Who Will Dominate Offshoring in 2020?
A McKinsey consultant from Mumbai says India will retain its offshoring crown but could lose share to Russia and China if education doesn't keep up
To view the full article Strengthening India's offshoring industry, just published on McKinsey Quarterly, click here.
What will happen to India's share of global IT and BPO market by 2020?
Dropping market share is one of scenarios that we have projected by 2020 if India chooses not to release the capacity in its education system.
India produces about three million graduates a year. The entire offshoring industry across IT and BPO is 2.1 million people, so clearly there're enough graduates – the real issue is the suitability of candidates. Effectively we are using a tenth of our workforce that is suitable for this industry. If that trend continues you will have a shortage of suitable talent.
The primary cause is the quality of communications and language skills, the second is that some people are not educated well enough to be able to serve a multinational corporation.
The combined market share of 50 to 53 per cent, which is what India has today, you could see that combined market share decline because India does not have the supply side availability.
But today the new Indian education minister has proposed a public-private partnership in India's education system, where 2,500 model schools would be created, which is something we have been shouting from the rooftops for a long time.
When will the decline begin to happen?
We have seen an increase in India's market share in 2008.
The global financial crisis has given India a bit of breathing room, it's dropped the growth rates. In 2009/10 we will see low growth, so a supply side constraint will not come through in the next two years.
Beyond that, if gets back to original growth rate and we don't see any change in the education system, we could see those supply shortfalls happening very quickly thereafter.
Which countries look most likely to take that market share?
You have got to separate out those countries that are the volume hubs and those that offer more niche services.
When you look at the volume hubs, it's very hard to get away from China and Russia, which are two of the largest by population locations. China tends to be a lot more engineering, design and infrastructure services led, more catering to North Asia. Russia tends to be outstanding for software product development.
In Latin America, Brazil is one of the few nations that offers an emerging working population of that size. [Much of Latin America] is Spanish speaking, southern-US focused.
In Eastern Europe the talent pools are not as deep as in India and China and more fragmented by language.
Vietnam and Egypt has a reasonable talent pool and a lot of government support to promote this industry, support by real initiatives on the ground making changes to the education system and infrastructure to support this industry.
Which location will be the first offshoring destination choice for the UK and Europe in 2020?
For the Anglo Saxon world, the US and UK predominantly, India will continue to be the country of choice. Even with its talent constraints that I talked about, India continues to introduce about a third of the suitable talent in the world. I don't think that India's dominant position is by any means threatened in the near future.
Which of the global outsourcing companies will dominate by 2020?
You will see global systems integrators that will be very successful, some of them already have very large global footprints and have embraced a global delivery model and are moving to scale very rapidly.
You will also find a few of the Indian top tier companies, in the BPO and on IT services space, among the world's top ten – if you project their growth rates out.
Asia dominates global outsourcing list
Asian cities have bagged the first three spots in a study of top emerging destinations for global outsourcing.
Cebu City in the Philippines was ranked No. 1 on the Top 50 Emerging Global Outsourcing Cities list, followed by the Chinese cities of Shanghai and Beijing at second and third places, respectively.
Of the top 50 destinations polled, 19 cities were from Asia. Next, were Central and Eastern Europe with 13 cities.
According to the survey released Monday by IT outsourcing and business process outsourcing (BPO) media company Global Services and investment advisory firm Tholons, choosing the right city has become "more important" than choosing the country when setting up an outsourcing center.
Considerations such as the availability of resources, in terms of the quality and type of workforce, cost and the availability of infrastructure, as well as the city’s "long-term potential in fulfilling demand for specific services determine its attractiveness as an outsourcing center".
"The concept of an individual location being a 'one-stop-shop' has given way to 'smart, multi, selective sourcing' models, wherein selected processes are outsourced only to the most appropriate destination," said Ed Nair, editor of Global Services.
The report noted that "increasing competition in the global outsourcing will make the cities more focused in identifying appropriate service lines and in developing their service-delivery capabilities".
China's rising stars
In addition to Shanghai and Beijing, the list featured four other Chinese cities (Shenzhen at 10th, Dalian at 16th, Guangzhou at 23rd and Chengdu at 37th), with three of the six cities making it to the top 10.
In addition to Shanghai and Beijing, the list featured four other Chinese cities (Shenzhen at 10th, Dalian at 16th, Guangzhou at 23rd and Chengdu at 37th), with three of the six cities making it to the top 10.
"Shanghai is already known as a mature destination for providing offerings such as F&A (finance and accounting), product development, R&D (research and development) and testing, and Guangzhou is known for engineering-services," the Global Services study noted. "Outsourcing services such as application development and maintenance and business analytics are now being offered from Shenzhen and Shanghai respectively."
According to the survey, Tianjin, a second tier city, has the "potential" of moving into the top 50 list.
China is "home to numerous IT and BPO services providers", including global companies such as Accenture, Infosys, IBM and Satyam, as well as globally-known local providers Augmentum, Bleum, Dextrys and Neusoft, the report noted.
The Top Ten Software Companies in India
Today the software industry has become the backbone of companies around the world. With technology advancing in leaps and bounds, there is no stopping IT professionals from around the world to bridge the gap between huge untapped markets and its customers, as well as creating an opportunity for innovation.
The companies that dominate the software industry are those which look out for these opportunities and provide instant solutions. The Indian software industry has arrived, and the companies that are dominating this industry, based on their turnovers, are:
| Rank | Names | Sales (in Rs mill) |
| 1 | TCS LIMITED | 97,272 |
| 2 | WIPRO LIMITED | 82,330 |
| 3 | INFOSYS TECHNOLOGIES LIMITED | 71,297 |
| 4 | SATYAM COMPUTER SERVICES LIMITED | 35,209 |
| 5 | I-FLEX SOLUTIONS LIMITED | 11,386 |
| 6 | TATA INFOTECH LIMITED | 9,743 |
| 7 | CMC LIMITED | 8,074 |
| 8 | MPHASIS BFL LIMITED | 7,657 |
| 9 | MASTEK LIMITED | 5,670 |
| 10 | NIIT LIMITED | 3,984 |
These companies have one thing in common; they offer a variety of services. These services range from consultancy services to Business Process Outsourcing (BPO) units to customized solutions in the IT domain.
With TCS Ltd featuring in lots of major deals during the year 2005, it will probably continue with its favored status and dominance over the software industry in India. Though when it comes to the most respected company of India, among the pool of all industries, it is no real surprise that Infosys Technologies Limited is number one, with its reputed work ethic and social responsibility factor.
TCS is the largest software services company in Asia, ahead of other Indian software service providers like Infosys and Wipro. Earlier, it became the first Indian software company to cross the coveted US$ 1 billion revenue mark. The company has a wide range of offerings and caters to industries like banking, insurance and financial services (41% of revenues), manufacturing (17%), telecom, (15%) and retail (7%). TCS was one of the pioneers of the much-acclaimed global delivery model and the same has helped it to post good results in the past and will help with future achievements as well.
The software industry has become a part of everyday life, be it providing solutions for business or entertainment. Ample opportunity does not ensure that the companies listed in the top ten will remain there as tough competition from the ever-increasing number of software companies can completely alter the list. There are organizations like Visualsoft Techonologies Limited, Tata Elxis Limited and Geometric Software Solutions Co. Ltd waiting in the wings. The key to survival in this industry is providing solutions a click away and creating and inventing products before someone else does.
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