Outsourcing to India cuts costs by 50%

Outsourcing ITES-BPO work to India has helped companies achieve 40-50 per cent cost savings, according to the National Association of Software and Service Companies (Nasscom).

An analysis on the ITES-BPO industry, released at the India ITES-BPO strategy summit in Bangalore on Tuesday, said that companies are also able to generate higher free cash flows due to reduced investments in physical infrastructures, telecom and equipment.

Wage arbitrage has also led to increased cost savings, Nasscom said.

The need to focus on core competencies to remain competitive is driving more companies to offshore outsourcing.

"Offshoring helps free up resources and help higher management focus on core business requirements. Offshoring also allows for access to new technologies and talent to help strengthen business offerings," Nasscom said.

According to the Nasscom-McKinsey report, in the long term, the two parameters that would differentiate the business models of successful ITES-BPO (information technology enabled services-business process outsourcing) players would be the level of intellectual property and the breadth of offerings the player specialises in.

Nasscom said the rapid growth of ITES-BPO has contributed to a continued mismatch between the demand and supply of experienced resources in the industry.

"Consequently, employment generation and attrition levels remain high. Indian ITES-BPO added approximately 150,000 jobs in 2004-05. Even so, demand for experienced professionals outpaced their supply and attrition levels in the industry remain between 25-40 per cent," the analysis said.