Why India is Attracting BPOs and Keeping Them
The following blog is meant to go along with my previous post. I wanted to expand on some of my ideas from before, and explain why IT outsourcing and offshoring is occurring, and why it can be beneficial.
It is my belief that two major factors play into why India is able to attract business in the form of BPOs or Business Outsourcing Processes. The first factor is the large labor pool. What we see in India is a large emerging economy. This means that there are many people breaking away from the traditional (low paying) jobs of the past, such as farming for example. As this occurs, there are more and more people striving to make their mark in this new economy (which is fueled by IT and various scientific fields) and separate themselves from the pack. In order for people to do this, they must have the required education, but not just any education will do in this highly competitive labor pool, they need to distinguish themselves by being the best at what they do. This equates to one thing: an outside firm has access to highly trained successful people who are willing to work at relatively lower wages than their western counterparts. This is a scenario that will put dollar signs in the eye of any CEO.
The second factor was just mentioned, and that is the economic status of the Indian economy. They are a lower wage paying country (in comparison to the United States for example). This is because of the current emergent stage at which they find their economy, but also due to the large supply of workers. Basic economics tells us that supply and demand will drive that wage down. Offshore companies are jumping on this because it saves them money.
I do think it is a good idea for a company to take advantage of this situation because it allows for them to remain as competitive as possible in the global market. The problem with this though, is that it is risky. There are issues that have to be considered, such as the differing culture and how that relates to their business. Things such as the technical infrastructure of the country also must be considered. For example, in order for a call center to setup shop in India the infrastructure to support this must be in place. A firm must compare the initial investment of this cost to the money that will be saved by lowering the labor expense, and determine if it is worth the investment. One other risk here is political instability of doing business in another country (and not just India). For example, if the political view towards foreign business changes at all, this may result in more difficulty of doing business there than a company may desire.
To conclude, outsourcing (or offshoring) in India can be beneficial, but there are risks. However, after a proper risk assessment is completed, it very well may be in the best interest of a company to move IT operations within the borders of India.
The following is an interesting resource for those interested in learning more: http://www.rediff.com/money/2007/mar/15bpo.htm