Delhi: In his recent budget speech, Indian Finance
Minister Jaswant Singh referred to the Indian IT industry
as India''s ''showpiece'' industry. He expected the industry
to continue to achieve spectacular growth and as a gesture
of encouragement, decided to continue with the incentives
offered to this industry.
The leader in
the IT segment in the coming years is going to be the
business process outsourcing (BPO) industry. While this
industry may have heaved a sigh of relief at Singh''s
gesture, there are other fears stalking this sector
which the industry and others concerned should take
A few weeks back,
the State of New Jersey, USA, proposed a bill which
if passed could put restrictions on government undertakings
from outsourcing their business processes to overseas
countries. The bill proposes that if government undertakings
are to outsource their business processes to overseas
countries, undertakings have to pay their contractors
the same wages as are payable in the US.
Now if American
undertakings have to pay the same wages to its contractors
overseas, the advantage of offshore outsourcing will
be lost and American undertakings will stop outsourcing.
India, which is a favoured destination for outsourcing,
will definitely stand to lose, but what is more noteworthy
is that American enterprises, which are looking to offshore
outsourcing, will also lose heavily and the very purpose
of the proposed bill will be defeated.
study undertaken by Nasscom has indicated that the differential
in wages between an undertaking in India and that in
the US is 70 to 80 per cent for offshore processes.
Taking into account the interaction cost, net savings
achieved by companies from offshore outsourcing are
about 40 to 60 per cent. The Nasscom report goes on
to add that what stands in India''s advantage is the
fact that this labour cost savings is likely to exist
for the next 20 to 30 years.
The Nasscom study
has also found that Indian call centres are more productive
compared to US call centres. For example, according
to Nasscom, an Indian call centre agent makes, on an
average, 98 correct transactions out of 100 compared
to 95 by an agent in the US.
An Indian call
centre agent makes 120 transactions in an hour as against
100 by an agent in the US. Further, the average speed
of answer by an Indian call centre agent is about 8
seconds whereas the average speed of answer by a call
centre agent in the US is about 20 seconds.
The above advantages
are driven home by the fact that in the last four years,
the US financial services industry has made savings
to the tune of $8 billion by outsourcing to companies
if restrictions are put on offshore outsourcing, American
companies stand to lose as much. These companies will
lose their competitive edge and given the sluggish state
of their economy, some companies may even have to wind
Wake up to
Of course, the proposed bill will only put restrictions
on government undertakings from offshore outsourcing
while private enterprises will not be stopped from offshore
outsourcing. And the truth is that offshore outsourcing
from government undertakings comprise less than 5 per
cent of the total offshore outsourcing business.
This fact seems
to have left the Indian BPO sector unfazed. However,
the sense of complacency is unjustified as there are
certain developments that should make the industry wake
up and take suitable proactive action.
Apart from New
Jersey, now there are several other US states which
are thinking of putting restrictions on offshore outsourcing.
Elections for the American Senate are due next year
and offshore outsourcing is tending to become a political
issue in the US.
for candidates by parties are due to begin later this
year and many legislators have begun advocating protective
legislations which, they believe, would bring back jobs
to their constituencies and help them win the elections.
Some of the legislators are making offshore outsourcing
their main election issue.
Also, as unemployment
in the US is rising and as the US economy is not showing
any signs of an early revival, offshore outsourcing
by American enterprises is coming under close scrutiny
by American trade unions and workers who are demanding
an end to it. This protectionist sentiment is slowly
but surely spreading all over America.
Need for awareness
To counter this sentiment, American legislators, trade
unions and workers must be made to realise that offshore
outsourcing has evolved as a natural result of globalisation.
Offshore outsourcing has, and will, bring about efficiencies
and will make American enterprises more competitive.
This will ultimately lead to an economic revival, resulting
in more jobs and relief to the American taxpayer.
this end, the Indian government and industry, in conjunction
with corporate America, should launch robust lobbying
efforts in the US. The lobbying should not just stop
at Washington but should extended to all state capitals
and further on to the grassroots levels like various
The Indian government
and industry must consider the developments in the US
as a wake-up call and counter the emerging protectionist
sentiment with a sense of urgency. If they fail to do
so, they may not be able to retain the crown of ''showpiece''
industry for long.