India and the Future of Outsourcing: Building New Opportunities from Back-Office Expertise

No matter how you count it—in global market share (55% in 2010) or in pop culture (2010 TV series Outsourced, Dilbert comics, episodes of South Park, and more)—India has made a name for itself as the world’s leader in outsourcing of back-office processes. In the next 10 years, this will change.

The strategy of outsourcing has been around as long as people have.  Jena Chittaranjan, Head of Africa, Mahindra Satyam and author of 22 Things You Should Know About Indian IT,says,“The definition [of outsourcing] has never changed in the history of mankind— if you were a blacksmith or ironsmith making tools 3,000 years ago for the Greeks and you felt somebody else could polish the weapons, you did that.  It’s about giving away your noncore work to be done more efficiently by others.  Cheaper-faster-better.”

Why is India so good at it?  Because as a nation, it has a lot of people who are very good at what they do. “We have all layers of manpower,” explains Chittaranjan. “Be it millions of people who can man call-centers and more effectively explain things, or programmers who can program better, or banking experts who can form industry-specific knowledge, or engineers who can design wings and engines for airplanes.   What makes India so good compared to any country in the world, compared even to China which produces similar engineers, is that India enjoys huge manpower in each bloc.”

Changing demands for outsourced labor

The type of work that gets outsourced is largely defined by the client companies—mainly Western companies offloading noncore activities. Chittaranjan expects that the evolution of outsourcing will continue to be driven by changes in demand. But that demand is changing.

First of all, companies are becoming far more aggressive about how much they outsource. Chittaranjan’s next book will unpack this phenomenon, called shamrock organization.  “Shamrock organization means I’ll do my core thing, but all else—everything else—will be outsourced.  The companies of the future will only be interested in acquiring customers,” he explains.

Second, the West-East geographic pattern is dissipating as India rises in the global economy.  Domestic demand for outsourcing is increasing, the labor supply is tightening up, and regions like Eastern Europe are working to become outsourcing hubs too.  In the future, it will be harder to guess who’s the client and who’s the provider based on country.

Leading the evolution of outsourcing

“Tomorrow’s businesses will leverage the collaborative power of world assets—people, processes, technology, and infrastructure,” says Krishna Kumar, Head of Business Consulting, Europe at Tech Mahindra.  As clients outsource more, there is much more scope for companies with back-office experience to take on more complex services.

According to Kumar, future success lies in India’s ability to help businesses more effectively create, distribute, market, and support products for their marketplace. One way Tech Mahindra plans to do this is by creating a platform from which a company could run its entire business. By running their business functions via Tech Mahindra’s platform, the company would be empowered to put more focus on core assets such as service, customer relationships, branding, and campaigns.

“I believe that the corporation of tomorrow will not be spending any more capital on an asset that is not fundamental to their core,” Kumar says. “They will outsource that to a platform such as Tech Mahindra.”

Tech Mahindra expects to initially create this platform for the telecom sector and then, progressively through collaboration with Mahindra Satyam, extend the platform to cover other industries and capabilities, eventually leading to a universal platform that will be available to most industries within the next 10 years.

Challenges to come

There is great opportunity for India in this shifting landscape. But are we ready for it? Not quite yet, our experts say.

For Kumar, the biggest hurdle remaining is in leadership.  Since India’s clients have always been IT, we never looked outside our comfort zone to learn how to deal with other stakeholders. In order to move up the value chain, Kumar says we must learn how to communicate and work with other businesses; and to understand every aspect of that business. He stresses that we must do much more than just train workers to meet a company’s every need—we must cultivate skilled leaders.

“My view is that 90 percent of all deals are cut when there is a level of comfort at the [human level],” Kumar explains. “People buy from people. Without… leadership on the ground, no big-ticket operation will decide to outsource management workload.”

Additional challenges will be faced as more markets that offer outsourcing—such as the Philippines, Middle East, South America, and Poland—emerge. Likewise, political agendas in markets such as the United States and United Kingdom may result in outsourcing restrictions.

At the same time, the goal of developing a robust front-end outsourcing industryneed not mean discarding the back-end. Chittaranjan argues that it would be wrong to value “front-office” work over back-office work.  Back-end work creates millions of lower-skilled jobs that provide good incomes to working families.  “We shouldn’t rate one inferior to another—it’s just a different kind of work.  It’s a tradeoff.  Do you want to employ many lower level workers at lower pay, or one CEO at higher pay?”

For India, it isn’t a question of moving away from back-office tasks.  With its large population and multiple skill blocs, both types of outsourcing can, and should, flourish together.

A roadmap for India’s future in front-office outsourcing

Kumar outlines six things we must do to empower India to move from the back office to a more customer-focused outsourcing model:

1. Issue a political statement regarding how the government can make it easier to provide assets, improve communications, offer tax sops, etc.
2. Create a regulatory body that is well integrated into both industry and wider corporate influencers worldwide.
3. Develop a clear roadmap for the future regarding what we should be offering industries.
4. Engage in an ongoing debate about the legal aspects surrounding the structuring of legal agreements in an enhanced outsourcing relationship.
5. Create an univocal description as to how intellectual property rights will be protected.
6. Develop an education system that is able to move up the value chain, from producing engineers to cultivating global leaders.

A bright future

As long as we can meet these challenges and continue an open dialogue about our opportunities and future as both a country and a company, our experts agree that India will forge a new and exciting path both globally and locally. India has become a worldwide power in outsourcing because we’ve been able to evolve with changing needs, and we have the manpower to successfully do so.

Expect this versatility and quantity of labor available in India to “slowly make India a huge business hub, where a bulk of the world’s business assets are managed through an outsourcing relationship,” says Kumar. He expects that, just as today’s financial markets are integrated worldwide, most businesses will one day have an Indian component.

What outsourcing opportunities do you see for India? For Mahindra? What hurdles do you anticipate we will face over the coming decade?