Reboot the System

What began as a simple body-shopping operation, with a small team of Indian engineers offering software services to foreign clients, has in three decades mushroomed into a full-fledged industry. The economic and technological conditions that allowed IT outsourcing and other services to rise as India’s top export business have, however, evolved, bringing with them new challenges, threatening that dominance. 

India’s IT-BPO sector currently employs some two million workers; it earned $20 billion in 2012. Given the importance of the industry and the fact that nearly 60 per cent of its revenues come from the US, there is reason for anxiety about recent developments there. The pending US immigration legislation restricting body shopping and the proposed US Call Center and Consumer Protection Act of 2013 for curbing call centre operations threaten to take away the industry’s low-hanging fruits. But India’s IT services face much bigger and longer-term challenges from a lack of skill upgradation, which will be required to meet the needs of a more integrated world economy relying increasingly on cloud computing.

In the 1980s, pioneers such as Narayana Murthy of Infosys surmounted technological barriers to delivering services by taking programmers to clients’ sites abroad. Although technological advancement has since vastly expanded the scope of services like customer care and led to the rise of IT-based business and knowledge processing operations, stationing large number of service providers closer to customers abroad was still both economical and efficient. But not any more. 

The economic crisis that shook the developed world and increased the ranks of unemployed proved that model to be politically unsustainable. The US immigration legislation that awaits the approval of Congress is designed to help domestic labour by making it harder and more expensive for outsourcing companies to bring in workers on short-term visas. Meanwhile, the proposed legislation on call centres is designed to encourage US firms to hire locally. A similar attempt last year failed, and it may do so this year again thanks to the Republican-controlled House, but the days of arbitraging low-wage workers at the end of a phone line are essentially over.


Technological advances have made redundant many of the services performed by operators, but falling wages have also reduced the appeal of foreign call centres, which often suffer from problems of language and data security. In the past five years, India has lost 10 per cent of its BPO business (mostly call centres) to countries offering cheaper deals. A business that looked so promising just a decade ago is already looking like a sunset industry.

By far the biggest challenge comes from the changing technological landscape and demand for upgraded professional skills to meet growing needs of business and knowledge processing. The falling cost and ease of cloud-based operation is freeing companies from the task of managing their IT infrastructure, knocking out an area of business that had grown since the Millennium Bug scare first led to outsourcing of IT infrastructure management. Although the cloud-based service is in its infancy, the prospect of automating the process of IT management and not be held hostage to a time-bound contract with an outsourcer is proving a great attraction. 

India still holds a leading position in knowledge and business processing, but that advantage will erode unless the country’s educational institutions can meet the growing demand for experts in engineering, medicine, biotechnology and pharma, accountancy, business management, financial research and law, to name a few. The country’s biggest challenge — and biggest opportunity — in IT services will be in its ability to step up to the plate in the multi-billion dollar business in data analytics. With vast amount of information about customers and every aspect of business being amassed daily, those who can analyse Big Data for developing strategy could open the next chapter in India’s KPO business.