Innovation Required in Indian Outsourcing Industry
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The Wall Street Journal started a three part series with Ramon Roy, widely considered one of the pioneers of the outsourcing industry in India. The first piece is a call for the India outsourcing industry to reinvent itself.
Roy's thesis is that with declining labor arbitrage and evolving demands in the market, India needs to innovate to capture future growth.
"If we are to remain dominant in this industry we need to reinvent ourselves. This is no more about labor arbitrage but the talent pool we can offer and the training and capabilities we have."
The past decade has seen tremendous growth in outsourcing to India. Prior to the telecommunications revolution in the 1990s it was difficult for US and European firms to take advantage of lower cost service workers in India. However, after the rapid drop in telecommunications costs and the rise of the Internet in the late 1990s the flood gates opened.
US and European companies could more easily tap into the low cost workers in India. The outsourcing industry grew by leaps and bounds, but with that growth came challenges. The first was the impact of simple supply and demand. As demand for resources in India grew, this triggered significant increase in salary costs in Indian and higher employee attrition. At the same time other low cost countries such as China grew their offerings and became more of a competitive challenge.
The second challenge triggered by rapid growth is the added pressure on India's education system. India has a world class set of Universities in the IIT network. However, this system only graduates about 5,000 new workers each year. The remainder of the higher education system has a lot to be desired. Many Indian firms are burdened with putting recent university graduates through extensive additional training before putting them on client projects.
India is not going to solve it's education challenges overnight, but with continued calls from leaders such as Ramon Roy, we are optomistic India will retain a leadiership role in the industry.