Taking cue from the global manufacturing sector, outsourcing of services in the technology segment will dominate the 21st century and become the engine of growth, contributing substantially to the GDP of those countries from where they are outsourced.
Setting the tone for the "India Outsourcing Summit 2003" being held for the first time in the country, Michael F Corbett & Associates president and CEO told about 400 delegates in Bangalore on Wednesday that global outsourcing spending grew to $5 trillion in 2003 from $2 trillion in 1998 despite global downturn, political and economic crises and September 11 terrorist attacks in the US.
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"Though outsourcing in the manufacturing sector continues to dominate global spending, outsourcing in the services sector, especially in the tech area has been growing phenomenally due to cost and quality advantages derived by enterprises in the US, Europe, Japan, Australia and Canada.
"Studies have revealed that by outsourcing IT services, including business process activities, thousands of firms in these countries have primarily saved about one-third of the costs they were incurring by sourcing locally.
"Around two-thirds of these organisations have seen high return on investment made in such outsourcing and offshoring," Corbett stated.
While the primary reason for outsourcing services has been to reduce costs and maximise returns on investments, global firms in the US, Europe and the APAC have seen that they were able to deliver their offerings speedily with time-to-market products.
"Outsourcing IT services from countries like India has also enabled global firms to improve quality and bring in a lot of innovation on board, which in turn led to reduced cost structures, especially in research and development," Corbett recalled.
Citing the cost benefits reaped by the global manufacturing sector during the eighties and nineties by outsourcing products and goods from end-to-end, Corbett said similar strategy has made outsourcing of services drivers of growth, innovation and technology upgradation.
"Outsourcing of services over the last decade has virtually changed the business environment the world over ushering in the global outsourcing economy. In that, captive offshoring has turned into an opportunity for hundreds of organisations in the US, Canada, Europe, Japan and Australia.
"With the advantage of ideal locations such as India, global firms have moved up the value chain by leveraging relationships with its vendors in terms of investments in outsourcing and offshore development centres, joint ventures, partnering and acquisitions.
"The availability of low-cost but high quality English-speaking skilled workforce in countries like India made several of them set shops for their captive consumption," Corbett asserted.
From outsourcing pure IT services, the domain has spread to diverse intra and inter-related services across the verticals covering the entire gamut spanning design, development, distribution and customer or after-sales support by vendors.
The convergence of technologies and revolution in telecommunications have led to the birth of outsourcing IT enabled services such as call/data centres, back office operations and business process activities through the Internet and web.
Technology infusion in other services such as banking, financial and insurance, transportation, airlines, hospitality and transactions have also enabled the industry to outsource its requirements economically.
"In the global outsourcing economy, the US continues to dominate the scene with two-thirds spending on outsourcing and offshoring by its firms. Currently, outsourcing constitutes 25 per cent of its GDP, representing the largest spending," Corbett claimed.
Though the US is still ahead of others in the learning curve of outsourcing tech services, the European Union and other advanced countries are catching up fast despite cultural and language problems.
"By 2004-05, outsourcing of ITES ranging from back office, call centres, storage, transactions and business process activities will surge, taking the total value of the service industry to $1 trillion from $500 billion currently," Corbett added.
The trend of outsourcing will lead to an increasing demand for IT specialists in countries like India on account of its extraordinary talent pool, work culture and rapid improvement in infrastructure of late.
"Outsourcing is a long-term strategy. It involves lot of planning, processes, management expertise and strict delivery schedules. Globalisation of the world economy has also given India the advantage of the time zone to offer the services on 24x7x365 basis.
For instance, American Express has been able to bring down its cost of operations by 70-80 per cent by outsourcing its products and services from outside the US. In transactions costs alone, the global firm had a 20 per cent savings on an expenditure of $ 1 billion.
Major US firms such as GE, Dell, IBM and Bank of America have discovered the multiple advantages of cost, quality, innovation and value addition in outsourcing and offshoring.