India's niche in globalization part 2
I have reported before on India's role and essentially niche in globalization as the "back office of the world." The main point epitomized in this report by Deutche Bank Research was that India currently scoops up an astounding 44% of the global market in terms of IT services and IT-based business processes. This is impressive by any measure but as reported this week by the Economist the potential of India as offshoring and outsourcing country seems to show no end.
See article here (walled for non-subscribers!)
Not only does the investments from it-companies continue to flow in at a steady rate but other businesses are now targeting India as well as a place of cheap labour combined with a relatively well-educated English speaking workforce. According to the Economist a third stage of outsourcing is now apparent in India characterized by the move of ever more complex tasks to be performed in India for foreign companies.
"All these investments illustrate that a third stage of the great Indian services-export boom is well underway. In the first, firms such as TCS developed world-class expertise in software “application development and maintenance”, and their low-cost developers became the preferred partners of many Western IT firms. In the second, Indian firms and the local “captive” operations of multinationals started offering low-end back-office services that could take place a continent away—telephone call-centres, transcribing medical records, processing insurance claims and so on. In the third, in both ITses”, and the broader spectrum of other “business processes" ever-more sophisticated functions are happening in India."
The article describes an India which is far more versatile than merely being confined to the establishment of call-centers, simple software programming facilities etc. India is ready to take on much more and the market appears to be there.
"(...) “traditional IT outsourcing”—such as the remote management of whole systems, a market now dominated by the big global IT consultancies. This is expected to rise from 8% of Indian sales now to about 30% in 2010, while software-development's share will fall from 55% to 39%. In business-process-offshoring, the big industries will remain banking and insurance. But rapid expansion is also expected in other areas, like legal services."
The biggest obstacle ironically seems to be that the educated workforce in India is not growing fast enough. Moreover, these new businesses need help from the government in terms of the steady development of infrastructure.
"Yet the supply of talent may be the biggest constraint on the Indian industry's growth. (...) IT firms in Bangalore, for example, are in revolt against the local government for its neglect of basic amenities."
But surely, this cannot stop India; right?
As I wrote the post on India's new wave of offshoring and outsourcing capabilities I forgot to check one of my favourite bloggers Neweconomist's recent posts. This was a mistake!
And since he was also the source for my first and original post on India and outsourcing his recent posts deserve mention here.
"There is a lot we still do not know about outsourcing, largely because the available data do not provide the information needed to fully understand the magnitude of outsourcing, the reasons behind it, and the effects it has on the economy. What is known, however, suggests several tentative conclusions ... :" You better go read the post now, eh?
"But if offshoring is of genuine net economic benefit to the nation, then - as with NAFTA - there is still a reasonable case for compensating displaced workers for any income loss suffered. The cost would be modest compared with the likely economic gains, and it might also reduce the scare-mongering."
India's labour market as it is described in this post is good mirror of some of the points in the article from the Economist cited above; i.e. how will the quota policy effect the supply shortage of qualified workers to the offshoring industry?