Business Process Outsourcing Indian Context: A Retrospect and Prospect

Abstract

The rationale for the existence of the firm is primarily based on considerations of the transaction cost and production cost efficiencies. The transaction cost approach to the theory of the firm exists to reduce the transaction costs. The concept of production cost efficiency posits that production by a team is the distinguishing characteristics of the firm and the team continues in existence only as long as the team output is sufficiently greater than the sum of the output under independent production to justify costs of organizing and monitoring team members. There are some challenges faced by industry globalisation of business change in the customers' expectations. Increased competitive pressure and shorten widows of opportunity are few challenges from industry points. The Indian software industry has grown during 2002-03, a period marked by fall in ICT sector revenues, a major drop in IT sluggish market condition. During this period Indian Software made efforts to manage on existing customer relationship to generate additional business and to tap geographies outside like US. And now many Indian Software and service companies are trying to tap other political markets like Europe and Asia Pacific. India is the forth-largest economy in terms of purchasing power parity. India is one of the world's better performing and economically stable countries. GDP growth in past 10 years has been ranged between 5-7%. As the sector wise composition Agriculture- 27%, Industry- 30% and services- 45%. As far as IT and telecom sector is concerned currently India has the 12th largest network in the world and is growing rapidly every year due to privatisation and deemed surge. In 2002-03 according to National associations of Software and Service companies (NASSCOM) estimates, the Indian ITES-BPO industry is likely to grow by about 65%. Also according to the estimates of NASSCOM, total export revenues of the Indian IT enabled service industry are projected at Rs. 117 billion from Rs. 71 Billion from 2001-02. The key drivers of Indian ITES-BPO industry are Cost Focus on Core competencies, High Attrition. India has maintained its global competitiveness offering the best combination of cost-Quality-Scalability versus competing offshore destinations like Philippines and China. India is by far the leading destination for software and IT-enabled services exports, with total export value of nearly US$ 8 billion in 2001. The other significant destination Ireland has shown significantly slower growth with the CAGR of 18% over the last 8 years compared to India's 41% CAGR over roughly the same period. India has the closest competition with Ireland have slower growth with Cumulative Average growth rate (CAGR) of 18% over last 8 years as compared to India's 41% over the same period. Today India is the largest and fastest growing exporter of IT services. Based on current and future strength India scores over Ireland, Russia, China and other competitive destinations. The industry will employ 2 million people directly and create indirect employment opportunities for at least an additional 2 million peoples. Russia is known for its high quality talent but the policy support makes it difficult to compete on an international scale. China has the vast potential base of talent that could rival Indian Industry. However there are certain weaknesses such as the higher cost, limited project management talent and inadequate familiarity with English language, among others. The future of Indian ITES Industry depends upon the place and direction of globalisation; especially how the government policy creates a further impetus for facilitation FDI and specific programmes of support it provides to the industry. Also the ability of the industry to exploit the business opportunities to their advantage and counter threats in the international environments is also imported.