How to Insource Business while Offshoring

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    Sometime ago, I wrote a blog entry about how U.S and U.K companies should really exploit local fast growing markets in India and China, and not just stop with offshoring Software Development and BPO/ITES to them.


    Seems like my empirical observations about what is happening in India was right on the money after all! This recent Newsletter from ValueNotes, Domestic Outsourcing, A Latent Opportunity?, holds that local domestic outsourcing in India is growing just as robustly as offshoring business from elsewhere. ValueNotes reports some major recent deals:



    • Idea Cellular awarded a 10-year IT and CRM outsourcing deal valued at $600 to $800 million to IBM.
    • Bharti-IBM, Dabur-Accenture, Bank of India-HP are some of the other larger deals in the last three years.
    • Other companies considering outsourcing their IT functions include Hutchison Essar (selected IBM as the vendor) and Reliance Communications (considering IBM, EDS and T-Systems for its $1.5 billion outsourcing contract).

    As I was observing from my trips to India, Telecom, Retail, Finance and Banking sectors are growing at breakneed speeds and with intense competition. The telecom and banking sectors are very active as you can see from the above deals that they are actively outsourcing, especially to global corporations like IBM, EDS, Accenture and HP.


    IBM, Accenture and HP seem to have the right ideas about exploiting an exploding marketplace for products and services for Indian companies.  It’s not a surpise, given that if you want contact centers for mobile telecom companies you need a lot of call centers in different regions of the country given the 14 or so major languages spoken in India. Services necessarily need to be delivered from local call centers. If you are looking for Bengali speaking call center workers in Chennai, good luck! And every company is not going to open a Bengali speaking call center. They will be sharing the services of a company that goes across companies and verticals.


    And projected growth is enormous. Just considering the telecom market alone, the Indian subscriber base hit about 160 million subscribers in February 2007. This is in comparison to about 200million subscribers for the U.S and 300 million for China. However, by 2011, the subscriber base in India is expected to triple to about 484 million subscribers. In fact most of the growth comes from the rural market in India not urban ones! Why would a poor farmer sign up for mobile service when he cannot afford some of the other basic things? The Mobile phone for rural folks in India is THE INFRASTRUCTURE for their livelihood. They get better access to marketplaces by cutting out middlemen in many cases, better prices for their produce and makes it easier and more profitable for them to make a livelihood. It is an essential business tool, not a fancy luxury! They may be illiterate but very smart about technologies that can help them make a better living or in some cases, a living.


    Offshoring to India and China are not the same as offshoring to say Vietnam or Singapore! The differences are the size of the local populations and markets. You have some very large markets U.S and U.K companies can benefit from if they move in early with offshoring but stay for taking advantage of some very large fast-expanding marketplaces. This means a large market for high technology hardware and software products, construction equipment, airconditioners and all other products that are necessary for ramping up large infrastructures, rather quickly.


    Multinationals like IBM, Accenture, EDS and HP are already benefiting from the growth there. There is much more to be gained than just labor arbitrage! I have a sense that many of the excellent quarters companies like HP have been turning in have been because of not some magical economic boom in the U.S or U.K, but because of faster gains in fast growing economies like India and China.