Over the years, India has emerged as the "uncrowned king" of business process outsourcing (BPO) in the software industry and almost all big corporations in the West are keen to set up their call centres or shift their software development work or even invest in building their own software development centres in that country.
Where India excels is low cost and quality performance. But, a prestigious American magazine "Forbes", in one of its recent issues, raised the question: how long can India hold on to its crown?
The magazines contends that similar low-cost technology centres in China, the Philippines, Malaysia, Russia and Pakistan are sprouting up and already competing for a share in outsourcing projects, making it increasingly unlikely that India can retain its "reign" as "the outsourcing king" for long.
The figure of $50 billion software exports by 2008 as predicted by Indian National Association of Software and Services Companies (NASSC) is too ambitious and may be difficult to realize. If India fails to meet this target, it may lose its competitive edge.
However, it is too early to speculate in those terms because under the given circumstances there is no threat to India's status in the outsourcing world and for various reasons the West will always prefer India over its rivals. In fact, it can boast of adding more feathers to its crown.
India's leading business newspaper "The Economic Times" reported on January 29 that: "As India Inc. is busy grappling with the BPO imbroglio, a rare traction has originated from an unchartered territory - chip manufacturing".
The giant Japanese chip makers, Toshiba and Hitachi, have shown interest in India and their senior officials were in Bangalore recently to hold talks for partnership with Indian firms for IP and designs which include both software and hardware solutions.
The indications are that after China, India is becoming the next emerging market of chip manufacturing in a matter of five years. Currently, the Japanese firms depend on China for such work. India is the next destination but the problem is there are no end-products, assembly testing nor any back-end activities there. It may take three to five years before things start changing there. A Hitachi veteran thinks that in about five years the demarcation between hardware and software will blur and India will be the main beneficiary as far as high-end chip manufacturing is concerned.
Another area fascinating the foreign investors is research and development (R&D). Many hi-tech companies are investing in India in research and design facilities. As many as 230 multinationals from all parts of the world have arrived in Bangalore since 2001 for R&D work.
Coming back to the outsourcing "imbroglio", it is quite clear that offshore outsourcing industry will continue its hyper-expansion in the next few years as the western firms look for low costs and cheaper offshore talent to meet their needs. But "Forbes" fears India could "stumble and lose its crown". India, it says, is poised to face the impossible task of producing at least one million qualified software engineers - the minimum requirement - to achieve $50 billion exports target by 2008 which, if not realized, could open doors in outsourcing industry to the rivals. The country's current output of computer science graduates is 110,000 a year. Many of them - the best and the brightest - tend to migrate to the United States for a better standard of living. Hence, the outsourcing suffers.
When and if India "does slip", Forbes says, other low-wage countries that will be too happy to pick up the slack. Pakistan, it observed, is one such country. It has emulated India's success by offering similar breaks to multinationals and is aggressively modelling its educational programmes in computer and information sciences on India's pattern.
At present, Pakistan has 23,000 trained professionals and its annual software exports amount to more than $120 million. But the biggest problem it faces is a dirty image.
The westerners believe that it is a country of terrorists and a land where only violence thrives. Although several Indian cities are as much violence-prone as is Karachi but the media remains biased. But India, after recent developments leading to warm relationship between the two countries, is expected to have a different outlook and may be more than willing to enable Pakistan enter this market in a big way.
A delegation of Pakistani professionals is scheduled to visit India sometimes this month and indications are that it can return with significant results. (An Indian IT specialist Jairam Ramesh recently observed: "If we help Pakistan build and promote an IT services industry, we can stabilize its economy, taking its attention away from Kashmir and war.")
The Philippines is another potential candidate for a share in outsourcing. It, being a former American colony, could prove appealing to American firms. It has more than 30,000 trained IT graduates. China would seem to be the biggest threat to India, with 400,000 software professionals (India has 300,000 professionals) and 35,000 of them qualified to work on high-level, systems-integration projects that are so coveted in India.
Most of China's hi-tech workers are well qualified to work on software applications maintenance and migration projects, and these workers come at a significantly lower salary than do their Indian counterparts doing the same work.
However, there is little to suggest that India is about to lose its status of the "king of outsourcing". Meanwhile, offshore outsourcing in the country is predicted to grow by at least 30 per cent during 2004 as global giants like IBM, EDS and Accenture will continue to increase their presence in the country.
A new report "IT Trends 2004: Offshore Outsourcing" says India will continue to dominate as a preferred offshore country during the current year and Indian vendors will retain their leadership in the outsourcing marketplace. The country will remain the best option for American companies during 2004 and Indian vendors will continue to develop facilities in countries like China and those of the Eastern Europe, it said.
Meanwhile, according to "The Economic Times", the indications are that Wal-Mart will be sourcing to India to the extent of $3 billion this year and up to $30 billion in the next three years . The entire US retail sourcing is estimated to be $500 billion next year, most of which could come to India. And, global IT services spendings are estimated to be $385 billion and in it the share of India is about two per cent, which can grow to 12 per cent.
Internet based services, of which Business Process Outsourcing (BPO) is the most visible, grew at a dazzling 59 per cent in 2002-2003, and now stands at $2.3 billion. The BPO sector alone employs 171,000 professionals.
There has also been a spurt of activity in using India as a hub of global sourcing in the auto industry. Toyota is going to use India as a source for transmission parts. Ford is sourcing engines from Hindustan Motors. Yamaha and Mitsubishi are going to be using India as a world-wide sourcing hub for motorcycles. In fact, there are around 50 automotive suppliers with offices in Chennai, Mysore, and Delhi.