Outsourcing in India: Cheap and Reliable.

Table of Contents

Introduction

Outsourcing entails constricting through erstwhile establishments to carry out business dealings that are deemed “non-core” as well as “non-revenue” producing in the direction of the business dealing. Establishments utilise “outsourcing” facilities on behalf of tasks, for instance “payroll”, invoicing and so on. While these practices may perhaps be achieved economically and reasonably, through erstwhile corporations, outsourcing permits establishments to concentrate on its mainstay proficiencies.

Outsourcing is delegating a procedure, for example artefact creation or development, towards an intermediary business. The assessment to subcontract is frequently carried out due to a concern for decreasing business’s expenses, transmitting or storing up power focussed at the proficiencies of a fastidious company, or to formulate extra proficient utilisation of property, industry, assets, knowledge and capital.

Outsourcing occupies the relocation of the organization in addition to the everyday implementation of a complete trading task to an outside provisional supplier. The patron association and the dealer go in a deal contract that identifies the assigned packages. In the contract the provider obtain the resources of manufacture in the shape of a relocation of individuals, possessions and erstwhile assets from the patron. The patron consents to acquire the facility from the provider for the time of the agreement. Company divisions characteristically subcontract comprise of “information technology”, individual assets, amenities, property organization, and book-keeping. Several corporations in addition subcontract consumer sustenance and “call centre” utilities similar to marketing on TV, Computer Aided Design sketching which is high on demand, consumer provisioning, promotional explorations, industrialisation, planning, internet programming, and technical scripting, “ghost-writing” and manufacturing.

Outsourcing” and “offshoring” are utilised transposable in open communication regardless of significant methodological disparities. Outsourcing entails dealing through a contractor that could or could not engage a little measure of “offshoring”. On the other hand, when we talk about “offshoring”, it is the relocation of a managerial utility to a new state, despite the consequences of, if the vocation is “outsourced” or resides inside the unchanged business.

Outsourcing denotes huge mainly Information Technology “outsourcing” accords. Outsourcing is an agenda to facilitate diverse divisions of the patron company to be supplied as of changed brokers. This necessitates ascendancy representations that match scheme, noticeably describe dependability and encompasses along the length incorporation.

Premeditated outsourcing is the systematized understanding that materializes as companies depend on transitional promotions to offer dedicated facility that complement active potentials installed beside a company’s assessment succession. This kind of understanding generates importance in companies’ contributed procession ahead of those reimbursement attainments during expenditure wealth. Transitional promotions that offer dedicated facility come out as unlike manufacturing situations strengthening the division of creation. Consequently better information consistency and abridge harmonization, apparent organizational segregation surfacing beside an important succession. Division of transitional promotions transpire as the harmonization of invention athwart an important procession is shorten and at the same time as information turn out to be consistent, formulating it undemanding to relocate manners athwart limits.

Description: Business Processing Outsourcing-BPOs

Business process outsourcing (BPO) include the broadcast of practices beside the connected functional performances and tasks, to an arbitrator accompanied by a minimum definite identical provisioning point and where the patron include a determined hold on the actions of the seller for joint extensive period achievement. BPO is absolutely linked to the hunt for additional well-organized managerial devises that include price decline, output expansion and pioneering potential. For this reason, it is the basis for tactical benefit.

BPO is over and over again separated into two groups: “back office outsourcing”, that comprises of in-house production roles for example costing or procurement, in addition to “front office outsourcing” that comprises of consumer linked provisions for instance advertising or methodological maintenance. The everlasting openings Information Technology offer, motivates transitional BPO movements. BPO which specifically look for business remotely far away an organisation’s individual nation is occasionally described as “offshore outsourcing”. BPO which is specifically looking for business to an organisation’s adjacent state is now and then identified as “nearshore outsourcing”.

Employment of a BPO as contrasting to an “application service provider (ASP)” more often than not also indicates that a definite sum of threat is shifted to the corporation explicitly operating on the progression fundamentals in support of the subcontractor. BPO comprise the “software”, the progression supervision, and the individuals to function the facility, at the same time as a distinctive ASP replica comprise merely the terms of contact to utilities and characteristics supplied or doled out in the course of the utilisation of “software”, typically by means of internet “browser” to the consumer. BPO is a component of the “outsourcing” business. It is reliant on IT infrastructure; therefore it is as well denoted as IT facilitated provisions. Information progression “outsourcing” plus authorized procedure “outsourcing” are several of the divisions of “business process outsourcing”.

Solitarily the generally essential benefits of BPO are the system that it facilitate to boost an organisation’s litheness. Nevertheless, quite a few resources have dissimilar traditions in which they observe managerial litheness. Consequently “business process outsourcing” improves the agile-ness of an association in diverse traditions. For the most part provisions offered by BPO sellers are presented on a charge for provisional sources. This assists a corporation aptly more agile by altering set into changeable expenditure. A changeable expenditure configuration assists a corporation resorting to alteration in essential aptitude and does not indispose a corporation in endowing in possessions and thus formulating the corporation further agile. Outsourcing possibly will offer an organisation with amplified suppleness in its source administration and decrease retort period to chief ecological modifications.

Literature Survey

When it comes to information technology, suddenly India is the talk of the town. Take the Southern Indian City of Chennai; all eyes are turned towards Tidel Park, and IT corridor has become the place to be. Every second youngster wants to be an IT professional, and all the major IT companies have firmly planted themselves in the metropolis. Information technology has come to Chennai with a bang. Even though people claim that IT entered Chennai a decade ago, the real impact became apparent only around five years back, when big companies like Cognizant, Infosys and then likes emerged in the Chennai market – and the city’s route to IT/ITES hub began.

In the past few years Tamil Nadu saw a phenomenal growth in the IT/ITES, BPO and IT hardware manufacturing sectors. The Software exports from Tamil Nadu has touched Rs.14,115 crores, while the depth and range of the IT sector speaks for itself in the following figures:

  • Application Software and System Software: 70 per cent,
  • IT Enabled Services (ITES) and Business Process Outsourcing (BPO): 13per cent;
  • Communication Software, VLSI Design and Web Solutions: 8 per cent,
  • IT Consultancy: 6 per cent,
  • Product Development: 3 per cent.

Given these figures, it comes as no surprise that a large chunk of the State’s economy is dependent on IT and BPO sector. In fact, according to 2004-05 fiscal figures, the IT sector was churning out 10703 crores, which have been increasing by the year. The state government having taken the initiative, now sits smugly and watches the rewards roll in. In addition, a number of software units have also grown quite rapidly in the State, which can now boast of approximately, 1500 software units that have established their facilities. Foreign investment is also flowing in smoothly, opening job opportunities for a huge number of engineering graduates.

Telecommunication sector has also flourished in Chennai. When Bharti Enterprises, India’s leading telecom conglomerate, announced the Airtel’s launch in Chennai in 2001, it was just the beginning. The following years saw an immense growth in this field in the State and today Tamil Nadu stands among the leading states in terms of telecommunication.

It would be safe to attribute that most of these rapid developments have come due to IT’s powerful presence in the city. With a decent salary at the initial level, young people have found needed spending outlets, which they found in the shape of malls, pubs and coffee outlets. A very rosy picture, indeed. So what makes Chennai such a viable IT hub? Most IT experts claim that Chennai always had what it takes to make it an IT hub. Prior to the IT boom, Chennai was known for its expertise on automotives. Probably the only automotive hub in the South, the metropolis has been tinkling with automotive components ever since 1960s, and today it is a veritable home to international automobile giants such as Ford and Hyundai. The automobile sector has always had a strong presence in Tamil Nadu, which could arguably be one of the reasons why it could open doors to the IT industry with such ease.

The second important factor, which has allowed IT to become successful in Tamil Nadu in general and Chennai in particular, is the academic infrastructure, which churns out a considerable number of engineering graduates every year, most of whom are quickly absorbed in the IT/ITES sector. According to the government figures, Tamil Nadu at this point of around 400 engineering and polytechnic institutes. This kind of indigenous untapped manpower was bound to attract investors, which it did. Also, Chennai has a well-connected airport, low cost of living as compared to other cities in India, and more importantly, less attrition, one problem that companies face in other States.

Another very important factor that turned Chennai into an IT/ITES hub is the State government’s initiative and keen interest in the field. The first State to form an IT policy, both DMK and AIDMK governments have initiated important ventures to pump investments in the IT sector. Though a little slow in the uptake, the State is also working on the infrastructure of the sector, in order to avoid collapse in the progress. Tidel Park with all its state-of-the-art technology is ample testimony of the State’s interest in making Chennai the leading IT metropolis. In fact, this IT boom is now gradually moving to areas like Coimbatore and Madurai as well.

The dissertation will first talk about how IT came to Chennai – the major factors – and how it has affected the city’s social and economic structure. They are mostly the same factors mentioned above, but they are discussed more in depth in the proceeding chapters.

Research Design

The one factor that distinguishes Chennai from Hyderabad and Bangalore is the State IT/ITES policy. Most IT experts agree that had it not been for the focused initiatives and a strong IT policy of the Tamil Nadu government, information technology in the State would not have progressed so rapidly and Tamil Nadu may not have emerged as a leading state in the manufacture of electronic products, telecommunication equipments and computers.

Ever since the late 1990s and into the 21st century, the TN government has been a driving force behind the uplift of IT in Chennai. The State was the first to come out with an IT policy. It helps of course that Chennai can boast of quite a few engineering colleges, but the government has also been sharp enough to lure foreign investments in the IT and BPO sector. Says Sriram, owner of a software house, BTS, “It also helps that the current State government has enough clout on the Central government to manipulate the IT policy, and achieve their target.”

Resultantly, the state saw an influx of major companies like Samsung, Motorola and Dell Computers which established their manufacturing units in Tamil Nadu in the telecommunication sector, while IT companies like Cognizant, Infosys and the likes also started looking seriously at Chennai as a prospective IT hub around five years ago. Today, IT majors such as TATA, Infosys, TCS, Wipro, Satyam, Flextronics and Cognizant regard Chennai as their veritable headquarters.

According to the 2006-07 policy note of the IT department, government of Tamil Nadu, a sum of Rs. 1.25 crores has been provided in the demand for IT promotion. In the same note, Chief Minister, M. Karunanidhi mentions the new Information Technology Policy, which will “comprehensively cover all sectors of the IT industry- Software, IT Enabled Services, Business Process Outsourcing, Product Development, and Knowledge Process Outsourcing”. Similarly, a separate policy for IT Hardware manufacturing and Biotechnology is promised.

In fact in the 2006-07 year budget, the State provided a provision of Rs.3 crores for reimbursement of Stamp Duty paid by the developers in the private IT parks. It also gave a sum of Rs. 1 crore for encouraging the participation of small and medium enterprises in national and international events.

The information technology budget of 2007-08 saw an expansion in the IT sectors with software companies being set up in areas other than Chennai. In fact, February 2006 witnessed IT’s entrance in Coimbatore when the foundation for the Information Technology Park was laid. Such parks in areas like Madurai, Trichy and Salem are also in the pipe line.

The setting up of ELCOT – Electronic Corporation of Tamil Nadu – was also an important link in the attempt to develop the IT sector in the State. Touted as the “promotional agency designated by the State government for promoting IT industries in Tamil Nadu,” the Corporation has been quite active. According to government claims, ELCOT is actively involved in creating a proper infrastructure for the IT sector, besides helping entrepreneurs in developing computer software and hardware activities, promoting joint ventures, and providing technical support for small and medium sectors.

One of the major achievements of ELCOT that the government claims is the setting up of Tidel Park at Thirvanmyur, Chennai. The 20km, six-lane IT corridor – often called a veritable Silicon Valley of India – has now become the hub of all major companies and is expanding by the day. In fact, in the 2007-08 budgets, Chief Minister Karunanidhi announced that bids for establishment of a second Tidel Park in Taramani, Chennai have been called for.

As far as IT Enabled Services is concerned, it was in 2000-2001 when the real break came. Even though a few companies did set up their back-offices in Chennai a decade ago, the treatment was quite step-brotherly, with Mumbai bagging all the high-end business. Eventually, the one factor which played a major role in bringing ITES to India and more importantly, Chennai was the Y2K incident. As in the case of IT, when Delhi had become slightly expensive for many firms, they began looking south and eventually settled in Bangalore, Hyderabad and Chennai, courtesy its indigenous human capital.

“The resources and infrastructure in Bangalore was getting exhausted, which is why many companies began looking to Chennai as their next ITES capital,” says Arshad Hassan, who works for Sutherland, a US-based BPO. “The infrastructure in Chennai may not be great now, but it is definitely improving with more focus on SEZs,” he adds. Also, new players found it safer to land in Chennai rather than Bangalore where the big brands were already a dominant force.

Once again, the Tamil Nadu government played a proactive role in promoting ITES in the State. The ITES policy of 2005 takes an in depth look at the ITES sector with a focus to turn Tamil Nadu into an ITES capital, and inviting foreign investments in the State. Resultantly, Chennai saw keen foreign investment, which is constantly growing.

However, critics insist that there is more than what meets the eye. Many argue that the Tidel Park, with all its state-of-the-art technology, is not equipped to deal with the hundreds of investors that it has attracted. The rapid growth of the IT industry in Chennai also saw an influx of employees from other cities, and according to these people, the city is not ready to deal with this influx at this point. Writes N. Ramakrishnan:

“The Old Mahabalipuram Road, or the IT Corridor as it is commonly referred to, is a classic example of poor infrastructure. This stretch of road is witnessing unprecedented levels of construction activity; so much so that by rough estimates nearly 2.5 crore sq ft of office space for the IT sector alone is under construction. A number of property developers have announced plans to set up large-sized residential projects with the development getting pushed further, beyond Chennai.

“The Government announced plans to improve this road to “international” standards and entrusted this work to a company which was half owned by the State Government. That project is running months behind schedule, with just a 3-km stretch getting improved, almost 18 months after what was originally scheduled, and not much progress beyond that. By the time, this project to improve the road from Taramani to Siruseri, a 23 km stretch, is completed, at the pace of progress; the six-lane road might just not be enough to handle the number of vehicles that will use that road.

“Therefore, this calls for a more radical initiative. Probably an elevated expressway along the whole stretch or a mass transportation system — a mono-rail, perhaps.

Is the Government ready for such thinking or would it focus all its energies on more freebies, is the question that the industry and investors would like to know the answer for.”

Critics also predict that water, already a sore point with Chennai, will become a huge problem, particularly in the IT corridor, while the 24-hour power supply and sewage disposal from the corridor will also put a lot of stress on the city’s power distribution and waste disposal infrastructure. But this will be discussed in detail in the chapter on Tidel Park and IT corridor.

However, the State representatives claim that Chennai is well equipped to deal with the pressures of being an IT/ITES leader in India, which is what, sets it apart it from Hyderabad and Bangalore. Moreover, despite the infrastructure being a prospective problem, it cannot be denied that the IT/ITES sector in Tamil Nadu, particularly in Chennai has progressed in leaps, and the claim that Chennai can be the IT leader in future will not be far wrong.

Data Analysis

“Welcome to Tidel Park – The preferred IT Park”, reads the official website of Tidel Park. Claimed as India’s single largest IT Park, this 46km long corridor – according to government figures – presently houses, or is in the process of housing 30 IT Parks, involved in investment of around INR 60 billions. The total office space, TNRDC (Tamil Nadu Road Development Company Ltd) claims, is about 20 million square feet.

The IT corridor connects Madhya Kailash Temple Junction on Sardar Patel Road, with the East Coast Road (ECR) at Poonjeri near Mahabalipuram. Inaugurated in 2000, this IT corridor opened doors for not just major local IT companies, but foreign investors as well. It was also instrumental in creating a large number of job opportunities, particularly for the fresh graduates from the various and engineering colleges in Tamil Nadu. Although in its infantry stages, the Tamil Nadu government envisages the IT corridor as a city unto itself, with “high speed data / voice communication backbone by multiple service providers and 100 per cent back up for power and communication facilities.” It also claims that the Park will have “Intelligent building management system (IBMS) facility connected to all key utilities, video conferencing facility, world’s third largest TES systems for ACMV, premises and facility management by multinational agency, and facilitation / consultancy services for new JVs in IT infrastructure projects.”

In terms of infrastructure, the corridor can boast of all the state-of the-art amenities, including 100 per cent stand-by captive power plant, high-tech broadband connectivity with unlimited bandwidth for ISDN and video conferencing, automated energy management system and access control and security systems.

Also, in order to accommodate the IT professionals working in the Park, a lot of residential units also started cropping up along the IT corridor. In fact, according to a year 2005 news report, the entire residential project estimated at a whopping INR 550 crores. This has led to an automatic and exorbitant hike in the real estate prices all over Chennai, an issue which will be discussed in detail in the chapter pertaining to impact on real estate.

So far, so good. On the outset, it does seem like Tidel Park is the best thing to have happened to Chennai is decades. It also cannot be denied either that the Park has been inviting a huge amount of capital (as illustrated in Table 1.) for the Tamil Nadu state. Therefore, the impact of Tidel Park on the state economy stands true. But then again, there are always two sides to the picture.

“The TNRDC claims that the road infrastructure in and around Tidel is fantastic,” says an employee with a software house situated on the Old Mahabalipuram road. “But what they conveniently omit is the fact that this work has begun at least three years later than it should have.” Resultantly, while the road in front of Tidel Park looks like it has just been laid, but the rest of the road all the way to TCO is in a dilapidated condition. In fact, with so much of sleek glass and mortar emerging on both the sides, the so far neglected stretch becomes all the more conspicuous – which is the least of the problems.

More problematic is the fact that since the industry standards call for 100 sq feet for every employee, the total area of IT parks in Chennai should provide office space for two lakh people. However, in the hurry to attract investment, the city administration decided to sideline the supporting infrastructure. Resultantly, even if a third of people who will be employed in the corridor decide to purchase a house, the demand for housing will be 60,000 dwelling units per year, currently only 3,000 to 4,000 dwelling units are being made.

Critics argue that as a result, Chennai cannot provide housing for IT employees. The corridor also requires a supply of 50 litres of water per day for every employee; this demand cannot currently be met and will require a rearrangement in the method of distribution and allocation of fresh of water resources of the city. The internal roads leading to these IT Parks have also not come up. The requisite 24-hour power supply and sewage disposal from the corridor will also put a lot of stress on the city’s power distribution and waste disposal infrastructure.

Similarly, other areas in the city have also felt the impact of this congestion directly or indirectly. “This rise in real estate prices has put enormous pressure on the land and road infrastructure,” says Sriram. “The development has been somewhat unplanned, at least in the heart of the city, with multi-storey buildings beginning to dominate the landscape. This has led to practically no parking space in most areas, and extremely unruly traffic.” This may seem trivial to many, but to a common man, these amenities, or rather lack of them, makes a huge difference, adds Sriram.

Research Findings

“In the last few years we have experienced that the IT sector has a major potential to change the future of real estate. At present, there are approximately 1, 75,000 employees in the software, data processing and call centre business. According to estimates, these employees earn INR 35 billion [per annum] in terms of direct salary. This senior has shown indication in real estate investments.”7 In an interview with the Deccan Chronicle, E.V. Perumal Sami Reddy, Chairman, EVP Group, Chennai, drew an apt picture of one of the most conspicuous impact of information technology on the city’s social and economic landscape.

Of all the major influences that Chennai have had to face from IT in terms of economics and lifestyle, the real estate has been hardest hit. In the past couple of years, Chennai saw a phenomenal – almost unbelievable – soar in land prices in both commercial and residential areas.

As mentioned in an earlier chapter, various residential units have come up along the IT corridor in the past couple of years. While on the one hand, it is serving its purpose, the fall out has been a rise in land prices to alarming heights. “The demand for commercial office space shot up when software companies decided to have operations in Chennai. The city then did not have many built-to-suit commercial buildings, which was what software firms wanted,” says the head of CB Richard Ellis, (Chennai operations) Thirumal Govindraj, in an article by Shabana Hussain in Financial Express in 2004.

Tamil Nadu state government has also been quite instrumental in bringing this boom in the realty sector. Focused on promoting Chennai as an ideal business destination, the State invited various foreign investments, which proved to be a viable market for real estate.

Another important reason for this hike has been the high disposable income in the hands of young IT professionals. “Someone who was getting INR 10,000 per month a few years ago, is now getting anything close to INR 40,000,” says Chawla of GO Consultancy. Resultantly, while the IT sector may be able to afford this rise in real-estate prices, it is the common man who has to bear the brunt. In the past one year alone, land prices have gone up by 60 to 80 per cent in many localities.

Frontline magazine, in a special feature on Chennai’s realty boom, validates this argument:

“Until about a decade ago a typical property hunter would have been about 50 years old, planning for a house on the verge of retirement. Invariably such persons would have been residents of Chennai or would have hailed from Tamil Nadu. This situation has changed. Real estate developers say the average age of prospective clients now has dropped to 28-35. Young and adventurous, with disposable incomes that are a manifestation not only of the IT boom but also of newer occupations in the service sector, they come from all over the country. Says one real estate promoter: ‘Chennai’s biggest advantage is that it blends the characteristics of a small town and a big metro.’” It further adds:

“It would be a mistake to think that the boom is entirely driven by the IT phenomenon. The noticeable change in the age profile of the industrial workforce – not just in IT but also in the manufacturing and services sectors – has been made possible by a more flexible approach to labour. Employers across the board appear to prefer a younger workforce, which has implications for the real estate sector.”

“A square foot that was costing INR 3,600 in October 2005 was costing INR 6,700 three months later and today, the cost has spiralled up to INR 10,000 per square feet,” says Sri Ram of BTS referring to an area in Bishop garden. Similarly, a 2400 Sqft house in Perambur, which was priced at INR 55 lacs a few months ago, is now costing INR 75 lacs – on non-negotiable terms. Moreover, according to the owner, the price will keep on increasing.

Initially, Chennai was slow in picking up the uptake. It was only after the state government began to aggressively promote the real-estate market, that buyers began looking to Chennai. In fact, according to Hussain, earlier, since the local realty industry did not have the requisite experience, there was an influx of outsiders like Bangalore-based Durgashree, RMZ, and Mumbai-based Rahejas. Also involved were MNC players like the Singapore-based Ascendas and Lee Kim Tah Holdings. The latter are working jointly with the Tamil Nadu government to construct IT parks on the outskirts of Chennai.

Similarly, the type of houses that people prefer is also changing. With around 40 per cent of the IT professionals coming in from other locations, there has been an increase in demand for serviced apartments and independent villas. Reddy says that ever since the IT/ITES and BPO has put the city on a fast track, people are changing their lifestyles and are looking for more amenities than before. Needless to say, the real-estate agents have been quick to capitalise on this market.

“People blame the IT sector for this hike in real estate prices,” says an IT professional who came down to Chennai from Gujarat three years ago, “But it is not really our fault either. If I have to live in Chennai, I need accommodation. And if the landlord charges me a few thousands more than the average just because I’m an IT professional, I have no choice but to agree to that.” Many IT professionals echo these sentiments, arguing that there is no reason why they shouldn’t maintain a certain standard, since they have the resources to do so.

However, on a positive note, with independent houses getting out of the common man’s reach, Chennai has witnessed a boost in the ‘flat culture’, with more people opting for them. Also, real-estate agents agree that professionals in their late twenties and early thirties have now begun to invest in land, which they see as a sign of prosperity for Chennai. This also had a direct impact on banks, which came out with various home finance loan schemes, giving boost to economy – another optimistic feature of the scenario.

In addition, when it comes to the commercial aspect of real estate, the city’s landscape is definitely going for a makeover, with tall, glass buildings popping up all over the metropolis. In fact, talks of making the country’s first skyscraper in Chennai have begun to make rounds. “It may be as tall as the Petronas Tower in Malaysia, if not more,” says T Chitti Babu, MD Akshya Hom