APAC-BFSI-Outlook-2017

OUTSOURCING: HERE TO STAY The business process outsourcing (BPO) sector has flourished particularly in India and the Philippines on the heels of an increasing global trend towards outsourcing as firms try to minimize costs. Globally, India remains the undisputed leader for outsourcing. The recent Global Services Location Index (GSLI) survey showed India maintained the top position for the 14th consecutive year in 2016. Because of its large population of qualified graduates with English language skills, as well as its ability to accommodate most o¥shore activities, India remains an attractive outsourcing destination. To date, India dominates information technology (IT) and business process outsourcing with a 56% share of the worldwide market. O¥shoring has been instrumental in driving the growth of the oŸce sector in India, where take-up by this sector has accounted for 60-70% of leasing activity, especially in Bengaluru, Chennai, Hyderabad, Mumbai, New Delhi and Pune over the last 10 years. Looking ahead, we expect an improved economic oautlook and regulatory environment in India to spur the growth of this sector in tier-II and tier-III locations, such as Ahmedabad, Bhubaneswar, Coimbatore, Jaipur, Kochi and Indore. The challenge for Indian firms is to retain this lead position in o¥shoring. The cost advantage of an Indian call center over one in the US has narrowed substantially, but in high-end information analysis, Indian workers are between a sixth (1/6) to a seventh (1/7) of the cost of those in the US.¸¹ However, the country has to make progress on a variety of areas including improving infrastructure to drive the next phase. Some companies are already bracing for a big disruption as technological advances in cloud computing have reduced the need for coders and technicians, undercutting India’s low-cost-labor advantage. Industry experts estimate that up to 500,000 24 jobs, which are tied to about 12% of total Grade A oŸce stock, could be vulnerable to automation in the next decade. Hence, major Indian outsourcing companies are making a push to innovate, specifically to develop capabilities in automation software, o¥-the-shelf software and analytics, big data, and cloud computing solutions, against a backdrop of shrinking values of outsourcing contracts. Infosys, India’s second-largest software exporter by sales, has made recent acquisitions in new technologies that gave teeth to its home-grown automation software platform and mobile-commerce solutions. US-based Cognizant Technology Solutions, the Nasdaq-listed outsourcing and consulting company, which has more than three-quarters of its employees based in India, bought 13 companies in the past five years, of which four added new tech capabilities either to its healthcare business or software platforms.

¸¹ Economist Intelligence Unit ¸º Automation to Replace Lakhs of Entry, Mid-level IT Execs: TV Mohandas Pai, The Economic Times, July 31, 2016.

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