India to reap benefits of tech outsourcing boom

By Anshuman Daga

BANGALORE: India's software services sector, which has made low costs its competitive advantage, should reap the benefits of an outsourcing windfall as more and more global firms move to cut spending, industry officials said. "I think there's a very bright future for India because cost control issues are going to continue to weigh heavily on American and European firms, probably till 2004," Michael Melenovsky, senior vice-president at researcher IDC, told Reuters on the sidelines of its industry seminar on Thursday.

India's software and allied exports, which bank on a growing pool of low-paid engineers and English-speaking graduates, rose 29 percent to about $7.5 billion in the year to March 2002. The industry expects 30 percent growth in the current year. "The fundamental truth is that outsourcing is no longer a desired choice but an absolute strategic necessity," Azim Premji, chairman of Wipro Ltd., India's third largest software services exporter, told the seminar, organised by IDC.

India's National Association of Software and Service Companies expects the industry's exports to zoom to $57 billion by 2008. Software exports currently account for about 15 percent of India's total and are the fastest growing.

Infosys Technologies and Wipro lead the pack of Indian firms which offer one-stop shops combining software writing with back-office services such as payroll and claims processing away from a company's home base. Melenovsky, who heads IDC's worldwide services industry research, said shifting software services work to India was about 30 percent cheaper to executing such work abroad.

"I would expect that India is going to continue to gain more and more business and market share in the worldwide space," he said. Global technology giants including IBM, Hewlett-Packard and Oracle already have large software development centres in India.

India has only a two percent share of the worldwide IT spending market of roughly $420 billion but Indian firms captured about 10 percent of incremental spending in 2001, Melenovsky said. Other countries offering low-cost offshore software services include the Philippines, Russia and Brazil. "We are starting to see more governments outsourcing their IT needs, manufacturing is picking up and we suspect that healthcare industries will start to do more of outsourcing as well because of cost pressures," Melenovsky said.

© Reuters