View all articles by Subodh Gupta
India Intercultural Trainer & Business Consultant
India offers many opportunities for those who are brave enough to take risk and smart enough to avoid pitfalls. (Article updated in Oct 2014)
At the moment and in the future unless the project which is outsourced to India is big enough and on long term basis, it is going to be a loss making venture.
Let's see the various reasons which could result in losses by outsourcing to India.
(1)Unless the project is big enough and for long term, it does not justify the time and cost of selecting a vendor in India, as normally it takes between three to twelve months to completely hand the work over to an offshore partner.
(2)You need to make provision for laying off the staff in your own organization in your home country which will also lower down the morale of staff and could lower down the productivity in your own parent organization.
(3) There will be a cost to manage the contract.
(4)There is an additional cost of training because of significant cultural differences in Indian and Western management style.
(5)Biggest drawback is bleeding infrastructure. It is very difficult to imagine how things work in India if you have only lived in the UK or US.
(7) Perhaps the fastest salary rises in the world which makes it difficult to justify the savings by outsourcing.
(8) Extremely slow and inefficient legal system, which makes it almost impossible to claim any damage if your partner or vendor in India didn’t deliver as per the contract.
In fact nowadays there are fewer companies in comparison to previous years, who are looking towards India as a favoured low cost outsourcing destination.
Unable to find cost savings from their Indian captive centres, some firms have chosen to believe that the problem is India itself and decide to try another location because of other emerging other low cost countries.
"Focused on UK's top IT service providers, a study by Pierre Audoin Consultants (PAC) showed that China, Morocco and Hungary are the new locations of choice to set up offshore sourcing centres".
According to another study, “since the beginning of January 2007, UK's 20 largest IT services suppliers have opened 21 new global delivery centres. However, of these only two are were located in India".
Many companies are even looking forward and planning to close their Indian operations.
British insurance major Aviva, which is one of the major firms outsourcing work to India, is considering selling two of its four companies in the South Asian country.
Travelport Group, the travel-services business owned by buyout group Blackstone, sold its Indian back-office operation, to Intelenet Global Services Pvt Ltd, a Mumbai-based company, according to sources.
"JP Morgan has closed its equity research operation in India". "Citigroup is in the process of selling its Indian back-office operations, where it employs over 5,000 people".
In the month of April 2009, Delta Airlines announced to close their Indian Call Centres because of poor customer feedback.
Even IBM, a pioneer of large-scale tech offshoring to India is making major job cuts in the country this year 2014.
Very recently in Oct 2014, Yahoo decided to cut around 400 jobs at its office in Bangalore, India, representing more than a third of its workforce there. In the manufacturing sector Nokia said it plans to shut down production at a factory near Chennai. In a statement, the Finnish tech company blamed the closure on an asset freeze imposed by India's tax department.
Initially Nokia had planned to transfer the factory to Microsoft as part of the sale of the mobile phone unit. A few weeks after the companies agreed on terms, India froze Nokia's assets in the country,
saying the company owed $333 million in missing taxes. Nokia agreed to pay in December in order to transfer the plant to Microsoft. The next day, an Indian government lawyer said Nokia could face an increased tax
bill of $3.4 billion almost half of what Microsoft was willing to pay for the entire handset unit.
The disagreements carried on for months and finally Nokia and Microsoft agreed to exclude the plant from the deal and finally Nokia closing the plant.
Issued in the interest of businesses and organizations who are planning to open back offices in India or outsourcing to India.
The book “Doing Business in India & Understanding Pitfalls” is available for special discounts on bulk purchases (20 copies). Call us for special rates at +44(0)7966275913; or Visit us online at: http://www.subodhgupta.co.uk
The author Subodh Gupta has worked for about 12 years as an entrepreneur, an engineer, a guest professor to various MBA schools in India and about 9 years in the UK as a India Intercultural Trainer and Business Consultant.
He has also facilitated for the World's #1 corporate training company in the past.
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