How Did India Become the World Leader in Outsourcing?

India is the nation with the oldest faiths in the world as well as outstanding examples of literature and architecture. Moreover, India is currently the top exporter of outsourced services. The nation holds more than 50 percent of the global market for IT and business process outsourcing. In the financial, high-tech, and telecommunications industries, as well as in manufacturing and retail, more than 60% of the clientele are American businesses, while approximately 30% are European businesses.

All of these businesses utilize outsourcing since they are aware of the benefits of outsourcing to India. In order to create an efficient offshore team in India, get in touch with a business like Indians make up a sizable portion of the workforce in the outsourcing industry.

With the help of the dot-com explosion and developments in information technology, offshore outsourcing started to take off in India in the 1980s and quickly gained speed in the mid-1990s. Businesses shifted manufacturing to India in the 2000s amid the economic slump to save costs and to make a “spurt” during periods of recovery.


Employee salaries are the main source of costs for a company when implementing a project or business function. The staffing of most projects usually requires a certain number of junior staff, a few highly qualified senior supervisors, and a project manager. Savings on the difference between the salaries of young professionals in India and, for example, in Western Europe, is the main source of cost reduction. The Indian IT market is characterized by a significant number of skilled workers, and local labour is cheaper than in the developed world.

If in the United States the average annual salary of a programmer in 2007, according to experts, was about 90 thousand dollars, then in India the work of a highly qualified engineer with full employment in the same year cost 30 thousand dollars. At the same time, the pay gap in labour in India compared to other countries participating in global outsourcing is gradually declining. Thus, the cost of Indian personnel in 2007 was equal to the cost of personnel in Eastern Europe and twice the cost of personnel in China.

Indian programmers readily take on jobs that, for example, Americans consider routine and hopeless. American call centers have an 80% turnover rate, while India, where the job is treated like a long-term career, has a turnover rate of around 15%.

However, India ranks first among outsourcing providers, not only because of low salaries but also because of the huge workforce: 500 million workers, a significant part of which are well-educated. Local universities annually prepare 3 million graduates, 16% of which specialize in science and technology. The Indian University of Technology is respected all over the world. So, in terms of the price-quality ratio of the labour force, India is just an ideal outsourcer.


With enough specialists in the high-tech sector, India is the absolute leader in the export of IT services and software. In the field of outsourcing other business processes, the country is also always in the top three.

Another plus is that approximately 20% of the country’s population speaks English. Since lectures are given in English at universities, the level of language training of young professionals is usually good.

Of great importance in the development of the national IT industry was the fact that India successfully implemented and applied Western business and management models in practice. Indian outsourcing companies conduct thorough training of personnel. For example, if a customer of an American bank in Texas has a problem with a credit card and calls the bank’s customer service, an Indian consultant from Mumbai will likely answer him. However, an American client will most likely not understand this, since employees of call centers oriented to developed English-speaking countries are required to communicate with customers in pure English without an Indian accent.

If an Indian company operates in the American market, the staff undergo additional training in linguistics and American pronunciation. For the convenience of overseas customers, Indian call center operators introduce themselves with English and American names. This approach to customer service has helped Indian companies quickly conquer foreign markets.

Other costs that companies incur when using outsourcing in India are as low as the cost of labour, with a few exceptions. In most cases, the cost of renting offices is lower than in the United States, but in the largest cities, it can exceed the rental value of the similar real estate in the United States. For example, in the premium district of Mumbai, the financial capital of the state, office rent in a class-A business center is twice as much as the US per square meter per year.

Taxes in India are high and outsourcing companies usually pass them on to their overseas clients.


It should be mentioned that the “Indian technical miracle” was largely a result of official government policy, which for a very long time supported the growth of the information technology outsourcing sector and IT solutions. At the same time, the industry itself did not experience the same level of stringent state control and regulation as existed in other sectors of the Indian economy, including the same telecoms sector.

Because of this, private entrepreneurial activity, which is distinguished by original thought and a realistic assessment of business risks, has evolved into the industry’s growth engine and played a crucial role in both establishing and bolstering the sector. When the IT sector of the economy was already established, the government began to get involved in its growth. The state’s active help comprised deliberate encouragement for the domestic company.

The massive construction of technology parks in India stimulated the creation of new national companies on their territory, as well as subsidiaries and branches of the world’s largest manufacturers of software, telecommunications equipment, and electronic equipment (Intel, AMD, Microsoft, Cisco, Ericsson, Motorola, Siemens, Kyocera, etc.).

The implementation of the technology parks program stimulated the attraction of portfolio foreign investments in the development of large Indian IT companies. The result of the active development of the industry was both the expansion of the domestic market and, first of all, the increase in export volumes.

In summary, European and American companies choose India as an outsourcing provider, because the country has a unique labour supply that can more than compensate for a significant tax burden: a large labour market saturated with relatively competent and IT-savvy English-speaking specialists with low salaries. Now the national education system is under a heavy load and needs modernization, without which the growth of the IT and BPO outsourcing segment may soon slow down.