New Delhi, Nov. 24: India is the hottest destination for offshoring business, but it could lose its pre-eminent place to China, Russia and the Philippines if it fails to develop global excellence in selected domains of technology and process management.
Most of the offshoring activity is concentrated in the call-centre business, though some companies, like Prudential of the UK, have been shifting higher-end jobs that involve complex number-crunching activity.
The two scenarios have been outlined in a blueprint for Indian Information and Communications Technologies prepared by Soumitra Dutta, dean of executive education, and Roland Berger, professor of Business and Technology at Frances INSEAD. They presented the paper at the India Economic Summit organised by CII and the World Economic Forum (WEF).
The third scenario is that the global ICT market will continue to grow at a healthy rate, especially in the BPO domain. The market opportunities will expand but India will be just one of the markets without much of an edge.
The blueprint says the worst-case scenario is where there may be a structural damage to the Indian ICT sector with firms closing operations in the face of reduced demand. In this case, the growth rate of the Indian ICT sector will slow significantly from a healthy 30-40 per cent to single digits. This, in turn, will significantly retard the overall growth of the Indian economy, says the blueprint.
The paper points to the need for the government to diversify its customer base to other regions and other sectors. This is important for the companies to insulate themselves from the social backlash against offshoring. Indian ICT firms are further up the value chain and suffer from the bull-whip effect wherein relatively small changes in demand downstream cause large swings upstream, says the report.
The report stresses the need for the Indian government to proactively reduce tensions across communities within the country and reduce the risk of terrorism and war with neighbouring countries. The blueprint has suggested that the Indian ICT sector should focus more on software process technology, re-architecting and business process reengineering. It points out that the that large part of the revenue growth of the ICT sector in India during the next five years will still be driven by its strengths in the traditional domains of custom application development and outsourcing.
However, it is important that India develops a unique competence in some specific domains or else Indian firms will soon be competing on margins with firms from other lower cost countries. This is not a sustainable proposition for the longer term, warns the blueprint.
The Indian ICT sector employs about one million persons and is expected to touch the double-digit mark over the next decade. However, this increase will be possible only if the ICT sector is able to focus on domestic industry, especially small and medium size firms.