcing provider. One is the local attractiveness of the software outsourcing industry and second is the capability of workers. In India, the software industry is the high paying industry and that itself makes it the most attractive industry. While software outsourcing was started in way back 90’s, it has grown and matured now to provide quality software development as per any standards. And Indian companies are very much interested in maintaining their quality. The highest numbers of CMMi Level 5 companies are in India at present. On the other hand, other countries are not matching the above criteria.

China has better infrastructure then India and produces more graduates then India. So it has bigger work force and can beat India in billing rates. But it’s IT industry is less attractive locally and worker capability is also low. Other hand, China is what India was before 10 year. So software development has yet not matured to meet the quality standards. Other countries like Philippines and Mexico has better English speaking manpower for software outsourcing business. But their manpower pool is small and more attracted towards call centers. Smaller countries like Singapore and Hong Kong have both, locally attractive software industry and capability of workers. But they have very small manpower.

Advantage India has achieved in software outsourcing is not overnight. Offshore Outsourcing has grown and matured with time. In the ’90s, companies like GE, Citibank, and British Airways started outsourcing to India and till then it has gone through many phases to compete with the best. After the initial phase, companies like Nortel and Lucent started to outsource product development to speed it up and market faster. During this time, Indian majors like Wipro and Infosys also started. In the second phase, the Y2K bug gave a lot of work to Indian companies and gave them enough finance to grow. And with that, they started in the service provider section as well as in enterprise application development. The next wave was of BPO Industry which is still going on and supply is not meeting the demand. And along with these, software outsourcing is increasing continuously. According to McKinsey, software outsourcing will increase 30-40% every year for the next five years. According to Forrester’s research, around 3.3 million white-collar jobs will be outsourced by 2015. And according to Deloitte’s research, two million financial sector jobs will be outsourced by 2009. And a major chunk of this software outsourcing and other jobs are coming to India. According to Paul Saffo, as told to business week magazine, “Indians have a reputation of being a brilliant educated class and now they are taking a lead in colonizing cyberspace.”