Move over IT

Other business services emerge as India's new export star, which could outpace software and information technology with strategic support

Other business services (OBS) could become India’s next major export powerhouse by 2030, surpassing the software and information technology (IT) services sector. It is the new star quietly emerging on India’s services exports scene.

OBS encompasses services that support diverse business operations, such as business consultancy, engineering, and research & design (R&D). They also cover advertising, public relations, market research, logistics, accounting, auditing, architectural and legal services, and many others.

In financial year (FY) 2022-23, India exported software and IT services worth $150 billion (20 per cent of the global share) and OBS worth $80 billion (4.2 per cent of the global share). Software and IT services have over half the share in India’s service exports, while OBS constitutes about a quarter.

Let us understand why OBS has the potential to grow bigger than IT. Although software and IT is India’s largest export sector, globally, OBS trade is more than twice as large as the IT sector and is growing quickly. Globally, services exports totalled $7.1 trillion, with OBS at $1.8 trillion (25.4 per cent) and software and IT at $762 billion (10.7 per cent).

Also, the growth of the software and IT sector might be moderated in the coming years by artificial intelligence-led disruptions and an overreliance of Indian IT exports on one country. The US accounts for over 70 per cent of IT export earnings.

With a few strategic actions, India’s OBS exports could grow faster than software and IT exports in the coming years.

World trade in OBS is booming

Rising demand for specialised services, the integration of services into manufacturing, and technological advances are driving its growth. As advanced manufacturing firms separate design, development, and production tasks across different locations to save costs, the demand for specialised services like engineering, IT, logistics, and R&D increases. This integration of services into manufacturing, known as the “servicification” of manufacturing, is fuelling OBS growth. For example, a US-based car manufacturer outsourcing engine design to an India-based engineering firm illustrates this trend.

Also, firms expanding abroad need more services in new markets. The rapid growth of emerging economies also boosts demand for professional services like engineering, advertising, and R&D. Technological advances, such as cloud computing, remote work tools, and digital platforms, enable more services to be delivered globally, making them increasingly tradable.

The growing pressure for digital transformation across sectors further increases the need for technical and engineering services. Examples of such activities could be an R&D centre funded by a European pharma company in India, or a marketing campaign by an Indian agency for a Korean electronics company.

Cost-effectiveness is another driver. Companies outsource functions like engineering, R&D, and advertising to more economical locations like India, allowing them to focus on core operations while relying on specialised external expertise. Additionally, regulatory burdens make businesses seek consultancy services to navigate international compliance complexities.

The OBS global trade volume is rapidly growing for the above diverse reasons. India has the right credentials to benefit from this trend.

Who is driving India’s OBS exports?

About half of India’s $80 billion OBS exports come from global capability centres (GCCs), with the rest provided by thousands of firms and consultancies of all sizes. GCCs, established by multinational corporations (MNCs), manage specific functions such as IT services, finance, human resources, R&D, and various back-office operations. An engineering MNC might establish a GCC in India to handle complex design projects for global clients.

India has around 1,500 GCCs in Bengaluru, Hyderabad, Pune, Chennai, Mumbai, Gurugram, and Noida. These centres are set up by companies such as Microsoft, Google, IBM, GE, Walmart, JP Morgan, Goldman Sachs, HSBC, Siemens, and Intel.

GCCs are the next step in the evolution of business process outsourcing (BPO) and knowledge process outsourcing (KPO). While BPOs and KPOs catered to many clients, large MNCs are gradually taking up this function by managing their own GCCs. This allows them to save money and address data protection issues in a better way. GCCs have essentially taken back some of the businesses from Indian IT firms.

Outside of the GCCs, OBS exports are largely driven by local firms. Many small niche firms and large consultancies offer specialised services in areas such as accounting and tax, legal services, management consulting, marketing and advertising services, architectural services, and logistics services. These firms either work directly with international clients or intermediaries to deliver services.

Some Indian companies secure international projects in engineering, construction, and IT development through project-based work. They often use freelancing platforms to offer their services worldwide.

Strategy for realising the export potential

Many small firms do OBS exports, but most engineering, research, and management professionals in India are not aware of the vast opportunities in this sector. The number of participants in OBS exports can grow significantly with proper support. A five-point plan will help:

Regulatory review: The government should review domestic regulations for each specialised service within OBS and align them with global best practices.

Certification norms: Introduce certification standards based on global market requirements for the various professional skills and regulatory knowledge needed in OBS. This will help professionals to benchmark their skills.

Set up associations: Compared to the software and IT verticals, the OBS comprises hundreds of specialised services, each with different skill sets, regulations, and business hurdles. This calls for the establishment of associations for major OBS categories. These associations will help members navigate regulatory challenges in India and global markets. By collaborating with counterpart associations in other countries, Indian associations will connect buyers and sellers. The effectiveness of associations would depend on their leadership and structure. Many fondly recall how Debang Mehta’s passionate activism helped India’s nascent IT sector in the 1990s.

Publish trade data: The Reserve Bank of India does not release country-wise transaction data. Detailed datasets on specific OBS can significantly highlight extensive sectoral opportunities across various OBS categories.

Trade negotiations: During trade negotiations, India may push for lower market access restrictions imposed by partner countries on Indian companies. The restrictions mostly relate to data security concerns, ownership limitations, nationality requirements, or restrictions on specific service types.

India’s OBS sector growth will not only boost the economy but also create millions of high-quality entrepreneurial opportunities. Now is the time to take decisive action to unlock its full potential.

The writer is founder, Global Trade Research Initiative