New parts of the world that were not long ago considered undeveloped, backwater countries, are now taking center stage in the global economy. Much has been publicized about the ascendance of China’s economy, as it has become a major venue for the manufacturing of products sought after by worldwide consumers eager for cheaper goods. However, China’s Asian neighbor, India, also has a vigorously growing economy. India’s economy is partly being fueled by companies around the world seeking to reduce their costs by outsourcing some of their operations there.
A March 9, 2005 article in the International Herald Tribune reported that within 30 years, India is projected to have the world’s third largest economy and more people than China. Russell D’Souza, International Credit & Risk Manager for Hallmark International, pointed out that India implemented modern, capitalistic economic reforms in the early 1990s that are producing positive results. The Tribune article reported that Prime Minister Manmohan Singh, who as Finance Minister championed these reforms, proposed major investments in his first budget for education, modernizing India’s colonial-era infrastructure, and lowering tariffs.
D’Souza also noted India has modernized its banking regulations. “India has liberalized its laws to allow foreign banks to take over branches. Local Indian private banks are allowed to set up foreign bank branches. The banking rules have been liberalized considerably. ” The CIA World Factbook’s website estimates that by July 2005, India’s population will be slightly fewer than 1. 1 billion, of nearly 16 percent of the world’s population, not far behind China’s, which is projected to be 1. 3 billion.
Market Place PRI, a business radio program, reported on March 14, 2005 that a recent economic survey predicted India would grow at 7 percent this year. However, the report went on to assert that many economic analysts say that India needs to improve its infrastructure. D’Souza, who grew up in India but now lives in the U. S, experienced the problems India has with the Lagging state of much of its infrastructure. ” You’ve got an infrastructure that is woeful. It’s one of India’s biggest Achilles heels.
It’s worse than China’s. ” Just the sheer size of its growing middle class provides a huge potential market for India-based companies. D’Souza said the size of India’s middle class is over 200 million people. “Consumer goods are exploding in India. There are people with cash like I’ve never seen before. ” India’s geopolitical importance and stature are growing too. U. S. foreign policy officials view India, with its strategic location, as an important counter-balance to the growing political and military power of China.
U. S. Secretary of State Condoleezza Rice began a six-nation tour of Asia in India on March 16. An article that same day in the Tribune noted that analysts in Delhi viewed her stop there as a positive sign “the United States was eager to underline India’s increasing importance on the U. S. foreign policy agenda. ” Talks between Rice and Singh focused on defense and military cooperation, economy and trade and “synergies in energy and environmental protection.
” India possesses some advantages that make it especially suited to provide less expensive business services for companies. China, on the other hand, has excelled in the manufacture of cheaper products. The two main advantages for India is that it has an estimated 200 million people who speak English and also a world-class education system. “India is a bilingual country,” D’Souza said. He noted this is a byproduct of its former status as a British colony. “It has an advantage over China,” he said, in that respect.
The educational system in India has produced a significant number of chartered accountants, doctors, MBAs, lawyers, research analysts and other professionals, many of whom will work in India for much less than their professional counterparts in the U. S. and Europe. Alok Aggarwal, Co-founder of Evalueserve, which offers business intelligence, market research and intellectual property services to clients in North America, Europe and Asia, noted there are two types of services offered on an outsourced basis. Business Process Outsourcing, or BPO, involves more routine processing of data.
Ravi Aron, Professor of operations and information management at the University of Pennsylvania’s Wharton School, said examples of BPO involve more routine functions where there is a predefined way of doing tasks or even reaching conclusions, as in data entry, accounts maintenance and customer service activities such as those performed at call centers. BPOs typically provide such services as setting up bank accounts, selling an insurance policy and voice and e-mail-based computer support. Aggarwal said that a higher Level of service than BPO is called Knowledge Process Outsourcing or KPO.
KPO involves high-end processes such as investment research and Legal and insurance claims processing. In a March 21, 2005 article in the Indiatimes News Network, Pavan Bagai, Vice President, strategic businesses, EXL said, “Imagine unsorted data going through a black box and coming out as useful information. In KPOs the black box is your mind. There is no predefined process to reach a conclusion. ” In either BPO or KPO, India often offers a huge cost savings potential over those functions being performed by American workers in the U. S.
Aron said that in credit card-related functions, the cost of an American worker, including benefits and overhead, ranges from $48-55 per hour–while in India, those costs are only $18-24. A report by Hay Associates estimated that the fully burdened costs of an accounting clerk in Stamford, CT, is $69 per hour, while in Bangalore, India it is $4 per hour. (Though Alok disputes that number saying that “currently the loaded costs in Bangalore would be $7-$8 per hour” the cost differential is still staggering. ) French & Associates reported that a $50,000 U.
S. clerical worker would cost only $10,000 in India and would be a top graduate. This huge gap in employee direct and indirect costs is even more dramatic with KPO services. “When you go with high-end work that’s when the game gets interesting,” Aron said. He said employee costs per hour for an equity research analyst in the U. S. would range from $230-$250 while in India it would only be about $30. ” Should you find it suitable to relocate, (to one of the countries that offers much cheaper employee costs) you will experience huge savings,” Aron said.
“If you look al the labor cost difference there is a 5-1 to 8-1 cost factor,” added Aggarwal, whose firm actually provides equity research and investment banking research services. “American doctors are very hard working–but they don’t work five times harder than Indian doctors. ” The March 21 Indiatimes Network article reported that India, with its knowledge base and lower costs, will be “leading the pack in the race for KPO business. ” The article referred to a report by Evalueserve that India will capture more than “70 percent of the KPO territory by 2010.
” India’s software trade body reported that export revenues from software outsourcing will reach $17. 3 billion in the fiscal year ending March 2005. In a presentation by Marc Vollenweider, President and CEO of Evalueserve, it was projected that by 2010 India will have about 1. 1 million people employed in BPO. According to Vollenweider, U. S. companies may be compelled to outsource due to his projection of a labor shortage. According to his figures, by fiscal year 2010, the U. S. is projected to experience a shortfall of 5. 4 million workers. In that same timespan, the U. K’s shortfall is projected to be .
7 million workers. Vollenweider’s presentation concluded that, “Global Sourcing has become an economic imperative for the developed nations to maintain and sustain their historical and current growth. Offshoring IT and BPO services to low-wage destinations provides a viable solution to developed nations who are struggling against the significant shortage of skilled labor. “Evalueserve projects that by 2010 India will have 820,000 employed in low-end BPO services generating total revenues of USD 18 billion and 250,000 workers employed in high-end KPO services generating USD 12 billion. A number of major U.
S. -based corporations have set up operations in India or have outsourced certain business services to Indian firms. A report by French & Associates indicated India has become a venue for major development centers for IBM and Microsoft. Major corporations like Ford, JP Morgan Chase and HP are currently setting up operations there. General Electric, however, probably has utilized the manpower resources of India more extensively than any other major American Corporation. GE’s involvement in India began in September 1989, according to a front-page, March 23, 2005, The Wall Street Journal article.
Al that time, then-CEO Jack Welch flew to India for a sales meeting to sell products to India. During that stop in India, Welch met with Indian government officials who pitched him the idea of having some of his company’s needs provided by its emerging high-tech sector. Today, The WSJ article pointed out, India “earns more than $17 billion from corporations worldwide seeking low-cost overseas talent … ” Although GE is hesitant about taking credit for a trend that has taken many American jobs overseas, most corporate observers agree GE played a major role in the outsourcing boom.
The WSJ article further noted that in 1995, GE created GE Capital International Services, now known as Gecis, to handle backroom work and market analysis. In 1999 Gecis established the first international call center in India and in 2000 GE opened a research center in Bangalore to tap the skills of Indian engineers. The WSJ article reported that in November 2004, GE sold a controlling interest in Gecis and now the company will seek business from other companies. French & Associates estimated that GE had 5,000 FTEs (full-time equivalents) in India in 2000.
That number grew to 12,000 FTEs by the end of 2003. The WSJ article also reported that in 2000, GE opened the Jack F. Welch Technology Center in Bangalore “that employs thousands of researchers working on everything from new refrigerators to jet engines. ” A recent GE report indicated the company plans to spend about $600 million this year on computer-software development from Indian companies. Val Venable, CCE, Credit Manager for GE Advanced Materials, in reference to GE’s outsourcing efforts in India, said, “We certainly have been a major player.
For our company and a lot of companies, you’re always looking for quality suppliers at low cost. It makes business sense to do it. ” Venable, who spoke in India in late March during a five-week business trip there, said that her operations are split between the U. S. and India. “Part of my collections team sits in the U. S. and some of it is in India. ” She said that employee allocation between that in the U. S. and India is proportional to the workload. “If I have 70 percent of my people in India, I look to have 70 percent of my work there.
My people in the U. S. have a lot more credit experience, so they do a lot of the credit decisions. ” In Venable’s case, even though GE does not wholly own Gecis anymore, it has not changed her operations. “My relationship with my team has not changed. We work together and we have sub-teams. For our credit and collections teams we didn’t see a difference. My people from the India and the U. S. have been trained the same. ” The cost savings of operations in India aren’t just confined to personnel expenses Venable said. “It’s not just the cost of the people.
Over here I have different IT costs and I have different training costs. ” She acknowledged that many Indian employees are well educated and enthusiastic about their work. “There’s a huge emphasis on education here. It’s their first experience in business. ” On the issue that some Americans have complained about not being able to understand customer services representatives in India, Venable said, “Some of my team have fairly strong accents, but have you ever called Texas of Mississippi? They have accents too. We usually work on that. That’s part of the service to the customers.
” An unavoidable drawback Venable mentioned of outsourced services emanating from India to American consumers is, “If you’re going to have a team in India, there’s a time zone difference. ” She said the time zone difference between India and the U. S. is 9. 5 hours and 4. 5 hours between India and the U. K. She san the time zone difference actually has not been a major problem for her operations. “The areas around the call centers are becoming a 24-hour culture. Probably in the next 20 years we’re going to have virtual offices and it won’t matter where people sit. Does everybody need to sit in the same room? Probably not. ”