The Good and Bad of Outsourcing to India: Emerging Problems in the Sector and the Way Forward

An Inaugural Lecture presented by Professor Pawan Budhwar on Tuesday 26 January 2010

The global recession has seen the size of the UK economy shrink considerably, whilst India is expecting its economy to grow over 7% in 2009-10, potentially making it the world’s fourth largest economy by 2020. With the total revenue of the Indian business process and I.T outsourcing projected to earn $175bn by 2020, outsourcing is playing a key role in India’s economic success.

Pawan Budhwar, a Reader at Aston Business School, discussed the issue of outsourcing in his inaugural lecture, sharing findings from his recent research project (ESRC funded). Budhwar critically analysed the use of outsourcing and what the future holds for employees within this sector.

History of outsourcing
The use of outsourcing has dated back to the 1980s with British Airways and AMEX starting the trend and the late 2000s seeing a dramatic increase in its use. RBS, UBS and IBM are just a handful of the global companies outsourcing to India with the UK saving £10mn annually by outsourcing 1000 of its jobs. A growing number of companies have R&D centres based in India including Microsoft, Google and Intel.

Why India?
India is regarded as having a high comparative advantage in terms of outsourcing:

• High recruitment numbers

• High number of graduates – 3 million yearly

• Time difference works in its favour

• Lower salary costs

• Higher efficiency (US 20 seconds : India 8 seconds

• Government support (tax subsidies)

The present situation in India for ITO and BPO is looking largely positive. Direct employment from outsourcing in 2008/9 stood at 2.23mn with 150,000 fresh graduates to join the BPO industry every year.

Two year ESRC Project (2006-2009)
The two-year project led by Pawan Budhwar focused on two phases. Phase one was the exploratory phase which examined the emerging patterns of work processes. 21 organisations were visited as Budhwar conducted interviews with employees on different levels of the company. Phase two examine the importance of rewards in influencing employee attitudes and behaviours.

Project findings and recommendations
The project discovered an exceptionally high attrition rate as a result of:

• Monotonous work – inadequate job enrichment

• Little opportunity for growth and career development

• Problematic shift times

• Unfair treatment of employees

• Health, psychological and social issues

Recommendations included:
- Career planning
- Fun in the workplace and involvement of family
- Looking after employee welfare
- Anti-poaching policy
- Security

The future of outsourcing The concluding thought of the lecture was the possibility that the near future will see the Philippines replace India as the country for outsourcing. Slow growth rate and intense competition is making it increasingly difficult for India to maintain its comparative advantage as the Philippines have increasing potential.