Executive Summary
The paper is commissioned to evaluate the existing outsourcing industry in India and how well the existing environment in the nation favors the outsourcing needs of US Federal Government relating to Student Loan and Insurance Claim services.
The Indian Government, which has been recently elected on full majority and has ended the long trend of coalition affair, has been launching multiple initiatives to promote the outsourcing industry through programs such as ‘Make in India’. Moreover, according to the reports released by FICCI and World Bank the political governance in the nation is now favoring business establishments.
Indian outsourcing industry offers advantages such as Low cost skilled labor, the ability to handle multitude of services and strong command over the English language, while the lack of sufficient laws on maintaining data privacy and ensuring sufficient control over quality of operations, are some of the cons associated with Indian outsourcing industry. However, clearly the pros outweighs the cons and India seems to be suitable destination for outsourcing Student Loan and Insurance Claim services of the Federal Government to India.
Introduction
The economic recession of 2007-08 had left the entire global economy crippled amidst lower liquidity, higher cost and declining revenues. Now, organizations are adopting more sophisticated cost control models and one such method is the outsourcing of services. According to a standard terminology, ‘’Outsourcing is a business process as part of which an entity enters into an arrangement with another entity or supplier to provide goods and services to them’’. It is considerable that the word’ Outsourcing’ is the by-product of the concept of competitive advantage where an entity who holds an advantage in production of a particular good or service is rewarded with an arrangement to produce the goods for another entity, which eventually benefits from the resultant cost-saving out of the whole process.
Over the past decade of the blockbuster success of outsourcing industry, one country which has largely benefited and has benefited its clients, is India. Once dominated by the IT industry, the Indian outsourcing industry has taken a new leap with the launch of’ Make in India’ and Start-Up India, Stand-Up India’ campaign. A one of a kind political initiatives has now forced the overseas clients to re-consider India as a prospective manufacturing hub post the debacle of Chinese economy and growing political and environmental regulations there. In addition to the cooperative political environment, lower wages, favorable USD/Rupee exchange rate and a pool of skilled labors, is enticing many US based entities to outsource their manufacturing or business process to India.
Therefore, in this paper, we will be introducing some prospective business cases that can benefit from the outsourcing process along with description of skill sets required for the employees that will be part of the outsourced service. However, before introducing those business cases, we will be illustrating how even the US Federal Government has adopted the outsourcing model in India and are benefiting from the whole scenario.
Current outsourcing trends in US Federal Government
US Federal Government has long relied on third party serve providers, primarily offshore, for customer related processes and support. For instance, processes like Data Management relating to handling of huge amounts of data relating to citizen, their name, date of birth, social security number, health records, employment status, insurance status, et cetera, are outsourced to offshore companies. These outsource companies provide all the services that fall under data management, such as data integration, data entry, maintenance of database, etcetera.
In addition to the data management services, the Federal Government also outsources its IT infrastructural management services to IT service providers in India. As part of the IT infrastructural management services, Federal Government requires offshore companies to maintain and manage multiple networks, security systems, email infrastructure, et cetera.
Evaluating India’s outsourcing industry
Even though many of the US entities had understood the importance of outsourcing as a cost saving measure since the mid 20th-century, however, the trend turned largely aggressive for the last five-six years post the economic recession. Even though offshore outsourcing has been rated as advantageous because of cost-saving measures, there has also been concern over the disadvantages for outsourcing the services to the overseas country. Henceforth, in order to understand the scenario better, we have discussed the pros and cons of outsourcing to India.
-Pros of Outsourcing to India
i)Low cost labor resources
One of the biggest advantages that favors the western countries to cite India as the outsourcing hub is the availability of the labor at low cost. In other words, the overseas clients can hire a person for performing same function and duties at only a fraction of their existing cost.
ii) Higher productivity
A report published by the International Monetary Fund and Central Statistical Office(CSO), has confirmed that India has surpassed China owing to a comparatively higher productivity of its labor which eventually results in larger efficiency gains. This means that western clients can expect their services delivered at low cost and higher efficiency.
iii) Strong command over English Language
Unlike the individuals in China and Philippines, people in India are having a strong command over the English language and this facilitates the western clients to communicate with their service suppliers without any hindrance.
iv) Ability to handle a multitude of service requirements
Unlike the past, when India was only cited as the pioneer in providing IT and IT related services, the outsourcing industry has now grown tremendously and offers a multitude of professional services relating to accounting, back-end management, marketing research and research & development. Moreover, timely delivery of work commitments and improving professional attitude has been attracting offshore clients to hire participants from the Indian outsourcing industry.
-Cons of Outsourcing to India
i) Negligible rules over privacy of data
Unlike US laws, which are very strict over maintenance of privacy of the client’s data, Indian laws are relaxed over such issues. Therefore, many companies may not be willing to share such data to Indian outsourcing suppliers, citing the threat of leakages of the data.
ii) Lack of quality control
Unlike the working environment in the United States, which thrives its supremacy on stringent ethics and quality control, working environment in Indian companies is somewhat relaxed and as a consequence, the percentage of errors are quite high comparative to the operations in the United States.
Political and Environmental Risks in India
-Political Risks
Until the election of the central government with the full electoral majority,the threat of political instability has largely declined over the past two years. According to the report released by Federation of Industrial Chamber of Commerce of India(FICCI), with the end of the coalition era post the result of General Elections in 2014, the political risk in the country has taken a steep fall. In fact, Indian polity is seen with a maturing trend with the central government focused on tackling national issues more prudently.
The above graph shows how the political and governance instability has declined significantly from Rank 3 in 2014 to Rank 11 in 2015.
-Environmental Risks:
Owing to its favorable geographical position, climate and geological setting, India is one of the worst affected country from the natural hazards in the South-East region. The frequency of earthquakes, floods and cyclones is increasing at a rapid pace and are causing more severity to the individuals and the business establishments. According to the report released by Natural Hazard Risk Atlas, India is categorized in the ‘extremely risky’ category even ahead of Philippines and Indonesia.
Rationale for outsourcing in India
Considering the pros and cons, as well as the political and environmental risks related to the country, we believe that the weight of pros is significantly higher than the cons. While the nation offers skilled labor at a low cost, the improving political stability and working environment in the country are the most important factor that favors our decision to outsource the business process to an entity in India. Even the World Bank Report, 2013, clearly indicates that India is on a healthy upward of improvement and is surging towards positive quadrant of a better future. In addition, a report released by FICCI in 2014 also confirms an adoption of prudent corporate and political governance in the nation.
Henceforth, low cost labor availability, strengthening US dollar, negligible language barrier, improving political regime and business environment in the nation, are some of the factors that justify India as a favorable outsourcing destination.
Outsourcing Project
As part of the outsourcing project, Federal Government may consider outsourcing its Student Loan Servicing and Insurance Claim process to service provider in India. As part of these government related services, third party service providers will be hired to deliver customer support services for both of these services from an offshore location based in India.
The service provider will be required to respond to inbound inquires from the citizens either through calls or through an online electronic form filled through an online platform. Therefore, all the calls and online forms and emails will be re-routed to the service provider center in India where all the operations will be performed while the administration center will be in US.
Cost of Project and skill set required
US Federal Government will need to enter into a contract with the third party service provider and the amount of the contract will be estimated by the service provider. On the other hand, since the team of the service provider will be required to confront with US based individuals and will be dealing with the matter relating to student loans and federal insurances, it is important the employees are properly trained to learn about the legal and other aspects of student loans and federal insurance claims. Secondly, all the employees deployed to the task should have an excellent command over English language and must match up to the American accent.
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