Although business process outsourcing contributes substantially to India's revenue and drives 30 per cent growth in IT exports, sustaining it would be a challenge as other English-speaking countries are starting to erode the country's cost advantage, according to Forbes magazine.
Elaborating on the issue, Forbes.com editor Paul Maidment says other English-speaking countries are starting to erode India's cost advantage and the Philippines is becoming a serious competitor.
China is another growing rival and has the advantage of 'more comprehensive and reliable' infrastructure than India. Besides, the diaspora of overseas Chinese is bigger than that of Indians, particularly in the United States and southeast Asia.
Yet another rival is Vietnam which is emerging a lower-cost rival to the Indian firms and further down the cost ladder are French-speaking Seychelles or Mauritius who have the language advantage in European markets, he says.
He notes that India's three leading IT companies -- the giant Tata group's consulting arm Tata Consultancy Services, Infosys and Wipro -- get about 80 per cent of their revenue from overseas sales, and 80 per cent of that is accounted for by the US.
But a weakening dollar and the political scrutiny in the US, where nine states are considering an anti-outsourcing legislation, have put pressure on India's IT sector to diversify its export markets.
Indian IT companies, Paul says, are making substantial inroads in the United Kingdom, which is responsible for two-thirds of their European earnings. Labour union opposition to outsourcing there is diminishing.
One Indian company has even set up a new call centre in Northern Ireland - sort of reverse outsourcing. But he says there is much slower going in non-English speaking world though that is starting to change notably in France and Germany. A lack of French and German speakers in India is an obstacle to overcome.
Paul says there are two ways the Indian firms are seeking to meet the challenge.
First, by moving more into R&D. Satellite-mapping technology is one area it is specialising in. Microsoft has moved one.
Second, by more vertical integration, to offer clients a more comprehensive range of services. That is driving some of the international acquisitions Indian IT companies are making, such as in the US with UpStream, Essar Teleholdings and Aegis Communications.
At the same time, they are buying outsourcing operations in lower-cost countries such as Mauritius and the Philippines. But he says he is not sure that this approach would work.
Many multinationals now pick and choose the services they buy from many international markets and have the reach and scale to make that a cost-effective way of doing things, he adds.
"Why buy outsourcing from an Indian firm that will only outsource the work to the Philippines when a GE or a Siemens can go direct and cut out the middle man?" he asks.
Some Indian regional accents, especially those from the north, he says, have proved easier to remodel than those from the south.
"The problem here is that the IT industry is largely based in the south around Bangalore, Hyderabad and Chennai. A lot of new outsourced operations have been put in the north, near Delhi and Chandigarh -- where Dell put a call centre -- to take advantage of better accents, but they are a long way from the industry's skill pool down south."
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