IT Outsourcing in India is a jobs’ success story.
Around 3 million direct jobs and another 10 million secondary jobs and perhaps that many more tertiary jobs have been created, thanks to mostly Western companies wanting to cut down on costs by having skilled Indians do an increasing amount of work.
In the beginning, this outsourcing was limited to programming and call center work – stuff that could be done without having to be in front of a Western customer – business or consumer. Over time, technology got better, skills got better and confidence on both sides of the world increased. So now some of these 3 million jobs include writing copy for Reuters, doing research for finance firms and even animation work for some of Hollywood’s movies.
But there are three problems. One, in some way, shape or form this is still outsourcing and at some point, all that can be outsourced will have been outsourced. Two, wages in India have been increasing nearly 30% year on year. Some estimate that labor cost arbitrage, which has been a key driver of outsourcing, will not be advantageous anymore by 2015. Three, other countries such as the Philippines, South America (Brazil and Mexico are in the same time zone as the US, as some have noted, and their English skills and their technical skills are getting better).
The solution, for India, or anyone else experiencing similar problems, is to depend less on outsourcing and more on using technology in-country in any number of ways, much like in the US.
But that is easier said and done because of the problems India’s wannabe tech entrepreneurs face, as a longish article in The Economist highlights in its recent issue.
India’s entrepreneurs must overcome three problems.
The first is payments systems. Only about a fifth of Indians have debit or credit cards and those who do are scared of using them online. When they try the process is clunky—a quarter of attempts to pay on the Indian Railways site, probably India’s most frequently used, fail. The good news is that regulators are easing the rules for small transactions. Anish Williams quit HSBC to co-found Transerv, a firm that has just launched a pre-paid mobile wallet that can be bought from street vendors and downloaded onto phones. It piggybacks on the credit-card payments system and should make buying online easier. Firms like this could make a big difference.
The second bottleneck is capital. India’s e-commerce industry will need billions of dollars to grow. But local venture-capital firms struggle to write cheques of over $100m. Some fear that foreign investment in e-commerce may fall under the same rules as apply to bricks-and-mortar retailers such as Walmart. These let individual states ban activity.
The third impediment is India’s telecoms sector. Once celebrated, it is indebted, loss-making and fragmented. To blame are a price war, graft and licensing rules that prevent consolidation and roaming. The industry is cutting investment in networks at exactly the wrong time. There are multiple different spectrum and licence charges; big operators pay up to a third of their sales on such levies and on taxes. Telecoms firms are so fed up they refuse to participate in new spectrum auctions.
To add to that, in many parts of India, entrepreneurs (who will of course inevitably stumble on a regular basis as they try to succeed) is viewed with suspicion, at best and derision, at worst. Change may be coming, but slowly, especially in the middle classes that have long wanted “safe”, salaried jobs.
If there are a few blockbuster successes, that may start to change though.