Back Office to the World: How India Continues to be a Preferred Destination for Outsourcing
- India is considered one of the preferred destinations for outsourcing and key back office functions.
- Apart from IT, jobs in sectors like HR and payroll management, digital marketing, and SEO are being increasingly outsourced to India.
- India is expected to be a global delivery center for artificial intelligence in the near future.
Foreign companies, especially those headquartered in the US, frequently outsource services to workers in other countries to reduce labor costs and improve organizational efficiency.
India has been the preferred back office for much of the past decade and is considered a leading outsourcing destination for the IT, business, and knowledge process outsourcing sectors. According to NASSCOM, in 2017, the IT-BPO industry alone earned India a revenue of about US$154 billion.
However, in the last five years, India has also cemented its position as an outsourcing leader for mobile app development, digital marketing, search engine optimization (SEO), and HR and payroll management.
With a population of over 1.3 billion people, and over 3.1 million skilled graduates being added to the workforce every year, India is expected to dominate the outsourcing market for a long time.
In this article we discuss India’s outsourcing market, sector-wise assessment of outsourcing in India, and emerging sectors that may provide potential outsourcing opportunities in the future.
Why India is a preferred outsourcing destination
Low labor cost is one of the major reasons why India has remained a preferred outsourcing destination among foreign companies.
For example, the website PayScale notes the average salary of a software developer in Gurgaon, a prominent IT hub in India, is around INR 6,19,000 (US$8,653) per annum. Meanwhile, the average salary of a software developer in the US is around US$85,000 per annum.
Lately, the gig economy in India has picked up pace with over 15 million skilled professionals working as freelancers or contract employees. Their hourly rates are significantly lower than those freelancing in the international market. So, foreign companies are increasingly employing skilled labor in India on short term contracts and saving costs on salary, health insurance, provident fund, and bonus.
India is also the second largest English-speaking country in the world. Therefore, there is no communication barrier between the employer and the employee, or between the client and the employee.
Apart from cost cutting and access to English-speaking employees, employing outsourced workers also help companies expand globally, and work with diverse employees with different viewpoints. This experience can help create a holistic culture at the organization.
These are some of the reasons why major multinational companies, such as Deloitte, Facebook, Microsoft, Nokia, Sony, Pepsi Co, Amazon, Citibank, and Google have established multiple regional headquarters and satellite offices across India.
Companies who want to establish their corporate presence in India without investing in real sector or save costs are opting to rent office space in coworking hubs such as WeWork and Innov8.
Information technology (IT)
India’s success as an outsourcing destination can be attributed to the country’s well-established software industry.
According to a report by the World Economic Forum, in 2016 India had 2.6 million STEM graduates while the US universities produced 568,000 STEM graduates during the same year. After China, India is second on the list of countries with the most STEM graduates.
Due to the presence of skilled IT professionals, cities like Delhi, Mumbai, Bengaluru, Hyderabad, Kolkata, Gurgaon, and Noida are home to the country’s largest IT hubs. Even tier-2 cities like Jaipur, Lucknow, and Kochi are developing rapidly as IT hubs, with several multinationals setting up offices in these cities.
As India continues to produce qualified candidates, particularly in the field of information technology, companies will have no hassle in finding talent.
Human resources (HR)
HR is relatively a newer sector for outsourcing. In the last three years HR functions, such as recruitment, payroll, logistics management, employee benefits administration, attendance, telemarketing, and database management have been outsourced to India.
This enables small or mid-size firms abroad to grow without hiring local additional staff to manage the basic functions of HR. Furthermore, with day-to-day functions outsourced, these firms are able to focus on hiring specialized staff that work on creating mentorship, training, and leadership opportunities, especially for women and monitories, and finding ways to support the upskilling of employees.
Large organizations often outsource their HR services to concentrate on their core competencies; it is also an effective way to cut overhead costs.
Further, if HR is outsourced to India, then the organization avoids turnover troubles. In case an HR manager quits, the outsourced company already has an employee ready to take over the responsibilities.
Search engine optimization (SEO) and digital marketing
According to PayScale, the average salary of an SEO manager in India is INR 516,000 (US$7,208) per year compared to US$68,450 in the US.
According to a 2016 report from Borrell Associates, companies in the US are expected to spend US$80 billion on SEO marketing by 2020. Despite the huge spending, small and mid-size firms usually want to limit their digital marketing expenditure, but high salaries might prevent them from doing so.
Companies have realized that to run a profitable business, they must spend on digital marketing especially on optimizing their website. SEO helps the company’s website to increase its visibility, user traffic, and conversion rate. Most importantly, SEO brings consistent traffic to the website for a longer period of time, improves the website’s position in search results, and is considered a good way to generate brand awareness.
India boasts of several companies that exclusively work on SEO, digital marketing, online reputation management, pay per click management, and social media marketing. In the last five years, SEO outsourcing companies have continued to increase. These companies have provided services to hundreds of clients and are experienced to work for organizations of any size.
Apart from cost cutting and English proficiency, India also has the second largest number of internet users in the world, and young professionals are well versed with every aspect of social media.
Emerging sector – artificial intelligence (AI)
The Global Talent Competitiveness Index (GTCI) 2020 released at the World Economic Forum in Davis this month anticipates India becoming an AI delivery center in the near future.
The report said, “As India did in the late 1990s — becoming a global offshoring base for IT services — AI may provide opportunities for countries to become ‘global delivery centers’ for AI applications.”
Artificial intelligence specialist is also featured among LinkedIn’s top 15 emerging jobs in India. LinkedIn ranked India among “the top three countries to lead the world in AI skills with robotic process automation, compliance, and integration as the fastest growing skills.”
As AI develops in India, it is expected that the country will emerge as a leading outsourcing player, just like it did for the IT sector.