Foreign Outsourcing Companies Face Challenges

I've written about outsourcing to foreign countries before, but I've never really thought about what might be going on in those foreign countries. All the whining and complaining has been done by others and I'm more interested in looking at what is actually going on in these countries that receive the bulk of outsourcing dollars. And so it was with great interest that I read an article from the April 1st edition of CIO that described the challenges that India, arguably the country that most people think of when it comes to outsourcing, is facing.

First, the turnover rate for major outsourcing companies is in the mid-teens. Such a high attrition rate means that a lot of time and effort has to be put forth constantly training new hires. In addition, work quality issues can creep in to projects when a worker's knowledge walks out the door with him.

Infrastructure Troubles
Second, India's infrastructure is so unstable that blackouts throughout the day happen with such frequency that no one bats an eye. All computers are hooked up to generators so that work can continue when the lights go out. Even personal residences have their own generators. I suppose I would get used to such interruptions after a while, but such interruptions would certainly impact my productivity.

Third, the roads present another infrastructure challenge. Office parks that are so typical of Indian IT companies are generally accessible by just one or two roads which are now forced to carry 5 times the amount of traffic they were designed for. The end result is that a 6 mile drive can take 90 minutes — a whopping speed of 4 miles per hour! And if you've lived in a big city you know that such road delays can make for stress-inducing aggressive drivers. Companies have resorted to hiring shuttles to keep their employers from arriving at work frazzled and distracted.

Foreign Competition
Fourth, and this one may be hard to believe, India is actually facing pressure from other countries. Eastern Europe currently holds just less than 1 percent of the world's outsourcing market, but this area is set to grow significantly in coming years according to a study from McKinsey. Eastern Europe is particularly attractive to West European countries because of the lower wages as well as the likelihood of finding compatible language capabilities.

Political Strife
Lastly, there are political issues in India. Not the usual items like corruption or bureaucracy that you would expect. It seems that the technology boom in India has impacted the lives of just 30% of the population. The remaining 70 percent continue to live in rural towns many of which aren't even accessible by phone. While at first blush this may not seem to be much of a problem, it turns out that this 70 percent of rural dwellers resent government officials for the continued spending on and attention to the needs of the IT workers and companies. This resentment manifests itself in a veto of any politician that attempts to pass bills focused on improving the lives of those in urban areas.

I find it interesting that success has brought with it challenges that no one anticipated. I don't know that there's a magic bullet for India, but I'm pretty sure they're working hard on addressing every item I mentioned above. If they succeed, we could see an even more impressive grab of market share.

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  1. Am not against India, China, or the Philippines per se but when businesses from English speaking countries decide to outsource to these regions and when the latter failed to meet the SLAs - that's what I hate the most. We are losing many huge opportunities when this happens because this bad experience may become a word of mouth to others that is why according to the number 1 outsourcing region is Canada and not India.

  2. It's been a great competition between India, China, and Philippines when it comes to outsourcing arena. I've been in an outsourcing industry and proven that India is the most competitive country, and yet there are still problems.

  3. Unfortunately for India they have more than enough problems to deal with. A very sad realization...

  4. I've been wondering about outsourcing. I had no idea what issues these companies faced. Thanks for the insight!

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