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The entire world is looking at India as a 'cost-effective outsourcing provider". Slowly countries like Philippines, China and Sri Lanka are also tagging themselves as the 'low cost' outsourcing providers. In this regard, India has to sustain its leadership in this spectrum of outsourcing...

Can India be the Future Winner of the Outsourcing Space?

My $0.02 worth:

Outsourcing industry is slowly moving from a fascinating, rapidly growing phase, to the matured industry phase. Emphasis is shifting from cost-efficiency to a more holistic customer proposition. Customers are putting focus on the combination of quality of services rendered, amount of value created and cost.

Indian offshore / outsourcing giants already realized that this wage-arbitrage-based cost leadership is not a sustainable competitive advantage for sure. Also, low entry barriers are welcoming lot of foreign players to compete in the Indian market that is increasing the downward pressure on prices. So what should Indian companies do in this regard?

One way to think of the solution is to move up the value chain to Higher-end Complex Services - IT Consulting, Systems Integration, Product Development. One advantage with this model is that the ROI will be high and margins will also be high. Also, these services are highly focused on individual client relationships, thereby the companies do not face threat from competitors. But the downside is that companies need to make substantial investments to attain the domain expertise.

One solution thought by a few Indian companies is to have a blend of both 'onshore presence to manage the local client relations' + back-end offshore set-up (to provide scalability and operations for maintaining delivery excellence). Some Indian firms already mastered this onshore-offshore model. But at the same time, the biggest threat to this solution is that some MNCs are establishing their offshore units in India, which is on the same lines that these Indian companies are following. These companies are much bigger in scale, cash and client relationships. Can Indian companies have enough capability to counter this threat? This rises to an interesting observation - "Onshore firms are setting offshore operations and offshore companies are trying for onshore presence - so there is a collision on a global basis."

If this is the scenario, what is likely to emerge over the next decade?

A million $ question.........!!!

Concluded.

* Contributed by: -
Krishna Kishore Kotturu,
Post Graduate Programme in Management, Class of 2007,
Indian School of Business, Hyderabad.