Why should you choose India for IT Offshoring?

Agenda• Introduction to offshoring• Key drivers • Industries & market revenues• Key criteria for offshore selection (10)

» Language» Government support» Labor pool» Infrastructure» Educational system» Cost» Political & Economic environment» Cultural compatibility» Global and legal maturity» Data and Intellectual Property Security

• Location ratings• Comparison & Competitors• Conclusion

India as an Offshore Services Location

Largest democracy: 1.1 billion population

• GDP growth over 8%; Gross GDP - $3 trillion – fourth largest economy

• Primary offshore destination for large—scale, process-oriented work, such as application development, transactional business process outsourcing (BPO) services in which India’s "first shift" can provide 24/7 IT support.

• 10 categories (Source: Gartner Inc.) that organizations should consider when looking at a potential location for offshore or “nearshore” IT or business process services.

Key drivers for Global offshore/ outsourcing as a strategic

alternative

Increasing global competitivenessAccess to global talentEconomies of scaleProcess engineering and enhancementsWage arbitrageIncreased profit marginsImprovements in quality

Key Industry Verticals

TelecomManufacturingTransportationRetailingUtilitiesAutomotivePharmaceuticalsBanking & InsuranceHR & Medical

Global technology spending

Revenue Breakup – India Offshoring (2009)

Offshoring – Examples (BPO)

Key Criteria – Offshore location selection

Language

• India is ranked 17th in the IMD global competitiveness ranking for English language skills.

• India has a strong foundation in the use of English, which is the de facto business language across the country.

Government Support• Recognizes IT as a strong engine of job creation within the

country

• Endeavors to increase the country’s e-readiness by focusing on key emerging technologies.

• Drive improved governance and transparency in government interactions with the citizens

• Focus on IT education and IT-based education, technologies, systems and applications, broadband, smart cards, radio frequency identification, and networking technologies.

• Heavy investments establishing Bio IT Parks, IT investment regions and the Trans Eurasia Information Network

Labor Pool• In 2010 India ranks seventh in IT skills by IMD Global on

the availability of IT skills.

• The size, quality and scale of the Indian labor pool continues to differentiate it from all other countries

• Employment in the IT industry stands at 2.21 million, which is the largest pool of offshore talent in the world.

• Reverse “brain drain” back to India has created high-end expatriate talent with overseas education and work experience

Talent Dynamics

• Top 5 American employers in India:

General Electric: : 17,800 employeesHewlett-Packard : 11,000 employeesIBM : 6,000 employeesAmerican Express : 4,000 employeesDell : 3,800 employees

• Top 5 Indian employers: Infosys: 40,000

Wipro: 35,000 TCS: 100,000

Reliance: 120,000Satyam: 35,000

Infrastructure

• Govt. is spending 6% of its gross domestic product (GDP) on infrastructure ($37B)

• proposal to increase spending on infrastructure to $1 trillion - highways, ports, airports, power plants and other infrastructure through 2016 to 2017

• Recent overhaul of 3G telecommunications infrastructure, boost in power generation (nuclear) adding to output

Educational System

• India ranks 20th in IMD Global's Educational System ranking of 2010 that looks at educational system's ability to meet the needs of competitive economy.

• Ranks 13th on management education and 22nd on university education, has second-highest number of engineering graduates, after the U.S

• Has one of the largest numbers of higher education institutions - 490 universities and 20,769 colleges

• Private and public sponsorship of R & D initiatives

Cost

• Even with salary escalation, India has a reasonable cost differential. 

• On an absolute basis, the annual salary of a programmer with about three years' experience is $12,000 to $17,000

• Diversified delivery center locations from Tier 1 cities to Tier 2 and 3 cities to achieve more-competitive labor rates

• Look beyond cost savings as a long-term value proposition from India

0.33

*Estimate based on historical U.S. reemployment trendsSource:McKinsey Global Institute

The real economics of offshoring

– Taxes ($0.04)

– Revenues ($0.20)

– Local suppliers ($0.09)

•. . . deliversvalue to India . . .

0.67

– Cost savings ($0.58)

– Goods/ services sold ($0.05)

– Profits from Indian ventures ($0.04)

•. . . brings savings and returnsto U.S. . . .

1.45-1.47

•. . . and makes the global pie that much bigger

0.45-0.47

•. . . creates new value from reemploying U.S. labor* . . .

•$1 previouslyspent in U.S.,now offshored to India . . .

$1

$1.00

$1

$.33

$1.45

Political and Economic Environment

• Reasonably stable nation with a progressive economic mind-set and a stable government

• Most recent data from Central Statistical Organization shows annual GDP growth of 8.8% 

• High economic growth continues to attract investments in India, thereby fueling the overall growth of the industry

• India is ranked 84 out of 180 countries on Transparency International's 2009 corruption perceptions index

Economic Outlook

Cultural Compatibility

• A strong general cultural affinity with most English-speaking Western countries.

• India ranks 12th in IMD Global's ranking of national culture that ranks countries on their openness to foreign ideas - ranks eighth in flexibility and adaptability of people

• Has greater bilateral relationships at a people-to-people, government-to-government level.

• India's growing economic strength, military prowess, and scientific and technical capacity, as well as the size, population and strategic location of the country, all strengthen its position

Global and Legal Maturity

• India has 57 bilateral investment treaties with nations, including the U.K., France, Germany, Malaysia and Mauritius.

• Has sound legal system and well developed financial network to meet international business standards.

• The World Bank's "Doing Business 2010" report places India 182 out of 183 countries for "enforcing contracts."

• Major modifications in current Indian cyber law

• India ranked a joint 45th in the Freedom House Global Press Freedom Rankings  and 47th in the latest world audit ranking democracy

Data and Intellectual Property Security and Privacy

• India has a sound data protection and security in place, various acts and laws introduced to strengthen IP rights and fight piracy

• PC software piracy in India has declined from 74% in 2004 to 68% in 2008

• IMD's World Competitiveness Yearbook 2009 ranks India 33rd for cybersecurity out of 57 countries

Asia/Pacific Offshore location ratings

IT Services ComparisonMain Destination for Offshoring IT Services (until March 2009)

Parameter India Canada Iceland Israel Philippines South AfricaIT Export Industry Size (US$, mn)

9,500 3,780 1,920 900 640 96

Active Export Focused IT Professionals

195,000 45,000 21,000 15,000 20,000 2,000

IT Employee Cost (US$, per year)

5.000-12,000 36,000 25,000-35,000 25,000 7,000 18,000

No. of CMM level 5 Certified Companies

60 NA 0 0 NA NA

IT Labor Force Low cost, High quality

High cost, High quality

High cost, High quality

High cost, High quality

Low cost, Moderate quality

Moderate cost, moderate quality

Infrastructure Average Good Good Good Good GoodMain Positives English language

skills, highly qualified &

abundant workforce, robust

project management

Near-share, highly compatible

cultures with UK & US

Large development centers of tech co's like Microsoft, Dell,

Significant offshoring precedent

More shrink wrapped software production North

America

Good English skills & cultural

capability with experience

Language skills

Main Negatives Ordinary infrastructure,

some geo political risk

High cost of employment

High cost Regional unrest Low availability of project manager

Nascent BRO industry, lack of

precedent

Source: Evalueserve, NASSCOM

Competitors

• China is the most prominent challenger in terms of the criteria for infrastructure, education system, costs, political and economic environment, and government support.

• Philippines, Russia, Thailand and Malaysia are also emerging in the global market, posing hard competition to Indian offshoring business.

Conclusion

• India remains first choice offshore destination

• Provides competitive edge – cost –effective services, reduce operating costs and increases productivity, quality and efficiency.

• So next time, if there is talk of outsourcing, India should emerge as the first destination!