India's Outsourcing Economy Booms

Indian outsourcers saw strong gains last year in spite of calls by some U.S. lawmakers to penalize businesses that send tech work overseas.

India's export of IT products, mostly in the form of outsourcing services to the United States and other Western countries, increased 16.3% in 2011, compared to the previous year, to reach $69 billion in total. The country's IT and business process outsourcing sector, including exports and domestic sales, topped $100 billion in total revenue for the first time.

IT offshoring services alone grew 19%, to $40 billion, while sales of business process outsourcing (BPO) services, such as call center operations, grew 15% to $13 billion.

Officials at NASSCOM, a trade group which represents Indian outsourcers, said part of the gains were due in part to concerted efforts by India's tech industry to move beyond commodity services like infrastructure management and application maintenance into higher margin areas, such as consulting and targeted services for industries like finance and healthcare.

"Indian IT-BPO firms have matured from being service providers to strategic partners to their customers--highlighting their importance in enabling growth of customer businesses," said NASSCOM president Som Mittal, during a press conference to announce the numbers.

[ Outsourcers are beginning to hire more American workers. See India's HCL Hiring 10,000 In U.S., Europe. ]

Also, experts say the weak U.S. economy is continuing to drive companies to cut costs, a trend that helps outsourcers in low-cost countries like India.

"That's one of the primary drivers," said John Caucis, who follows the IT services sector for Technology Business Research. Caucis added that Indian outsourcers are also getting their fair share of discretionary IT spending. "We're starting to see some new investments in IT, though the outlook for 2012 remains cautious," he said.

India's outsourcing industry is continuing to thrive even as political rhetoric against the practice heats up in the White House and in Congress. President Obama in January held an insourcing summit in D.C., at which he encouraged companies to keep jobs in the United States.

And congressman Tim Bishop (D-N.Y.) earlier this month introduced a bill, the U.S. Call Center Worker and Consumer Protection Act, that would make businesses that outsource ineligible for federal loans and grants. It would also force them to disclose the number of jobs offshored.

Market watchers, however, say such efforts aren't likely to gain much traction, given the extent to which offshoring is already ingrained in most large companies' business practices and the tight supply of IT workers in the United States. "You're not going to see much political impact," said Joe Walent, also of Technology Business Research. "Getting the right people for the jobs right now domestically is too hard and in a lot of cases it's easier done overseas."

NASSCOM said it expects India's outsourcing industry to grow at between 11 and 14% in the current fiscal year.

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