SWEET AND SOUR OF OFFSHORE OUTSOURCING IN INDIA

Dr. P. Musafer Ahamed Head, Dept. of Commerce C A S College, Madayi Payangadi, Kannur, Kerala INTRODUCTION Due to the implementation of LPG (Liberalization, Privatization and Globalization), we can feel a sharp rise in the rate of GDP of service sector in India. The rise in the service sector GDP shows a structural shift in the Indian economy which leads to that of a developed economy. The capability and capacity of Indian information technology is well known in world wide. The development in the information technology improved the different aspects of service sectors like communication, entertainment, finance, tourism, health and other related fields.

The service sector, especially the business services are normally classified into two as 1. Knowledge intensive and 2. Physical intensive The professional services like IT consultation, Research and Development services, Legal services, Accounting services, Marketing and Advertisement services are treated as knowledge intensive services. Where as, Security services and Secretarial services are treated as physical intensive services.

Before the introduction of LPG, most of the service activities are conducted as in house activities. But after the introduction of LPG, most of the body corporate is buying

knowledge intensive activities from external sources to enjoy the benefit of economies of scale and scope. The rapid advancement in the field of ICT (Information Communication Technology), along with liberalization and privatization paved the way to increase the growth of service sector and opened up the windows for new culture of tradability of services at international level. The service sector has strong linkage with other sectors of the economy and it is essential for the adoption of innovations in the field of business.

As business service act as intermediate inputs to other sectors, increased productivity in business service also improves the productivity in the sector which is purchasing these services. Certain services may become available to countries who could not afford to produce these services themselves. The service providers can play a supporting role in the innovation process. Some time it may become a main source if the provider plays an initiative and developmental activities in the innovation process. The provider can also be a facilitator for the adoption of innovative process or be a carrier of innovation by playing the role of a mediator by transferring the knowledge among the members in the process.

In modern business, all the services like research and development, recruitment, advertising, legal services etc. are essential for the innovation processes. R&D services are essential at the introductory stage of innovation process and other services are important at the later stage.

OFFSHORE OUTSOURCING Now, we are in a borderless world, in which both thought and works are borderless. The concept of global village has become a reality due to the telecommunication revolution and other new technological areas such as M-Commerce and E-Commerce. Business activities have crossed the boundaries of geographical distances. Every country, both developed and developing is taking full advantage of this borderless market to exploit its resources to the best use and grow economically strong. As a result outsourcing is now hot in India also.

Business Process Outsourcing (BPO) is a process of strategic decision taken by companies seeking to improve service quality and reduce cost by transferring a particular corporate function or business process, to a lower cost environment. This may be achieved directly by retaining control of the offshore facility or indirectly, by outsourcing an entire business process to a third party specialist.

There has been a clear move among many corporate to outsource non-core activities by retaining core activities with them. This process begin with identifying, those value creation activities within the company. The remaining activities are then reviewed to see whether independent providers can perform them more effectively and efficiently. If they can, then these activities are outsourced to those providers.

The outsourcing begins when one company contracts with another to perform one of the value creations function on its behalf. Many of the companies are finding it very difficult to make data processing needs and are outsourcing them to specialized providers.

Thus, the activity of an organization which is executed by a non employee is known as outsourcing. When the outsourcing is provided through the involvement of another country then the outsourcing becomes offshore outsourcing.

Offshore outsourcing is a new trend and practice of hiring an external organization to perform some business functions in a country other than one where the products are actually manufactured. It is the out come of fast moving globalization. Offshore outsourcing has supporters and opponents. The opponents say that through offshore outsourcing there is reduction in domestic employment and investments. Further, the New President of US has decided to impose tax on offshore outsourcing companies in America.

AREAS OF OFFSHORE OUTSOURCING The outsourcing market has developed to capture the outsourcing of three areas of corporate activities such as: a) Business Administration, which include Human Resources, Payroll preparation and Accounting b) Supply Chain Management including Procurement and Stock Control and c) Sales and Marketing

The outsourcing sector has grown to embrace the outsourcing of corporate function in three broad areas. First, the application of technology to reduce cost and streamline administrative process. Second. Improving the efficiency of the supply chain and third, business generation and client retention. BPO is often wrongly defined, solely in terms of cutting cost, reducing staff or involving the relocation of established facilities to develop market.

CATEGORIES OF OFFSHORE OUTSOURCING Generally, outsourcing are categorized as a) Transactional- such as Account Payable, Account Receivable, Journal, General Ledger, Order Processing, Medical Transcription etc. b) Niche- support moves up to support a complete business process by specialized business service provider such as Accounting, Human Resources etc. and c) Comprehensive- usually covers multiple business process by one of the large Business Service Providers.(BSPs)

Outsourcing is not only related to service sector but to manufacturing sector also. A lot of developed countries are outsourcing a lot of manufacturing of products outsourced to countries like China and Taiwan etc. Due to cheap labour, consumer products including cloths and computer hardware are manufactured in these countries. In turn these products lead to cheaper prices in the consuming nations. These facts states that the outsourcing of customer service program are growing at a faster rate.

TYPES OF OFFSHORE OUTSOURCING There are different types of offshore outsourcing. Following are some of the important types of outsourcing jobs provided in India. 1. ITO - Information Technology Outsourcing 2. BPO - Business Process Outsourcing 3. OSD - Offshore Software Development 4. KPO Knowledge Process Outsourcing 5. LPO Legal Process Outsourcing 6. HRO Human Resources Outsourcing One can name any number of offshore outsourcing jobs by considering the nature of outsourcing work provided by an outsourcing center. But the general criteria for offshore outsourcing are that: 1. There is a significant wage difference between the countries 2. The work must have high information content 3. The work can be transmitted through internet 4. The work is easy to setup and 5. The work is repeatable

REASONS FOR OFFSHORE OUTSOURCING Following are the main reasons for offshore outsourcing 1) Speed to Market: As the service providers can design, build, train and deploy the sales force for the company outsourcing its activities in less time compared to its own staff

2) Flexibility: If the venture does not meet business goals, the outsourcing activity can be turned off quickly. The non performing sales people and managers can be likely replaced. 3) Cost / Value: The outsourcing company need not build a fixed overhead infrastructure 4) Process Expertise: The Company can acquire and leverage customer acquisition while focusing on the companys core competencies. 5) Sales Focus: The Company can develop and retain major accounts with its internal sales force, while outsourcing the customer acquisition functions to the service provider. 6) Dedication: There is 100% dedication to its business in the full control and accountability.

BENEFITS OF OFFSHORE OUTSOURCING: Following are the important benefits of offshore outsourcing 1) Ability to Reduce Cost Structure: By outsourcing a non-core activity to a provider, which is more efficient at performing that particular activity, the company may be able to reduce their cost structure. 2) Ability to Differentiate Companys Final Product and Service in a Better Way: By outsourcing a non-core value creation activity to a provider which has a distinctive competency in that particular activity, the company may also be able to differentiate its final product better. 3) Outsourcing Enable the Company to Concentrate on Scarce Human Resources: Through this the company can concentrate on the financial and

physical resources and can be utilized on further strengthening its core or distinctive competencies. 4) Strategic Outsourcing Enables a Company to be More Flexible and Responsive to Changing Market Condition: A company can switch more easily between providers of non core value creation activities in response to changing market conditions as compared to company that undertakes those activities itself.

PROBLEMS OF OFFSHORE OUTSOURCING: But offshore outsourcing has its own disadvantages also. Following are some among them: 1) The company that outsources an activity loses the activity to learn from that activity and the opportunity that activity into a distinctive competence of the company. 2) Through outsourcing, the company that outsource may become too dependent upon that particular provider. In long run, this may ruin the company when the provider starts to use its power to demand higher prices from the company. 3) In the case of strategic outsourcing, a company might go too far and outsource value creation activities that are central to the maintenance of its competitive advantage. By doing so the outsourcing company may lose control over the future development of a competency, with the result that its performance might ultimately decline.

The BPO are now providing to be good training grounds and finishing schools for border of cross industry professionals and graduates who have embraced high growth careers in

this industry. Many multinational companies of developed countries have recognized this factor as one of the best sources to stay in the market. The BPO has also indirectly helped multinational companies to market their products effectively. Developing importance for cheaper work force, effective and result oriented work force, has made the corporate sector of developed countries to outsource the jobs to other countries.

Today, in India, to fulfill the demands of the multinational corporate sector, many Indian industries have set up service providing centers to provide effective, resourceful and technically sound work force.

WHY THE OFFSHORE OUTSOURCING IN INDIA? The emergence of the Indian economy on the global scene and its ability to attract jobs has coincided with the downturn in the economy of several countries and loss of jobs in that country. Following are some of the reasons for the improvement of outsourcing jobs coming to our country 1. Size of Indian Population: The size of Indian population is a big factor the scenario. If it were not for the teeming millions in the country and the governments inability to provide employment to them, the workforce would not have offered cheaper services to the world outside. About 47% of Indian population will be going to be in the age group between 15 and 59 in near by future. The working forces of the nearby countries are going to be shrinking. India can sustain this because of its largest population of workers and consumers.

2. Improvement in Education: Improvement in education is another reason for the chance of having improvement in the outsource job. Indias mass population guarantees a large number of graduates. This large workforce has been hungering for employment that the country had so far been unable to generate. The youth has been in a hurry to earn and has been in a hurry to earn rather than learn. 3. Dreaming of Foreign Jobs: The Indian parents are always dreamt of a foreign job for their child as they are not so rich. Getting Visas and meeting travel expenses are also difficult for them. Moreover they got separated from their children, even though they were happy for their children. In the case of outsourcing a job were coming home and solves all problems related to visas and other formalities. The pay may not be as high as in foreign countries, but it is surely enough to make him live and make some savings. 4. Respectability and Job Satisfaction: Respectability and job satisfaction is another reason for the development of outsourcing job in India.. A respectable Indian family would never allow their children to work as a waiter, or painters or drivers as they are more conscious about class division. Outsourcing from IT field has touched the balance between respectability and riches. 5. Cost Cut due to Recession: Due to growing competition and recession in the field of business, most of the companies in foreign countries are forced to cut their cost. Developed nations have a good per capita income and the workforce is used to the high wages and is unwilling to work for lower wages. But the salary structure in India has always been low and whatever the workforce earns through outsourcing is much more than what he could earn in India.

6. English Literacy: In out sourcing job, knowledge of English is essential. India has the largest population of English speaking people among the third world countries. Japan and china might have technologically challenged people but may not master the English language. That also is an important factor for the growth of outsourcing job in India. 7. Self Reliance: India has the courage to substitute anything from blade to satellites due to its democratic self reliance. Socialism and import substitution have already produced generations of entrepreneurs who can develop indigenous product. That self reliance and liberalization are some other reasons for the development of outsourcing jobs in India. 8. Time Difference: Being located on other side of the world gives advantage of time difference to India. Outsourcing consumers are told that if they choose India then they may get the required job done within hours. IS OFFSHORE OUTSOURCING A SOLUTION FOR OUR ECONOMIC PROBLEMS? It would be wrong to believe that outsourcing is a permanent solution for our economic problems. Following are some of the reasons to not believe that offshore outsourcing alone is the solution to solve our economic problems. 1. Over dependence on outsiders job is risky because of the uncertain world of politics are controlling the economics. A war or a foreign policy decision may snatch the outsourcing job. We cannot imagine what would happen to the millions of Indian youth engaging in the outsourcing job as the government would not be able to provide an alternative.

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Normally we say that Indians are willingly offering their service to the foreign countries at a rate which is far below the rate of their basic just because the average Indian pay scale is still lower. However it should shame our collective conscience and hurt our national pride that we are actually degrading ourselves in front of the people who are making huge profit out of our expenses.

3. We have to consider the job conditions available in the outsourcing centers. Our expert, talented youth slog out through long working hours in day and night. This physically stressful work definitely takes a toll on their health and family life. High pay along with little time to enjoy this earning will certainly lead to a tendency of western style. 4. The call centers are not following any labour laws. In spite of the higher pay, they are not much different from the jobs in the unorganized informal sector. Thus it is a high skilled labour that is being actualized. 5. The easily available well paid outsourcing job immediately after the graduation is luring the bright and talented academic future of the student from the higher education. Pressure from the middle class familys financial requirements also makes them keep the jobs rather than going back to universities. Today most of the universities are getting a very few in takers. All these do not augur well for the future of the country as far as development of human capital is concerned.

We hope that India does not regret ruining an entire generations health, talent, and social and moral values in the name of economic development through outsourcing.

CONCLUSIONS In outsourcing job India remains the undisputed leader now. But other third world countries like Philippines, Malaysia etc. are also offering well educated English speaking workers for outsourcing job. Cheap labour is available in many parts of the world but it does not come to the maturity that India has gained over the years. Most of the companies that provide outsourcing job ranks top in the world ranking. The Indian market is also well tried and tested market. If India can turn into a fast growth economy, it will be the first developing nation that used its brain power as catalyst. Till date, outsourcing has done wonders for the Indian economy within a short period. But over dependence on outsourcing job is risky and may make our economy vulnerable to unexpected shocks. The policy makers should convert these resources for infrastructure and human capital development for the long lived economic growth and development of the nation.