The idea of outsourcing is not new. It started way back in the 1700s when manufacturers started shifting the manufacture
of goods to countries with cheaper labor during the Industrial Revolution, following the precepts of Adam Smith in his
book 'The Wealth of Nations'. The history of outsourcing to India is an interesting story. Even after over a decade of
competitive global outsourcing, most of it still goes to India. Reaching this pinnacle in outsourcing has been a long
journey. As land, sea, and later, air routes developed between the 15th and 21st centuries, more nations started to
outsource trade to other nations, eventually leading to outsourcing to India and other nations.
Why do companies actually outsource? In earlier times, cost and headcount reductions were the most common reasons to
outsource. Today, the drivers are often more strategic, such as how a company can best utilize its own core competencies.
Though the outsourcing of manufacturing is an old story, outsourcing to services is a relatively new phenomenon. Services
outsourcing to India started in the 1980s and rapidly accelerated in the '90s. In today's world where information
technology has become critical to business, the meaning of outsourcing has undergone a drastic change over the years.
Companies have started focusing on their core competencies and outsourcing many non-core functions, for which they had
no competence internally.
Although the IT industry in India has existed since the early 1980s, it was the early '90s which saw the emergence
of outsourcing. First, some global airlines began outsourcing their back office work to India—and then IT companies
followed. Some of the earliest players in the Indian outsourcing market were Texas Instruments, American Express,
Swissair, British Airways and GE, who started captive units in India. Over the years, the industry has built robust
processes to offer world class IT software and technology-related services.
India offers a unique combination of attributes that have established it as the preferred destination for IT-BPO.
Advances in technology and communication have allowed transnational companies to rapidly globalize at a very low cost.
The cost of managing workers in a distant location had fallen drastically, and the need to outsource became stronger.
Significantly, India also began efforts to open up its economy to the world. Since the onset of globalization in the
early 1990s, successive governments have pursued programs of economic reform committed to liberalization and
privatization. The government started easing restrictions and liberalizing the economy, which has helped the country
see rapid economic growth.
Developments in telephony, fiber optics and satellite communications made Internet-based communication and
transfer of data possible, paving the path for outsourcing to India. The telecom industry in India used to be a
government-controlled monopoly and the market was small. By 1999, the government introduced policies which played a
key role in reshaping the structure and size of the telecom Industry, allowing commercial entities to participate in
almost every industry segment. The new telecom policy brought in further changes with the introduction of IP telephony
and ended the state monopoly on international calling facilities.
The IT & BPO sector has been a key beneficiary in India's growth, with the cost of international connectivity
declining rapidly and quality of service improving significantly. India's National Association of Software and
Service Companies (NASSCOM) has played a critical role in outsourcing by acting as a coordinating body for the
According to NASSCOM, the major reasons behind India's success in ITES/ BPO industry are:
• Abundant, skilled, English-speaking manpower, which is being harnessed even by ITES hubs such as Singapore and Ireland.
• High-end telecom facilities and infrastructure which are on par with global standards.
• Better focus on maintaining quality and performance standards.
• Fast turnaround times, and the ability to offer 24x7 services based on the country's unique geographic locations
that allow for leveraging time zone differences.
• A friendly tax structure, which places the ITES/BPO industry on par with IT services companies.
• Proactive and positive policy environment which encourages ITES/BPO investments and simplifies rules and procedures.
• The compounded annual growth rate (CAGR) of the industry has been over 25% in the last five years. Over these years,
four main components have formed the industry, IT services, BPO, Engineering Services and Hardware.
• Banking and Finance & Accounting Services, Telecom, Manufacturing are among the top 4 verticals for both export
and domestic market.
• While hardware dominates the domestic market, IT services tops in the overall industry.
Today, Indian companies offer a wide variety of outsourced services ranging from medical transcription, customer care,
medical billing services, database marketing to Web sales/ marketing, accounting, tax processing, transaction document
management, telesales/ telemarketing, HR hiring and biotech research.
Outsourcing to India has been a satisfactory and profitable experience for most companies around the world. Indian
outsourcing vendors have continuously adapted to internal and external challenges and the credit for this goes to
Indian outsourcing companies and the successive enabling governments. Outsourcing in India has faced adversities
due to the state of the world economy and the ongoing recession, but it is surely here to stay.