The economic boon in India is primarily the result of outsourcing. India is heavily dependent and indebted to outsourcing for its prosperity. Like every other industry, the outsourcing industry of India also is not devoid of any kind of threat. The strengthening of the South-east Asian nations, like Philippines pose as a great threat for the outsourcing industry of the country. China is gradually emerging as a huge threat for the outsourcing industry of India.
A recent study by McKinsey concluded that the IT outsourcing industry of China is now often been mentioned in the same breadth as that of India, although India has no threat from China in the recent future as China needs to consolidate its fragmented industry to gain size as well as expertise. But the statistics generated by Gartner Dataquest, a U.S based research firm, completely contradicted this report. It shows that the IT service revenue of China was slated for a compound annual growth rate of 19.6 per cent and to reach $8.9 billion by the end of the year 2006.
Another study by IDC, a U.S based researcher shows that the IT service market of China is growing at a rate of 42 per cent since 1997. According to the January 2005 report of Yu Guangzhou, the Vice president of the Ministry of Commerce of China, the average annual growth of the Chinese IT industry was 30 per cent for the last five years. It also showed a growth of software export. In addition to that, it also showed that the sales revenue of the Chinese software industry had increased from $7.16 billion in 2000 to $19.3 billion in 2003. The software export of Chinese software has also increased from $0.25 billion to $2 billion in that same period of time.
The report by McKinsey also showed that almost 90 per cent of the IT services of China are locally done. In comparison, only about 28 to 30 per cent of the IT services of India are done locally. The growth of the domestic market of China should be considered as its strength rather than its weakness. China’s membership in the World Trade Organization and the 2008 Beijing Olympics are indicators of long term association of China in outsource industry. Without a strong local market, China can prove to be a tough competitor for the Indian outsourcing industry.
Among the South-East Asian nations, Philippines threats the outsource industry of India the most. According to the Philippine Software Industry Association (PSIA), the industry earned revenue of $423 million from both product software and outsourcing in 2007 as against only $200 million in 2005. The outsource industry in Philippines currently employs 28,000 software developers. For the year 2009, the most important areas of business for them will be customer support, like project maintenance, modifications that a customer might request for and like.
Beng Coronel, the current President of PSIA, described that Philippines is in a better position when compared to India and China in regards to the infrastructure and cultural affinity with U.S. But the uncertainty brought in by the President-elect Obama is casting a cloud on the sector. PSIA estimates that almost 45 per cent of the offshore software work comes from U.S and Japan and Europe contribute almost 25 per cent respectively for the outsource works.
In order to maintain its share in the outsourcing business, India needs to maintain a strong domestic market. China is training its people in English. Indian outsourcing industry should gear up or else there are every chances of loosing business. Another thing that should be considered is the cost effectiveness. Philippines is giving same quantity in a much competitive price. So, we should either make up by high quality work or by competitive rates.
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