While China is dominating the news and fueling the debate about outsourcing and foreign investment, another Asian country is methodically rising to prominence. India, with over 1 billion in population, is giving China a run for its money in terms of creating unique outsourcing sectors and attracting foreign companies. While India has held tremendous economic potential since its independence from the United Kingdom in 1947, the country could never make the significant progress needed to pull it out of Third-World status. Within the last 10 years, it has laid the groundwork for changing this trend.
India is an ancient country with civilizations established in the Indus Valley more than 5,000 years ago. From the nineteenth century through 1947, India was controlled by the United Kingdom. During this time period, India became a classic example of mercantilism, an economic system in which a colonial power exploits a colony for its raw materials and forces it to buy finished products. The end result is that the colony becomes more and more dependent on its colonial master, while it falls farther and farther behind economically. The grip of its colonial experience hindered India’s progress throughout most of the twentieth century.
However, during the last decade, India began to use to its advantage some of the elements forced upon it by British rule. Today, it is the world’s largest English-speaking country. This is proving to be a major advantage in attracting foreign, and especially U.S. firms. India is also the world’s largest democracy, having inherited its parliamentary and common law legal systems from the British.
India has been riding the wave of globalization since the early 1990s. After years of protecting its local markets from outside competition, and heavy federal government involvement in key economic sectors, it took steps to commit itself to free trade. Key economic sectors such as telecommunications were opened to private investment, and foreign participation in the Indian economy was encouraged.
Initially, foreign companies began establishing operations in India for basic backroom operations such as medical transcription and data processing. In a very short time period, major multinationals such as General Electric and American Express had established Indian subsidiaries to take advantage of the nation’s technical workforce and English speakers. Today, India ranks behind only China and Japan in Asia for the attraction of foreign direct investment.
The move towards privatization and attraction of foreign investment has produced dramatic results. From 2003 to 2004, the Indian economy grew by 8.5 percent. In 2005, the economy is predicted to grow between 6.2 and 7.4 percent. The country’s manufacturing sector is predicted to grow at a clip of 8.9 percent. At the end of 2004, the depreciation of India’s currency, the rupee, increased the competitiveness of the country’s products and services in world markets.
While traditional industries such as farming and craft making still have a strong presence in India’s overall economy, the country is experiencing a boom in modern industrial sectors. The country’s service sector is responsible for more than 50 percent of the nation’s economic output. The software design and export sub-sector grew between 40 to 50 percent annually during the last decade. The country’s public and private sectors have committed to increase bandwidth throughout the nation.
China continues to attract foreign companies in search of economical labor for production of consumer products such as household goods, toys and clothing. Meanwhile, India has taken a different approach, parlaying its technical and language strengths into outsourcing industries that would have been unthinkable ten years ago.
India has become a hotbed for business process outsourcing operations, including data entry, payroll, inventory and inbound/outbound call center operations. Many of us don’t realize that when we call our credit card or insurance companies for information the call is actually being transferred to a backroom operation in India where a representative of a contracted Indian firm attends to the call. These individuals are put through extensive training, including accent modification that is acceptable and oftentimes undetectable to an American’s ears. The popularity of using Indian workers for activities of this type have resulted in the growth of the country’s business process outsourcing sector by 55 percent per year for the past three years.
Even more interesting is what is occurring in value-added outsourcing. In terms of marketing, Indian advertising services and web page design firms are being utilized by companies all over the world for their quality and economical prices. Many of these firms retain Indian engineers to assist their customers in troubleshooting cyberspace issues. Compared to the $50,000 or more per year their counterparts generally earn in the U.S., Indian technicians earn between $5,000 and $10,000 per year.
In the entertainment sector, India is developing a comparative advantage in animation and film-making. Indian software designers are on contract by the thousands to design programs for video games that are snatched up in the developed world.
The publishing sector is also flourishing in India. Because of the country’s advantage with the English language, foreign companies are using Indian technical writers for the creation of company materials, policies and promotional pieces. Publishers and even individual authors are utilizing Indian writers’ skills to complete materials that will be published and sold in the U.S. and western Europe. Law firms in the western world are using Indian technicians to transcribe legal opinions and do research.
This unique approach to outsourcing has drawn investment to India by Dell, America Online, Bear Stearns, IBM and Proctor and Gamble. Firms such as Citigroup and HSBC are using India’s labor force to outsource debt collection functions. Because of the economical wages paid to Indian workers, these companies can go after smaller debts that previously would have been quickly written off due to the labor costs in collecting them.
It is estimated that 40 foreign companies per month are establishing new operations in India’s commercial centers such as Bangalore, Chennai and Mumbai. Many of these firms are realizing up to 50 percent savings on their operations by outsourcing to this country.
India is still far from becoming a developed nation. It continues to face age-old challenges such as widespread poverty and corruption in government. It has a tremendous need for infrastructure, which has resulted in a budget deficit that is roughly 60 percent of its GDP. However, with the steps it has taken to make itself attractive to the world market, this country is rapidly becoming a major world player.
