Is NASSCOM Worried About the Impact of Nearshoring?

Is India, the world’s largest IT outsourcing service provider, concerned about the growing appetite of U.S. companies for nearshoring? India Inc’s largest lobby group and IT industry body, Nasscom, says: NO. The Americas-centric nearshoring trend  will benefit India rather than harm its interests, said Nasscom President Som Mittal in an interview with Nearshore Americas. A lot of Indian IT firms have started setting up delivery centers in countries closer to their clients’ base. Such a move was inevitable in Mittal’s view.

One such example, according to Mittal, is Genpact. This Indian IT firm opened a delivery center in China in 2010 to give the infrastructure support and back-office processing services to its Japanese client Hikari Tsushin Inc. Today, besides serving the Japanese company, Genpact can also source for more contracts inside China. Genpact has also become an active investor in the Nearshore region, running centers in Guatemala, Mexico and Colombia, where a Bogota operation was launched.

Tapping Emerging Markets

According to a study conducted by Nasscom along with global consultancy firm McKinsey, there is a potential for the country to increase its IT service export from the current $50 billion to over $225 billion by 2020. But such an increase is possible only if India successfully taps emerging markets.

Nasscom’s former president Kiran Karnik expresses the same sentiments in his  blog. He writes that ‘incremental growth will have to come from new customers and from new markets – particularly, China, Brazil and Russia.’

Maybe that’s why Som Mittal says nearshoring will benefit India more than that of others. In the name of meeting the needs of nearshoring, Indian outsourcing companies are looking for contracts in emerging economies, say some of the IT employees in Bangalore, the city known as global outsourcing hub.

In our interview, Mittal explained how Indian outsourcing companies are trying to meet the challenge posed by nearshoring.

More than anything else, India needed a trend like nearshoring to right its wrongs

TCS: A Pioneer

In 2005, TCS invested $23 million to acquire Chile’s Comicrom with more than 1200 employees. Today, TCS has employed more than 8000 employees in Latin America with operations in more than eleven nations across the region.

Infosys started its Mexico operations in August 2007 and established a subsidiary at Monterrey, which serves as a nearshore delivery centre to provide IT and BPO services.

More than anything else, India needed a trend like nearshoring to right its wrongs. Karnik says “the experience of the last few years indicates that the strategy perfected for the US and UK does not quite work in China or Japan – or even in France and Germany”.

In other words, dealing with these non-English speaking countries underlined the need for adding more features to their business model. One such feature was targeted to deal with nearshoring.

Mittal says setting up delivery centers closer to clients’ base would help the Indian IT firms overcome much of the hurdles they are facing today. The most important hurdles are different time zones and giving employment to local citizens.

But such a move has its own drawbacks as well. Karnik writes that when an Indian outsourcing firm sets up a center outside its borders, the ratio of Indian to local employees is of the order of 10:90.

How Indian firms can scout the skilled labor in other countries?

Som Mittal said the Indian companies “do get the required workforce they need in foreign lands.”  Mexico graduates around 65,000 IT professionals. But that is far smaller a number compared to India.

Mittal says some portions of the backend works can be allocated to the workforce at home (India), meaning there would be no need to hire a large workforce in the country where the delivery centers are set up.

Worker Transit

Taking Indian professionals to work there is another plan. When Karnik was Nasscom’s president, he tried to strike a deal with Uruguay to enable Indian IT professionals to travel across the entire Latin American market with a single work visa. (Uruguay is seen as one of the progressive markets in Latin America for flexible worker-driven immigration programs.)

What the Indian companies are best at, according to Karnik, is recruiting, training, motivating and managing skilled professionals. This strength is not widely appreciated in his view. He uses China as a point of comparison, noting that the country has struggled to produce  large software companies – that rival Wipro, TCS, Infosys and the like – despite having outstanding success in IT manufacturing.

Training and motivating, therefore, appear to be a central part of the India Inc. strategy to expand successfully into emerging markets. Throughout our interview, Mittal sounded confident at meeting the challenge posed by the nearshoring.

“We have strength in our educational system. We have a strong army of skilled labors, who can speak in English and adjust themselves to the global needs,” Mittal said.

When asked about the growing outcry in the United States over sending jobs overseas, he said: “Even American companies get a huge portion of their business from foreign countries. What’s wrong with it? Outsourcing makes the economy more competitive. Outsourcing benefits all, even the American companies.”