The Hindu Business Line : Gearing for the next leap

THE GLOBAL SOFTWARE services landscape is changing at a frenetic pace. With offshoring to low-cost locations gaining widespread acceptance among global clientele, India's inherent strengths in talent, business environment and operational expertise are being made full use of. This is evident from the latest earnings performance of the frontline software companies, which is in line with, or has exceeded, market expectations. The vast step-up in operations and employee base by multinational vendors located in India also fully endorses the offshoring wave.

There are several variables working to the advantage of the major vendors: clients are breaking up their contracts into smaller packages, especially in the $50-300 million range, a range that Indian firms are best equipped to compete in; the range of services offered by Indian firms has expanded well beyond the run-of-the-mill application management to include infrastructure management, testing, non-voice-based BPO and consulting; and, finally, offshoring has become an imperative for over 90 per cent of Fortune 1,000 companies. No wonder, the Nasscom-McKinsey Report 2005 projects that India's offshore IT and BPO industries can grow 28 per cent annually to touch an export target of $60 billion by 2010. Since India has captured less than 10 per cent of the $300-billion market for global offshoring, the untapped growth is huge. By the same token, the challenges are also increasing. If India is to maintain its position as an offshoring destination of choice ahead of other global delivery locations such as China or Eastern Europe, it will have to address three key elements.

One, the talent pool has to be nurtured specially for IT and BPO. As the economy posts robust growth, there will be a clamour for diverse skill requirements from different sectors. That is bound to impose a strain on the sector's ability to draw prospective employees, match skills to requirements and keep attrition levels under check. Two, infrastructure growth has to be spread evenly between metros and Tier-II cities. As the Nasscom-McKinsey Report points out, between now and 2010, the sector will need at least five new "Gurgaon-plus" and five to seven "Pune-plus" integrated townships to accommodate additional employment of over 1 million people. The support infrastructure in terms of power, public transport, airports, schools or telecom connectivity will have to grow in proportion. Three, the scope for growth at the lower end of the application maintenance/development stream of revenues is steadily shrinking. Since this can also create greater pricing pressure, the need to develop intellectual property-based solutions using tools or methodologies has become imperative.

Finally, India must effectively counter the outsourcing backlash from the developed countries, which will be felt from time to time. The government, working in tandem with Nasscom, will have to also widen the H1B visa in the case of the United States or work permit windows in other countries through bilateral negotiations. Data security breaches of the kind seen in the BPO industry will have to be prevented at all cost, by tightening the regulations on data privacy and better enforcement of intellectual property laws.