Challenges Faced by the Indian Outsourcing Industry

Though Indian outsourcing industry boast of a large pool of talent, low labor costs, excellent telecommunication infrastructure, a relatively mature domestic IT industry, an active industry association, quality certifications unmatched in the world and more, but it faces massive challenges which need to be overcome. The major challenges being faced by the outsourcing industry in India can be classified into internal and external challenges. The internal challenges include shortage of competent managers for the middle and senior management and the high attrition rates. The external challenge is in the form of opposition from the US politicians and the UK labor unions against shifting of the operations by local companies to India. The threat of real competition from other players like Philippines also exists, but doesn’t seem to need our immediate attention.

There is an importance and value attached to the ‘people’ aspect in this service industry. The fact that this industry is still in its nascent stage in India has led to the dearth of experienced middle management level team leaders and senior managers. The shortage of middle and senior level managers is in fact a critical issue. Entry-level recruitment and employment has not been a problem with so many fresh graduates with good language skills, available readily in the job market. The problem is more intense for the third-party outsourcing companies which have just ventured into this business. They cannot even invest in training, given their financial and other constraints. Clients, who can invest substantially in training their managers, have been facing a problem of a different kind. Their middle and senior level managers are being poached by the new entrants to the industry. Everyone agrees that hiring from competition is a cyclical process and will not help the industry grow, but with very few options available, they resort to the easiest solution – poaching. That brings us to the next issue – high attrition rates. Attrition means not only loss of talent, but also includes the cost of training the new recruits. The attrition rate in the industry has been hovering, which is quite high for any industry. An average Indian call center employee works with a company for 11 months, whereas an average UK call center employee stays in a company for 3 years. It is expected that the attrition rates would come down once the growth stabilizes. Steep growth is one of the reasons for the high attrition rates, according to many in the industry. The reasons are many — high stress levels, monotonous nature of the job, demand-supply disparity and lack of career growth potential on the professional front; loss of identity, mismatch with normal cycle, complete change of life style and lack of comfort on the personal front. Add to this, the ‘poaching’ strategy being adopted by the players in the industry and so a high attrition rate.

Another important area of concern is the limited growth potential for an employee in this industry. Organizations should concentrate on individual career growth of employees and succession planning in the organization. Planning for growth both vertically and horizontally can bring a little reprieve to the employees. Horizontal growth can be in the form of promoting the employee from simple to more complex processes within the organization. This will enhance the learning of the employee and make him “feel-good”.

Another threat is the competitors, like Philippines, Ireland and even China are expected to catch up with India in the future, but they have their own constraints. China, which is being forecasted by some as the biggest threat to the Indian BPO industry, for example does not have English-speaking populace who can meet the requirements of primarily English clients. India outruns all its competitors when it comes to availability of quality services at the lowest possible rates. However, this does not mean that the Indian outsourcing industry can sit back and relax. It needs to gear up and prepare itself to face the competition. The strategy of the Indian industry should be to go up the value chain and offer more specialized services that can create a special position for it in the global outsourcing industry. It should not completely bank on the low-end services as they are cost-based and can be transferred to any country that offers the same services at a cheaper rate.


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