Study: Indian diaspora helped outsourcing movement

Indian professionals, venture capitalists (VCs) and entrepreneurs of Indian origin helped promote India as an outsourcing destination, according to a study conducted for the World Bank Institute in Washington, D.C., by Evalueserve Inc., a business intelligence and research firm.

While other low-cost destinations are slowly catching up with India in outsourcing, the country will retain its edge because of the growing influence and expertise of the Indian diaspora, particularly in the U.S., Canada and the U.K., the study said. A key factor is the increase in organized networking and mentoring that the diaspora community can provide to businesses engaged in outsourcing, the study said.

By the 1990s, many Indian engineers, who started moving to the U.S. in the 1960s, had either become entrepreneurs, VCs or senior executives in large and medium-size companies, according to the study. Many of these professionals started their own companies in India, while others persuaded their companies to hire Indian IT professionals. This provided more visibility to the Indian talent pool and resulted in the strengthening of the diaspora. For example, by late 1999, Indians constituted approximately 24 per cent of the IT professional population of Silicon Valley, the study said.

Some VCs in the U.S., particularly those of Indian origin, are actively funding companies that have back-end operations in India to save on research and development (R&D) costs, the study said. As of March this year, more than 150 U.S. startups had some back-end operations in India, and the number is likely to double by March 2006, according to the study.

Because fewer funds are available to startups now than before the dot-com boom and bust, offshoring R&D is key to the strategy of these companies, said Promod Haque, managing partner of Norwest Venture Partners in Palo Alto, California. Whether the work is outsourced to India, or to any other offshore outsourcing location, can to an extent be influenced by where key employees come from, but in the end, such decisions are made purely on business grounds, said Haque, who is Indian, during a recent visit to India.

While expatriates agree that the diaspora has been a major catalyst for India’s outsourcing boom, many downplay its role in the gradual transformation of India, according to the Evalueserve study. The sudden demand for skilled labor brought by Internet growth and the year 2000 software problem would have drawn India’s engineers and technicians into the global IT industry regardless of the diaspora’s role, the study said.

“Countries such as South Africa, Russia, and other Eastern European countries were not similarly drafted into the boom and we believe that the influence of the (Indian) diaspora has been crucial,” said Alok Aggarwal, a co-founder of Evalueserve, which has operations in Chappaqua, New York, and Gurgaon near Delhi.

However, Prakash Gurbaxani, chief executive officer of TransWorks Information Services Pvt. Ltd., a Mumbai-based business process outsourcing company, says that the role of the Indian diaspora has been overrated. The boom in offshoring to India was not driven by Indians abroad, but by companies like General Electric Co. in Fairfield, Connecticut, which back in the 1990s saw value in outsourcing to India, Gurbaxani said.

“The decision to outsource offshore to India is taken on business grounds, and comes from India’s reputation as a location for low-cost and quality services, that companies like GE helped build,” Gurbaxani said. “Typically, the Indians in the organization would perhaps be asked to help facilitate the move offshore to India because of their knowledge of the country, but very rarely do they influence the decision of large multinational companies to outsource to India.”

The findings of the outsourcing report will form part of a book on the role of diaspora networks as development springboards, to be published next year by the World Bank.

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