IT outsourcing to India
Dec 08
Posted: under Software outsourcing.
Tags: Erudite soft, Hyderabad, India, NASSCOM, Outsourcing
The world is discovering the fact that India is a super power when it comes to developing IT solutions. Swept by the current of the latest trend “IT outsourcing to India”, we find many fortune 500 companies like Microsoft, Oracle, Citibank, Morgan Stanley, Wal-Mart, AT&T, [General Electric], Reebok, General Motors, Sony, Boeing, Coca-cola, Pepsi, Swissair, United Airlines, Philips, IBM, Lucas and British Aerospace beneficiaries.
A closer look at the factors fanning the potentials of IT outsourcing in India.
1. India’s human resources
Being the world’s second highly populated country, human resources are a boon by itself. Just as the Gulf is renowned for its natural resource of crude oil, and South Africa for its diamonds, India is proud of the abundance and easy availability of its highly qualified and technically skilled English speaking computer professionals; who are key to success in the field of IT outsourcing to India.
2. Cost efficiency of IT outsourcing in India
Significant cost saving can be achieved by IT outsourcing to India, owing to the wide gap between the personal costs in India and that of the developed countries. Offshore outsourcing to India offers considerable economical benefits for those who are prepared to exploit the advantages of outsourcing.
3. Standard quality that firms doing IT outsourcing in India guarantee
The Indian companies involved in IT outsourcing in India provide high quality work, meeting international standards and complying with the ISO & SEI-CMM standards. Three out of every four SEI-CMM 5 companies worldwide is located in India. Thus India promises quality – IT outsourcing in India as it has the potential to furnish these services perfectly.
4. The reliable communication facilities
Excellent telecom, ISP, and cellular networks are available in all cities & towns in the country. India prides in the reliable satellite and submarine communication links that facilitate good band connectivity with the rest of the world. Thus companies engaged in IT outsourcing to India, can be in touch with the vendors without any connection hurdles. This plays a significant role in determining the success of offshore IT outsourcing to India.
5. Technologically advanced outsourcing firms in India
India’s technologies offer excellent software solutions. The applications include E-commerce, Business Process re-engineering, System Migration, Maintaining Legacy system, System integration etc. India prides in outsourcing facilities that are required to compete with others; which is yet another reason as to why the world prefers It outsourcing to India.
6. Galloping growth in Indian economy
The service sector in India contributes 51% of the GDP. Computer software export was prominent with a growth rate of 40%-50% per year during the 90s. India being the second largest software exporter in the world its large business houses and public sector units are growing steadfastly towards raising economic growth..
7. Stable government facilitating IT growth
India has a stable pro – IT government whose policies, economy, GDP growth, taxation, power, telecom, industrial parks & special zones have been helpful in improving the infrastructure as well as communication. The government proves to be a great support for software firms by further providing all the basic facilities required for an outsourcing company to flourish thus playing a major role in contributing to the success and well-being of IT outsourcing to India.
8. Indian government policies
- IT is regarded as one of the top 5 priority industries in India. IT is a part of the national agenda, and policies are framed so as to obtain maximum benefit out of IT outsourcing to India.
- The liberalization and deregulation initiatives taken by the government are aimed at supporting growth & integration with the global economy. These reforms have enabled the entry of foreign companies to the Indian market. FDI investment from NRI’s including Overseas Corporate Bodies (OCB’s); owned by the NRI’s are warmly welcomed in India.
- The new National Telecom Policy has invited private participants to the Indian telecom sector.
- The IT bill passed in 2000, gives a legal framework for the recognition of electronic contracts, prevention of computer crime and electronic filing of documents. NASSCOM along with the government is playing a notable role in protecting the interests of the IT sector. Thus with all these help, IT outsourcing to India has reached a point of no turning back.
Tax system in India.
The well structured tax system in India, with the authority to levy taxes is divided between the Central & State Governments. Direct taxes, like personal income tax, corporate tax and indirect taxes like customs duty are collected by the Central Government while State Government levies local and state sales tax. Tax revenue as a percent of GDP has been constantly on the rise.
Taxes
A domestic company having entire management and control in India is bound to pay 35.7% tax to the Central Government. The nonresident Corporation has to pay 48% of the income derived in India from Indian operation; income that is accounted to arise in India and income that is received in India. Minimum Alienate Tax (MAT) is at the rate of 7.65% of book profit of the companies.
Tax Incentives
The tax incentives offered to the investors by the Government of India are a boon for firms involved in IT outsourcing to India. The incentives that facilitate economic growth and development are:
1. Infrastructure:
A 10 years tax holiday to ventures engaged in developing and / or maintaining and operating an infrastructure facility.
2. Power:
10 years tax holiday to undertakings, which generate and / or distribute power.
3. Telecom:
5 years tax holiday for companies providing telecom services including Internet services and broadband services. Also 30 % deduction from profits for the next 5 years in any 10 continuous years out of first 10 years is also offered.
4. Industrial Parks and Special Economic Zones
10 years tax holiday is applicable to ventures that develop and /or operate or maintain in notified IT parks and special economic zones.
5. Other Industries:
5-year tax holiday is available for new industrial units to be set up in backward states and districts.
6. Incentives for Exports:
Tax is deducted on exporters profits for unit set up on EPZs, STPs, EHTPs, FTZ and SEZs.
7. Other Incentives:
Tax concessions are allowed for FTI and a weighted deduction of 150% for scientific research and development expenditure have been offered. 10 years tax holiday is available for R&D companies engaged in scientific and industrial research.
The Quality Accreditation offered to firms engaged in IT Outsourcing to India.
Yet another prominent reason behind Indias glittering success in the global IT market is the maintenance of quality. In the recent years, India has been able to offer IT software products and services, which match global standards of quality.
As on 31 March 2002, 42 IT outsourcing companies in India achieved SEI-CMM Level 5 assessments. 316 Indian outsourcing companies have achieved quality certifications. More and more IT outsourcing firms are striving for it. Moreover, the Indian software industry has accepted and adopted newly emerging People – Capability Maturity Model (People-CMM). As per 27 June 2002 statistics, India has 85 companies at SEI-CMM Levels assessment for this. These statistics indicate the fact that almost all the companies in the Indian IT sector have realized the value of quality and its accepted standards and that they are vigilant towards achieving it. It will be interesting to take a look at the Global Accreditation, which the Indian IT players have won.
1. ISO 9000
- The International Organisation for Standards (ISO 9000 series).
- International set of documents on quality assurance. Written by members of a worldwide delegation, ISO/Technical Committee 176.
- 3 core quality systems documents
- Models of quality assurance.
2. SEI-CMM Model
- SEI (Software Engineering Institute) established in 1984 at Pitts berg, USA.
- The CMM (Capability Maturity Model) of SEI is a framework that describes the key elements of an effective software outsourcing process.
- CMM – composed of 5 maturity levels.
- Each level facilitates a layer in the foundation for continuous process improvement.
- Achieving each level of the model institutionalizes a different component in the software process, resulting in an overall increase in the process capability of the organization.
3. People Capability Maturity Model (People-CMM)
- Process targeted at managing and developing an organization’s workforce and adopts the maturity framework of the CMM.
- Aim – to radically improve the ability of software organizations to attract, develop, motivate, organize and retain the talent needed to continuously improve software development capability.
- Contains 5 maturity levels.
- Lay foundations for continuously improving talent, effective teams, and successfully managing the people assets of the organizations.
4. CMM Model
- Aim – to guide organizations in improving ability and processes in development, acquisition and maintenance of products and services.
- Places proven practices into a structure, which aids to measure the firms maturity and process area capabilities.
- Establishes priorities for advancement and guides the implementation of these environments.
A brief look on Nasscom Manpower Resource Survey
Nasscom conducted a survey in the year 2001-2002, on the IT work force status in the country. These were the issues under study.
- To ascertain the present quarter of IT work force in the country.
- To make future projections about supplying IT-manpower resources needed to meet the industry demand.
- To frame a strategy for the same.
The survey revealed that:
- The number of employed IT software and services professionals showed an increasing trend. (A whooping 522,000 by the end of 2001-02 compared to 280,000 employed in the year 1998-99.
- This figure covers professionals, who are engaged in application software, IT services and IT enabled services including professionals engaged in software development units in user organization.
- South India ranked the highest in hiring of new IT professionals amounting to 41% while the Eastern region was ranked the lowest with 6%.
- 25.6 years was the overall median age of software professionals.
- 44% of them had over 3 years of working experience.
- Interestingly male domination was seen among the software professionals in Indian IT firms; with ratio of 79:21 (male: female); which is likely to continue to 65.35 by the year 2005.
- The areas that required skills are
- Software engineering/programmers/analysis
- Database administrations.
- E-commerce and Internet application
- Digital media.
- Web based applications.
- Java
- Communication engineers and Network specialists.
- Networking application.
- Data ware housing.
- Project management.
- Business applications of software development.
- Client networking.
- Quality assurance and technical writing.
- Legacy systems etc.
Outsourcing bags the future.
India needs to increase the workforce, at least 10 fold by 2008, to keep in pace with the growing competition. Quoting the 1999, Nasscom-MaKinsey report, India needs to have at least 2.2 million knowledge workers in IT software and services related areas by 2008. To achieve this goal India must focus on taking the following key steps to increase the number of IT experts in the outsourcing field. This will turn influence the growth of IT outsourcing to India remarkably.
1. Establishing IIT/IIIT in each state
- Indian Institute of Technology, is renowned for providing fresh IT graduates / post graduates.
- Indian Institute of Information Technology (IIIT) a 4 year old institute is a joint initiative by the government and the industry, which aims to give both computer software engineering degrees as well as conduct short-term courses. These institutes allow private sector companies affiliation with their own schools.
- Nasscom recommends the allocation of at least Rs.15, 000 crores in the 10th five year plan towards establishing at least one IIT in every Indian state.
2. Course-ware in IIT/IIITs
- Areas like Project Management, E-commerce, Java, Software Engineering, etc. are to be given more focus.
- The syllabus must take into account the changes in the industry.
3. Setting up of IIITs
- Quick steps should be taken to set up IIITs (Indian Institute of Information Technology) in every state while giving deemed University status to IIT’s without insisting on the mandatory stipulation period of 3 years.
4. Providing more PhDs
- To bring out high quality task force in IT field; India needs to have more number of PhDs at all levels ranging from the faculty to R&D.
5. Bridge courses
- Courses offered in Engineering Colleges throughout the country must be restructured so as to accomodate lessons on computer science programming in at least one semester. Whatever the field, computer knowledge will help those who pass out from these institutions to serve the software industry. Moreover, the industry needs more engineering professionals from different backgrounds too.
6. Graduation Courses with IT modules
- The graduation courses offered by universities and colleges countrywide must include computer related courses.
- Special IT modules must be introduced with a mission to impact the society. IT is a productivity-enhancing tool in a broad range of work situations.
7. Restructuring the courses
- Existing institutions like IIT, IISc; RECs; and MCA courses must be moulded in such a way so as to have the maximum output in minimum time.
8. Program to train teachers
- A combination of physical and virtual training programmes to train teaches (3T program) at all levels ranging from Primary and Secondary School levels to post and under-graduate courses and Engineering colleges has to be established, to train teachers.
9. Inter Linking Educational Institutes
- To facilitate the sharing of high quality education and library resources, the universities, engineering colleges, medical colleges, other educational institutes and R&D organizations must be brought under one network.
10. Retraining
Expert service is needed to lead and support IT projects in areas like CRH/e-CRM implementation (front office automation, supply chain management, custom relationship management etc.) and to provide ITES such as finance and accounting, HR, engineering design. For meeting these current requests, the corresponding industry experts must be given a good training; facilitating them with IT knowledge.
Grooming with IT outsourcing in India, the government of India needs to concentrate on destroying the cobwebs of regulatory hurdles in emerging service lines like IT- enabled services; unlocking growth in domestic market and proactively addressing the potential infrastructure and talent bottlenecks to make sure that the country is ahead in the competition. The government has to ensure 100% of its support in the field of IT outsourcing to India. Nasscom must also sharpen its focus in moulding India as a “Global Services Sourcing Hub”.
A few steps more for IT Outsourcing in India.
Firms equipped in IT outsourcing to India have their own unique strengths and capabilities. Indian outsourcing firms look at their businesses differently, behave differently, and do different things from that of the past.
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