The Next Wave of Globalization: Relocating Service Provision to India

Abstract

The offshoring of services is rapidly growing in magnitude and scope. To understand this evolution, observation-based research is vital. In the last decade, services offshoring has rapidly expanded from software to any information technology-enabled business process. This paper draws upon two rounds of interviews with executives and managers in India and the case studies of Sloan Foundation-funded conference to explain the dynamics of offshoring to India, the largest recipient of offshored services, from the perspective of the firm, the industry, and the recipient nation. We show that the growth in offshoring was intimately linked to the prior development of India’s software sector and an enabling regulatory and other institutional environment. Multinationals played a key role, although domestic firms were early adopters. The role of multinationals has deepened substantially moving from the large firm to include smaller firms, outsourcing specialists, and startups offering innovative new services. As this has happened, the value-addition and sophistication of the work done has increased. The most sophisticated work being done in India increasingly resembles the most sophisticated work being done anywhere else. Services exports required well-educated labor from the beginning, which is fundamentally different from the origins of manufactured goods exports from developing nations. However, a value-chain exists and it is possible that some lower-end services will relocate from India as the country moves up the value-chain. Finally, the speed at which services exports can grow in scale and scope is noteworthy and is occurring more quickly than was the case with manufacturing exports. This raises important issues for structural adjustment in developed countries. The conclusion also considers the implications of the offshoring of services for developing nations and possible policy initiatives for developing nations interested in entering the ITES sector.