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Is outsourcing moving back from India?

• 2020-08-25
• Maciej Szczerba
• Business

India is today the largest IT outsourcing market in the world. Large companies have been established since the 1980s, such as the so-called Big Five in Indian outsourcing: Infosys, TCS (Tata Consulting Services), HCL, Tech Mahindra or Wipro, strengthened their market position in the 1990s. 
Business process outsourcing, which in India started with simple inbound call center outsourcing, quickly evolved into application and infrastructure support. In the next step, the Indian outsourcing industry first mastered simple and then increasingly advanced web development. Following the native companies, western outsourcing providers such as IBM, Accenture and CapGemini also came to India, who today also have large service centres there.

Outsourcing of IT services to India was initiated by American companies tempted primarily by price. In the initial period of mass outsourcing of IT services to India, the cost of work of IT specialists oscillated around one quarter of the cost of work of specialists with the same competences in the USA. 

This is where the question arises. About the same competencies or about comparable competencies?

Most of you have probably encountered jokes about Indian specialists and the quality of their services. Is the negative stereotype (poor quality of service, poor communication) really justified?

No stereotype comes from nowhere, but the quality of services offered from India has increased dramatically over the last 10 years. This is confirmed by all the reports and press articles of recent years. From my own experience I can say that many clients conducting operations from both Poland and India have agreed that the level of knowledge of web technologies such as PHP or .Net in India is not lower.

According to 'The Economist', the market for IT outsourcing services in India has been growing by an average of 20% per year in recent years. The maintenance of senior technology infrastructure support by Indian teams has contributed significantly to this. In particular, the maintenance of the mainframe (see entry "from mainframe to thin client") has proved very profitable for Indian providers.

The Indian outsourcing companies have not stopped at maintaining the mainframe. First of all, they have indicated a presence in the R&D (Research and Development) sector for the financial sector. Indian companies started to develop their own transaction systems for, among others, asset managers. Currently (2020) Infosys designs and performs Covid-19 monitoring for the state of Rhode Island and Tech Mahindra is developing a system based on machine learning algorithms that translates more than 1600 languages across India.

In 2019 (according to 'The Economist'), there was a fall in the growth of IT outsourcing in India from 20% to 6% - almost four times that. This was before the pandemic. Is this a sustainable trend? Will the pandemic speed up or slow down?

Firstly, the labour market for software engineers in India has become saturated, which has meant that outsourcing software development to India is no longer as cheap as before. Currently, the rate of a good engineer in Bangalore or Noida (the main technology centres in India) is only 30% less than that of an engineer in California. 

Secondly, outsourcing to India based mainly on application maintenance projects rather than the development of new systems has resulted in a very high turnover in the internal structures of Indian companies. It is very difficult for them to maintain good engineers. They are being taken over by native start-ups or software development centres set up directly by global corporations - such an example is the Indian Walmart Labs, for example. 

Thirdly, although, according to Gartner data from 2017, corporate IT budgets grew by 3% a year, more and more expenditure is being spent on modern analytical technologies and IoT. Less and less is being spent on maintaining 'legacy business'. The actions that corporations have to take in connection with the progressing digitisation of enterprises are not as codified and repetitive as the rewriting of code from older technology to newer technology, which is the specialisation of Indian outsourcers. 

The trend is definitely towards a combination of outsourcing of code development and outsourcing in the area of whole product development: additionally UX/UI development, database architecture etc. Among the "Western" outsourcing companies, Accenture's tactics are the most popular.

The Covid pandemic has shown the inconveniences and risks of the global supply chain in its entirety. This also applies to the services supply chain, including IT services.
While the relocation of large outsourcing centres in countries such as Poland, Romania or Bulgaria required a lot of work from managers (I was a direct witness myself), due to the good internet infrastructure in private homes, the equipping of offices with laptops, etc. went quite smoothly. 
In India, it wasn't as simple as that - a fast and reliable internet is not as common as in our part of the world (even in large conurbations), so the transition to remote working hasn't been as smooth. 
Many companies have also had difficulty in providing their employees with laptops for remote working. 
Let us add that the population density in cities such as Bangalore and Hyderabad is huge, and very many poor people who work physically, work in the black economy, have not respected the sanitary restrictions and continue to work as before to survive. The threat to business continuity has proved to be real.
For similar reasons, immediately after the outbreak of the pandemic, the British Virgin holding company announced the relocation of several hundred customer service jobs back to the UK.

Nevertheless, the Indian outsourcing industry (including IT) is too big to fail. However, the current situation will force Indian companies to put much more emphasis on quality and adaptation of modern trends such as cloud, IoT and AI development. However, taking into account the structural problem of lack of talent, Indian companies can place even greater emphasis on the development of high-level services in their centres in countries such as Poland.