Offshoring to India will sharply ramp up next year after US elections are over

THE NEXT BIG THING/ Western companies are now merely testing the water

If you think this is a year of impressive growth for offshoring to India, as has been signaled by the first quarter financial results, you ain't seen nothing yet.

Western firms and independent IT vendors are for the most part marking time, waiting for the US elections to be over. The jobs traveling to India are mainly resulting from the need to take care of growth and attrition and little because of layoffs.

This has resulted in as much as 15 percentage points being shaved off the overall volume growth.

Avinash Vashistha, CEO of the offshoring consultancy neoIT, predicts that next year IT services offered out of India are likely to grow at 40 per cent. The potential for Indian companies in particular is underlined by the small part of global IT services delivered by them.

If this is the optimistic scenario for IT services, for ITES or BPO the potential for growth of offshoring is even greater. So far only a small part of BPO services has migrated to India, dominated mainly by call centre work.

But call centre work is only 3 per cent of the universe of BPO work. "The major challenge and potential lies in getting a slice of the remaining 97 per cent," says Vashisth.

In software, the ramp up in the immediate future is likely to take the form of the $100-500 million multi-year deals looking to come to India. There is nothing amiss in the ramp up for Indian companies being incremental in nature as that is also the pace being adopted by MNC vendors with captives in India.

They are ahead, with $100 million plus deals already in the bag but the pace of growth for both Indian third parties and captives is gradual.

If offshoring of IT services to India is likely to touch 40 per cent next year, what will enable Indian companies to beat the competition? What is or will remain their USPs?

Indian firms have stolen a march on their nearest competitors, the Philippines, in the last five yeas by improving the capabilities and supply of their middle-level managers. This has enabled the firms to deliver both quality and improved productivity, asserts Vashistha.

There will be a challenge to Indian IT but it will come around three years down the line. And it will be posed by Russia in product development and support, and by Vietnam (its people costs are around half of India's) in PC-based and new technology-based applications.

But Indian advantage will remain in large enterprise application and end-to-end technology services.

Indian edge will also persist in the telecommunications vertical in which companies like Sasken, Subex and Tarang represent successes in different sizes in both product ownership and development services. This has great potential as once a company's products or IP click, the cash register simply keeps ringing.

In BPO, future traction is naturally likely to come in transaction processing and more and more elaborate back office services but this will have a significant corporate restructuring dimension, feels Vashistha.

Some of the growth will come from a ramp up in both MNC captives and Indian third party operations. But there will be instances of BOT deals maturing, as also MNCs setting up shop the quick way by acquiring small captives.

But by far the most interesting will be MNCs selling their captives, taking partners in their captives or accepting third party business for what has till now been their captives handling only in house work. GE has the ability and the desire, according to news reports, to accept third party business. EXL has capability to offer in its own vertical, insurance.

Willingness to take on third party work can be the stepping stone to divestment once the business is seen to be maturing. WNS of today was a part of BA earlier. There are also instances of Indian third parties like Crossdomain, till now serving MNCs only in India, seeking to venture out to the developed markets.

"These developments will take time. But captives, and through them the market, will have great capabilities. And some of these captives will become third parties," says Vashistha.

At a time when there are questions over the future of third party Indian BPOs in an increasingly scale-dominated world, he sees "the market dominated in 5-8 years by third parties, some of which are former captives."