Outsourcing on steroids:outsourcing to India is more than just software and call centres

If you think outsourcing to India is all about software and call centres, you ain't seen nothing yet

What do a yogurt plant in Yemen, tractors for China, and nearly 70 new patent filings by Microsoft all have in common? The design and development work is coming out of India. Surprised? You're not alone. When it comes to India, western thinking is shaped by several popular paradigms. First, India is a land of cheap labour. Second, Indians cannot act independently from the West. Third, given its shoddy infrastructure and government interference, India has a long way to go before it can compete with advanced nations. Fourth, for the West, innovation is a competitive advantage. Fifth, if nothing works as a competitive advantage, western governments should be lobbied to erect walls. (In the United States, there are now more than 100 anti-outsourcing bills at various stages in the legislative process).

But while most are stuck in those patterns of thinking, an economic tsunami is building on the other side of the globe. When it hits shore, there will be massive dislocations, and government attempts to stop them will turn out to be delusional.

Even people working for this magazine are not safe. Take a look at Reuters. After realizing that highly paid western journalists were spending more time on routine work than on creating value through investigative journalism, special projects and so on, the news agency turned to Bangalore–outsourcing capital of the world. Hoping to free up time for western journalists to focus on high-value work, Reuters hired a team of fewer than 10 in India to compile information from various sources. But what started as an experiment in budgetary prudence is becoming the biggest data-gathering centre for Reuters, which will have 10% of its workforce based in India by the end of 2005. Also, Reuters' Indians didn't stop at what they were told to do. They created a production factory for routine work and then rolled out value-added offerings like Reuters Knowledge, a tool for investment managers. Now, Reuters is piloting economic polling of, say, Australia, out of India. And, of course, it recently announced it was laying off 3% of its global workforce, or nearly 450 jobs.

If you think that example is just a blip on the radar, you ain't seen nothing yet. Here's why.

Not just “Helen on the phone from India”

Since software development costs just 40% of what it does in the States, and nearly 85% of all outsourcing work is in handling telephone calls, it's no wonder India is recognized mainly for its cheap programmers and call centres. Scratch the surface, however, and you'll find equities research, legal transcription, online tutoring, digital animation, gaming software, remote medical diagnosis, tax filings, debt collection, medical transcription, IT infrastructure management, prayers, phone sex, consular services, pre-press and digital publishing services, patent filings, market analytics, PowerPoint presentations, business intelligence, lab analysis, drug testing and clinical trials, HR services, pathology, surgical procedures, life sciences–all outsourced to India.

The centre of gravity is shifting

In simple terms, economic gravity is proportional to the main elements of progress: capital, innovation, technology and people. For decades, the United States has been the world's main centre of gravity. Now, India–with more than 550 million people under age 25–is becoming a new centre of gravity. Consider the thousands that various companies plan to hire. Indian employees will represent, respectively, 25.6% (for Dell), 14.7% (for Accenture), 5.5% (for Unisys), 7.3% (for IBM), 5.1% (for Sun Microsystems) and 3.7% (for Honeywell) of their global workforces.

It is not just technology

In a hyper-competitive environment, where innovation turns into commodity in no time, companies are under unprecedented pressure to create sizzle and launch new offerings at lightning speed. All types of firms–DuPont (chemicals), Roche Diagnostics (medical supplies), BenQ (consumer electronics), Bell Labs (telecommunications) and General Electric (capital goods)–are leveraging Indian talent by setting up R&D centres in India.

Imitation no more

The idea that creative thinking will keep the West ahead of the curve fails to recognize that Indians are moving up the value chain fast. Outside the United States, India has the most U.S. Food and Drug Administration-approved pharmaceutical manufacturing facilities. An Indo-Danish joint venture is designing a production line for yogurt manufacturing in Yemen. An auto design services firm is designing the complete interior of a DaimlerChrysler bus. Another firm is designing a hands-free phone that could attach to the visor of a sports car. The list goes on.

Outsourcing in India is no longer about low-tech, low-end and low-cost. The plates in the global economy are shifting and a new tsunami is in the making. When it comes to our doorstep, we'll all need to find a much higher ground than ever before. Once we are done cleaning up, the economic landscape will be different–and there will be no guarantees that another tsunami won't be on the way.

Good luck to us all.

Toronto-based Aseem Prakash is president of Biradari (, a firm specializing in the emerging global business culture, and is currently writing a book about India, Midnight Economy. Ashland, KY.-based Gary Metcalf is vice-president of Biradari, and co-author of The Management of People in Mergers and Acquisitions.