Asia: turning the tables on the conventional wisdom of outsourcing

The routine outsourcing of core elements of business by European and North American companies to developing economies in Asia has had a dramatic macro-economic...

The routine outsourcing of core elements of business by European and North American companies to developing economies in Asia has had a dramatic macro-economic effect, writes Harry McDermott at Hudson & Yorke.

During the last fifteen years, Western companies (whether they realise it or not) have been funding the R&D of the Asian region and have effectively invested in the creation of a new breed of competitor. In particular, India has emerged as a significant economic force in its own right. Although the effects of the global economic climate are still being felt in the region, with the IT outsourcing business likely to miss its target of $60bn worth of exports by next year, India is faring better than most, and its economy is expected to grow at six per cent this year, according to the Reserve Bank of India.

Whereas India was originally positioned as an outsourced off-shore destination for western firms, ambitious indigenous Indian firms are rapidly altering the dynamic of the outsourcing sector by becoming major providers of international services in their own right. This can be clearly seen in the IT sector, with Indian service providers such as Infosys, Cognizant and Wipro Technologies now considered important IT players on the international stage. Interestingly, Wipro Technologies recently announced its intention to increase its US and European staff - the company currently employs 97,000 people of which about eight per cent are outside India.

There is no reason to suppose that other sectors won't soon follow suit. For example, consider the Indian telecommunications sector, which is enjoying growth despite the downturn and has a domestic market of 1.2 billion people with a reported 15 million new mobile telephone users signing up each month . Indian mobile operators are currently driving growth by offering call rates for less than Rs1 per minute, and with the new government in place, India is poised to see 3G, WiMax, unrestricted VoIP (Voice over Internet Protocol), number portability, MVNOs (mobile virtual network operators), and large investments in infrastructure that should augur well for the tech sector in the long term. Likewise:

• Reliance Communications acquired Vanco in the UK, a respected provider of VNO (virtual network operator), services to European corporate customers until running into financial difficulty

• Tata Communications are building a global fibre network

• Bharti are bidding for MTN in Africa.

This solid growth and investment in the face of global recession are indicators of India's strength in the telecommunications arena. Whereas Asian companies may not currently compete to provide western multinationals with international managed network services, it is probably only a matter of time before this market is shaken up by the emergence of some new contenders. Vendors and consultants in the West must take note.

Harry McDermott is CEO at sourcing consultant  Hudson & Yorke.

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