The National Outsourcing Association has predicted, for some time, that innovation will be a really key feature in the future of outsourcing.
Companies will look for service providers to not just fulfil their day to day requirements, but to offer something new, fresh and ahead of the game. A recent article in McKinsey Quarterly has highlighted the fact that some suppliers are simply not pulling their weight when it comes to innovation.
India has approximately 50 percent of the business and technology offshore outsourcing market. This is a vast chunk of an industry which is predicted to be worth $500 billion by 2020. However, McKinsey highlights that this market share is predicted to drop. One of the key reasons for this; the lack of innovation amongst Indian suppliers!
India, despite priding itself on its technological offering, accounts for less than one percent of the patents issued around the world. End users are becoming more sophisticated in their procurement choices.
They don’t just want the standard work to be carried out, they want bespoke improvements and technological advancements that keep them ahead of the game, if India can’t provide this then end users will go elsewhere.
Of course there are other factors that are contributing to the dip in India’s market share. Attrition rates are increasing at a rate of knots and the country can no longer boast a cream of the crop workforce for all companies offshoring to the outsourcing powerhouse.
It seems that, unless you are a Google, Microsoft or IBM, the Indian workforce doesn’t really want to know. Graduates have realised that their skills are prized and are no longer looking to do the lower level work that was traditionally the foundation of the Indian outsourcing economy.
India’s infrastructure is also under strain, something that the McKinsey article highlighted. They reported that the Indian outsourcing epicentres (Hyderabad, Chennai etc.) have a rapidly depreciating infrastructure.
Power cuts, water shortages and inadequate telecommunication means that India is yet to spread its outsourcing market to new areas, which are key if service providers are to take advantage of a fresh batch of graduates and a reduction in land costs.
If you compare this situation to the new upcoming destinations such as Sri Lanka, with a well skilled work force and excellent infrastructure, Kenya, with its new fibre optic cable set for completion this year and Eastern Europe, great for nearshore savings, then India could emerge as a destination with a lot of work to do.
A lot of the big Indian players are moving into new destinations in order to suck up the indigenous workforces and offer a broad spectrum of services to their clients.
Right now, a UK end user can use a supplier such as Infosys and not have to offshore their processes to Mumbai, chances are, their offshored work could be as close as Poland or Hungary. So in essence, Indian providers are protecting themselves by having a presence in most emerging destinations.
However, by ignoring the rise in innovation, Indian service providers are leaving themselves vulnerable to a whole host of competition. We could find the big Indian players falling down the value chain as smaller innovative suppliers, who meet the sophisticated end user’s criteria, work their way up.
And putting its money where its mouth is, to paraphrase an old adage, the NOA is looking to appoint an innovation Board Member.
Quite simply, the time to innovate is now!