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Up & Coming Outsourcing Regions: India

In outsourcing's early days, India and China were often mentioned in the same breath. Both had low-cost labor and huge, untapped consumer populations; and both were hungry for global high-tech investment. So what happened to India?

Shortcomings in India's infrastructure and socio-economic status have slowed India's transition from a service outsourcing center to a manufacturing outsourcing hub, according to a recent study conducted by Charlie Barnhart & Associates (CBA). Poor infrastructure remains a major barrier, as well as complex regulatory and tax requirements. India ranks 17th out of the 18 countries in the CBA report on the World Bank’s Ease of Doing Business Index. On the upside, there are many highly educated, English speaking, and well trained engineers and professionals.

As an electronics market, though, India is on track to support the second largest cellphone subscriber base and is gobbling up imports from the US at a dizzying rate: $32 billion in 2008, up 85 percent from the year before. India launches its own satellites; 100 of the Fortune 500 have R&D facilities in country; it is the second largest small car market; and it builds its own supercomputers. India is a force to be reckoned with, and will eventually solve infrastructure issues. The {complink 12839|IPC – Association Connecting Electronics Industries} recently set up a training and certification facility in Bangalore, near “Electronics City,” a rapidly growing hub for high tech that hosts over 300 companies.

The electronics supply chain will face many of the same challenges in India as it did in China: India is very large, and midmarket companies doing business with India must be careful to understand each region thoroughly. Industrial areas are experiencing rapid growth and government support. Since the 1990s there have been accelerating government attempts to develop a robust electronics manufacturing ecosystem, mainly focused on telecommunications.

The main issue for midmarket companies considering manufacturing in India, according to CBA, will be IP protection and maneuvering through the regulatory jungle. For electronics manufacturing in other sectors that do not depend on slave labor rates, a different type of ecosystem will no doubt be required. The human rights outrages of Foxconn in China may not fly in India. A {complink 3847|Nokia Corp.} plant was unionized after several labor strikes earlier this year. In October 2010, the Indian government arrested 300 {complink 2125|Foxconn Electronics Inc.} workers who organized a strike. This has major significance for the future of the consumer electronics industry, and ultimately other end-markets as well.

10 comments on “Up & Coming Outsourcing Regions: India

  1. Mydesign
    January 7, 2011

           Barbara, you are absolutely right, India had already proved that it is one of the best places for outsourcing industries and may continue this trend for the next couple of decades. India is a good country having highly educated talented man power pool and good English speaking professionals.  After India open’s its market for globalization and foreign investment, it always has a steady graph of growth from 90’s, which is above 10%. Since India has a large population and due to social commitments of the country, this economic growth and stability is not much reflected in international forums. India has a high population and hence its market is also very vast, which can accommodate any new products. So far no players had withdrawn their products or wind up their production units because of market loss or lower volume sales. Even during the recession time also the Indian market showed positive sign.

          Of course India is one of the countries having much advancement both in technology and space sector.  That’s why many of the global players started their R & D centers in India, for space application even Nasa is in collaboration with Indian space research organization (ISRO). They have also more than ten super computers in Tera Flop ranges and ISRO having its own satellite launch vehicles, satellites, moon mission etc. One of the major advantages of India is its stable administration and good foreign investment policy, but as you stated the taxing policy is little bit complex. Since the country has liberal values, now a day’s employees are much aware about their rights and privileges.

          Geographically India is placed at a strategic location in Asian continent, which is well connected by both air and sea. So it can be easily accessible by both the west and European countries easily. Some of the major intercontinental under sea networking cables have landing points in India and hence the countries internet connectivity is also very high. More over with in the country, all points are well connected by high speed optical cable network called National Knowledge Network and Grid Garuda. India also have high density in mobile users, bank accounts, TV viewers, Internet users etc. These are some of the key factors, which can influence the foreign investment agencies.

  2. saranyatil
    January 7, 2011

    Scenarios with regard to infrastructure in India is definitely changing with the government taking loads of initiatives they are creating SEZ s helping loads of companies to easen their process of creating the base. in the field of electronics there will be a boom with emerging Research centers and also smarter engineers with merging technologies. since its become an era of smart phone s there is a huge developement and requirements in the field of telecommunication.

  3. Hawk
    January 10, 2011

    Barbara, India is better known for IT service outsourcing at this moment than for manufacturing. Will this change in your opinion? Can India match China's cost for production or should it focus more on service outsourcing? India has a large English-speaking population and it should have been a natural center for outsourced production from the West. Why was India so slow to get onboard and can it catch up? There are numerous questions here I would love to see you expand upon perhaps in a future column.

    Does India have the infrastructure and political stability to support outsourcing to the extent China has?

  4. Barbara Jorgensen
    January 10, 2011

    Hi Hawk,

    I think India can develop further in the electronics industry, but I don't think it should aim to become another China. One of the points the CBA report makes is India's labor force has very different expectations than China's–they expect to be treated better and paid better–so the low-cost model China developed won't fly in India. Maybe India should focus on higher level manufactuirng activity–design and prototype–rather than high-volume manufacturing. Another possibility is the logistics and post-sales and support model a few EMS companies are trying there–India already has a booming service-based economy in IT outsourcing.

    I wonder if maybe the fact that India is a democracy is one of the reasons it has lagged China in terms of becoming an economic powerhouse. China set its sights on becoming a world power and clearly the government has had a huge impact on China's international business and fiscal policies and it doesn't sound like the Chinese population has much to say about it. I think India's workforce also tends to be unionized. From where I sit, those are all good things, but are not China's model.

  5. Damilare
    January 10, 2011

    i think it is because of their different economic systems. China employs a fast-acting goverment policy and implementation speed while india's political system seems sluggish and somtimes chaotic. Development and growth seem to be speedily progressing in china compared to india whose growth is more like a taking its time process.

  6. Mydesign
    January 10, 2011

            Barbara one thing you said is right. In India the manpower force are very high and they are talented also. Since the medium of education in professional courses are English, they are well versed in English, apart from the local speaking languages. Majority of them are well educated either in engineering or medical sector. Many of the foreign companies want to explore this talent pool and hence they are collaborating either with Indian companies or starting their own research centers in India. After higher education many of the Indian professionals are working across globe and they are much aware about their salary and wage patterns. Obliviously they are expecting the same or at par remuneration patterns from Multi National Companies (MNC), which are operating from India. That means, they are expecting the same treatment as a professional rather than consider or exploiting for low cost man power.

  7. itguyphil
    January 11, 2011

    In regards to the work ethic and effort, I agree that it is excellent from the Inidan outsourcing orgaizatinos. The language barrier concerns have become all but non-existent in the past few years. I have had very little issues working with them. The only concern that I have run into is the time difference. That just requires all little bit of flexibility from both sides. Other than that, the experience has been as expected as far as results.

  8. Mydesign
    January 11, 2011

           Pochar, one important thing I had noticed from my past experience is that Indians are more adaptable to all situations.  I had noticed this from Indian employees, who are working in foreign nations especially in US and Europe. I don’t know much about the working conditions in India. Here, whatever the works we are assigned to them will get executed in a professional way as much as faster and I think that makes them more vibrant and visible in international community.

    As per latest survey of American Association of Physicians of Indian Origin -AAPI
    38% of doctors in the US are Indians,
    – 36% of scientists at National Aeronautics and Space Administration -NASA are Indians
    – 34% of Microsoft employees are Indians.

    Some other important remarks from vivek wardhwa’s research reports are

     – Indians have a good share in the US knowledge economy 15.5 percent of all Silicon Valley tech start-ups had Indians as key founders, with a nationwide average of close to seven percent.

     – The more remarkable statistic was the contribution of Indian nationals – not just those that became citizens – to US intellectual property creation. They contributed to 13.7 percent of all US global patents.

     – One reason for Indians’ remarkable contribution in the knowledge sector is the US education and the US Census Bureau says 64 percent of Indians over 25 years of age have a bachelor’s degree against the national average of 24 percent.

     – Another field where Indian Americans have a lion’s share of the market is the hospitality sector, as revealed by the statistics with the Asian American Hotel Owners Association (AAHOA)

  9. itguyphil
    January 12, 2011

    Toms,

    Interesting statistics. I went to a tier 1 research university in NY. Most of my time there was spent being taught by Indians (either TA's or Professor). This is mainly because being that it is such a research-heavy institution, many of the graduate students were of Asian descent (Indian & Chinese).

    So I gathered from a long while ago that education is very important in the Indian culture.

  10. prabhakar_deosthali
    January 16, 2011

    As everybody has pointed out India has a huge talent pool of Technical, Medical , Hospitality , health-care and finance professionals.  Indians , having been studied in English language right from theri schooling are much better placed compared to chinese . Hence Indians can grab all these outsourcing opportunities much easily.  The same cannot be said about the Indian Govt. No doubt the Indian political system is very stable and mature and whichever party comes to power the policies related to international relations or monetary policies do not chage drastically . But compared to the Chinese Govt, no doubt the indian democratic system means the implemetations  related to infrastrcuture improvement, foreign investment etc take much longer. That is why the pace of manufacturing outsourcing as not picked up the way it has in China.

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