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Why should you choose India for IT Offshoring? Agenda • • • • Introduction to offshoring Key drivers Industries & market revenues Key criteria for offshore selection (10) » » » » » » » » » » Language Government support Labor pool Infrastructure Educational system Cost Political & Economic environment Cultural compatibility Global and legal maturity Data and Intellectual Property Security • Location ratings • Comparison & Competitors • Conclusion India as an Offshore Services Location Largest democracy: 1.1 billion population • GDP growth over 8%; Gross GDP - $3 trillion – fourth largest economy • Primary offshore destination for large—scale, processoriented work, such as application development, transactional business process outsourcing (BPO) services in which India’s "first shift" can provide 24/7 IT support. • 10 categories (Source: Gartner Inc.) that organizations should consider when looking at a potential location for offshore or “nearshore” IT or business process services. Key drivers for Global offshore/ outsourcing as a strategic alternative Increasing global competitiveness Access to global talent Economies of scale Process engineering and enhancements Wage arbitrage Increased profit margins Improvements in quality Key Industry Verticals Telecom Manufacturing Transportation Retailing Utilities Automotive Pharmaceuticals Banking & Insurance HR & Medical Global technology spending Revenue Breakup – India Offshoring (2009) Offshoring – Examples (BPO) Key Criteria – Offshore location selection Language • India is ranked 17th in the IMD global competitiveness ranking for English language skills. • India has a strong foundation in the use of English, which is the de facto business language across the country. Government Support • Recognizes IT as a strong engine of job creation within the country • Endeavors to increase the country’s e-readiness by focusing on key emerging technologies. • Drive improved governance and transparency in government interactions with the citizens • Focus on IT education and IT-based education, technologies, systems and applications, broadband, smart cards, radio frequency identification, and networking technologies. • Heavy investments establishing Bio IT Parks, IT investment regions and the Trans Eurasia Information Network Labor Pool • In 2010 India ranks seventh in IT skills by IMD Global on the availability of IT skills. • The size, quality and scale of the Indian labor pool continues to differentiate it from all other countries • Employment in the IT industry stands at 2.21 million, which is the largest pool of offshore talent in the world. • Reverse “brain drain” back to India has created high-end expatriate talent with overseas education and work experience Talent Dynamics • Top 5 American employers in India: General Electric: Hewlett-Packard IBM American Express Dell : 17,800 employees : 11,000 employees : 6,000 employees : 4,000 employees : 3,800 employees • Top 5 Indian employers: Infosys: 40,000 Wipro: 35,000 TCS: 100,000 Reliance: 120,000 Satyam: 35,000 Infrastructure • Govt. is spending 6% of its gross domestic product (GDP) on infrastructure ($37B) • proposal to increase spending on infrastructure to $1 trillion - highways, ports, airports, power plants and other infrastructure through 2016 to 2017 • Recent overhaul of 3G telecommunications infrastructure, boost in power generation (nuclear) adding to output Educational System • India ranks 20th in IMD Global's Educational System ranking of 2010 that looks at educational system's ability to meet the needs of competitive economy. • Ranks 13th on management education and 22nd on university education, has second-highest number of engineering graduates, after the U.S • Has one of the largest numbers of higher education institutions - 490 universities and 20,769 colleges • Private and public sponsorship of R & D initiatives Cost • Even with salary escalation, India has a reasonable cost differential. • On an absolute basis, the annual salary of a programmer with about three years' experience is $12,000 to $17,000 • Diversified delivery center locations from Tier 1 cities to Tier 2 and 3 cities to achieve more-competitive labor rates • Look beyond cost savings as a long-term value proposition from India The real economics of offshoring 1.45-1.47 0.45-0.47 $1.00 $ 1 0.33 $1.45 0.67 $1 $.33 •$1 previously spent in •. . . delivers value to U.S., now offshored to India . . . India . . . – Taxes ($0.04) – Revenues ($0.20) – Local suppliers ($0.09) * Estimate based on historical U.S. reemployment trends •. . . brings savings and •. . . creates new value from returns to U.S. . . . reemployin – Cost savingsg U.S. ($0.58) labor* – Goods/ services sold. . . ($0.05) – Profits from Indian •. . . and makes the global pie that much bigger Political and Economic Environment • Reasonably stable nation with a progressive economic mind-set and a stable government • Most recent data from Central Statistical Organization shows annual GDP growth of 8.8% • High economic growth continues to attract investments in India, thereby fueling the overall growth of the industry • India is ranked 84 out of 180 countries on Transparency International's 2009 corruption perceptions index Economic Outlook Cultural Compatibility • A strong general cultural affinity with most Englishspeaking Western countries. • India ranks 12th in IMD Global's ranking of national culture that ranks countries on their openness to foreign ideas - ranks eighth in flexibility and adaptability of people • Has greater bilateral relationships at a people-to-people, government-to-government level. • India's growing economic strength, military prowess, and scientific and technical capacity, as well as the size, population and strategic location of the country, all strengthen its position Global and Legal Maturity • India has 57 bilateral investment treaties with nations, including the U.K., France, Germany, Malaysia and Mauritius. • Has sound legal system and well developed financial network to meet international business standards. • The World Bank's "Doing Business 2010" report places India 182 out of 183 countries for "enforcing contracts." • Major modifications in current Indian cyber law • India ranked a joint 45th in the Freedom House Global Press Freedom Rankings and 47th in the latest world audit ranking democracy Data and Intellectual Property Security and Privacy • India has a sound data protection and security in place, various acts and laws introduced to strengthen IP rights and fight piracy • PC software piracy in India has declined from 74% in 2004 to 68% in 2008 • IMD's World Competitiveness Yearbook 2009 ranks India 33rd for cybersecurity out of 57 countries Asia/Pacific Offshore location ratings IT Services Comparison Main Destination for Offshoring IT Services (until March 2009) Parameter IT Export Industry Size (US$, mn) Active Export Focused IT Professionals IT Employee Cost (US$, per year) No. of CMM level 5 Certified Companies IT Labor Force India 9,500 Canada 3,780 Iceland 1,920 Israel 900 Philippines 640 South Africa 96 195,000 45,000 21,000 15,000 20,000 2,000 5.000-12,000 36,000 25,000-35,000 25,000 7,000 18,000 60 NA 0 0 NA NA Low cost, High High cost, High High cost, High High cost, High Low cost, Moderate quality quality quality quality quality Infrastructure Average Good Good Good Good Main Positives English language Near-share, highly Large development More shrink Good English skills skills, highly compatible cultures centers of tech co's wrapped software & cultural qualified & with UK & US like Microsoft, Dell, production North capability with abundant Significant America experience workforce, robust offshoring project precedent management Main Negatives Ordinary High cost of High cost Regional unrest Low availability of infrastructure, employment project manager some geo political risk Source: Evalueserve, NASSCOM Moderate cost, moderate quality Good Language skills Nascent BRO industry, lack of precedent Competitors • China is the most prominent challenger in terms of the criteria for infrastructure, education system, costs, political and economic environment, and government support. • Philippines, Russia, Thailand and Malaysia are also emerging in the global market, posing hard competition to Indian offshoring business. Conclusion • India remains first choice offshore destination • Provides competitive edge – cost –effective services, reduce operating costs and increases productivity, quality and efficiency. • So next time, if there is talk of outsourcing, India should emerge as the first destination!