Today India is the second most populous country in the world, with about 1.04 billion people. Two-thirds of India’s population work in the agricultural sector and account for around 25% of GDP. The Indian indicator of human development is one of the lowest in the world, and a large fraction of the population still lives below the poverty line. Nevertheless, due to India’s liberalising reform programme and the rising economic de-velopment, the number of poor people will decline to 220.1 million by 2007 according to the Planning Commission.
The World Bank estimates that India will become the fourth largest economy in the world by 2020. While increasing pressures on domestic industry will have to cope with competition from imports, liberalisation of trade will open up new opportunities for ex-port of goods.
India’s service sector has already become the dominant contributor to GDP, accounting for 46 per cent of the total. NASSCOM, the Indian industry’s lobby, has stated that the country’s exports from software, other IT services and business-process-outsourcing in-dustries grew by more than 25% to $12 billion last year, of which infrastructure services accounted for just over $300m.
The global market for textiles, clothing and agricultural products will expand dramati-cally, but India’s ability to export will depend on its capacity to keep pace with rising international standards of price, quality productivity and service.
Table of Contents
1 Introduction
1.1 General situation of India
1.2 Offshoring – The difference to Outsouring
2 Offshoring – The engine of the rising Indian service industry?
2.1 Need for offshoring
2.2 Advantages of India
3 The Indian service industry – A fallen angel or a rising star forever?
3.1 Downsides of offshoring
3.2 A rising star
4 Closing Words
5 References
Objectives and Topics
This paper examines the rapid growth of the Indian service sector, specifically focusing on the drivers and sustainability of the offshoring trend. The primary research goal is to evaluate whether India's position as a global hub for IT and business services is a stable long-term development or subject to significant market risks.
- Economic liberalization and the rise of the Indian service industry.
- The role of offshoring as a global business strategy for cost reduction.
- Comparative advantages of India, including human capital and infrastructure.
- Risks associated with offshoring, such as core competency loss and dependency.
- Future economic outlook for India in the global market.
Excerpt from the Book
2.2 Advantages of India
Why do companies often prefer India when the decision is made to offshore their own service activities? India has a range of advantages compared to other countries that are also known for marginal labour costs. Besides low labour costs, an Indian programmer earns 10% of the wage of a comparable American programmer.
India offers well trained programmers which are at least as qualified as other programmers around the world. Furthermore, the infrastructure provided in India is advantageous. The advanced telecommunication system allows a fast connection with other countries all over the world. Another huge advantage is the English language being widely spread. All higher education is taught in English. The last important point which should be mentioned is the government which provides ideal conditions for new IT and other service companies - tax releases and other additional benefits are granted.
According to Ricardo’s theory, countries benefit from specialising in industries where the productivity of labour force is higher than in other countries. The trend of offshoring confirms the theory of comparative advantage. In our case, industrialised countries tend to offshore their services to India where IT labour are the country’s strength. Furthermore, the well developed Indian infrastructure and telecommunication system are facts proving the theory of Heckscher-Ohlin, which is built on comparative advantage, based on factor endowments in general which expands the Ricardo theory.
Summary of Chapters
1 Introduction: This chapter provides an overview of India's current economic situation and defines the conceptual difference between offshoring and general outsourcing.
2 Offshoring – The engine of the rising Indian service industry?: This section discusses why companies adopt offshoring strategies and highlights the specific comparative advantages that make India an attractive destination.
3 The Indian service industry – A fallen angel or a rising star forever?: This chapter critically analyzes the potential risks of the offshoring model while simultaneously evaluating India’s long-term economic growth potential.
4 Closing Words: The conclusion emphasizes the shift towards human capital as a driver for economic development while acknowledging the ongoing social contrasts within the country.
5 References: This section lists all sources utilized for the research and analysis presented in the paper.
Keywords
Offshoring, Outsourcing, Indian Economy, Service Sector, IT Industry, Globalization, Comparative Advantage, Human Capital, Economic Growth, Labour Costs, Infrastructure, NASSCOM, Core Competencies, Business Process Outsourcing, Sustainable Development.
Frequently Asked Questions
What is the core focus of this research paper?
The paper focuses on the evolution of the Indian service sector and the impact of the global offshoring trend on the country's economic development.
What are the central themes discussed in the text?
The themes include the necessity of offshoring for global companies, the specific competitive advantages offered by India, and the potential risks inherent in the offshoring business model.
What is the primary objective of the author?
The primary goal is to assess whether India's current rise in the IT and service industry is sustainable or threatened by market dynamics and internal risks.
Which scientific theories are used to analyze the subject?
The author applies the theory of comparative advantage by Ricardo and the Heckscher-Ohlin theory to explain the economic rationale behind global offshoring to India.
What does the main body cover?
The main body covers the definition of offshoring, the motivations of western companies, the structural advantages of India, and a risk-benefit analysis of the service industry.
Which keywords define this work?
Key terms include Offshoring, India, Service Industry, Comparative Advantage, Globalization, and Economic Growth.
How does the author characterize the role of the Indian government?
The author notes that the Indian government provides ideal conditions for IT and service firms through tax incentives and by promoting English-language higher education.
What are the main risks mentioned regarding offshoring?
Key risks include the potential loss of core competencies, the creation of new dependencies, rising labor costs, and the emergence of new, cheaper global competitors.
- Quote paper
- Markus Kutscha (Author), 2004, The Rise of the Indian Software Industry, Munich, GRIN Verlag, https://www.grin.com/document/70641
