Contrary to research firms’ data that India commands more than half the world’s total IT offshoring market, an economist from the London School of Economics (LSE) has put the country’s share in the total global offshoring pie at less than a fourth.
LSE economist Raja Mitra in a November paper titled, ‘IT Industry in Transformation, Opportunities and Challenges for India’, based his conclusion on four sources categorised on data quality.
“The first would be truly global that is total worldwide offshoring/cross border sourcing—this data is typically is weak, but is to an extent accessible through IMF’s balance of payment statistics data base,” he said. The second type of data — offshoring among developed countries — is typically weak and limited in its country coverage.
The third is offshoring from advanced industrial economies to developing countries - which is often the focus of market research firms.The fourth data is offshoring among developing countries—this type of data is especially weak.
Mitra cited a World Bank paper that used industry data from Everest Research, McKinsey and Tholons that says India’s share in offshoring market was 54% for IT services and 37% for BPO between 2006 and 2008 to drive home his argument.
A Nasscom-Everest India BPO Study in 2008 said that the Indian BPO sector would reach around $30 billion in export revenues by 2012. However, the sector can set itself a stretch target of $50 billion (approximately five times its present size) in export revenues by 2012. The study indicated a total export BPO market opportunity of $220-280 billion by 2012.
However, even in the BPO segment, India’s share of total global sourcing would be significantly less than what is quoted by market research firms as “they fail to cover much of cross border BPO which takes place amongst developed countries,” Mitra wrote.
In McKinsey Quarterly in August 2009, researcher Noshir Kaka wrote, “There is little immediate risk to India’s dominance of the market for offshore technology and business services. But the country’s share could sink to 40% by 2020, from just over 50% at the end of 2008, primarily as a result of increased competition from other countries, talent and infrastructure constraints, and an unhelpful regulatory environment.”
Mitra agreed that if estimates are limited to offshoring business from developed to developing countries only, then India’s share of IT offshoring market could well amount to 50-60%.
Alok Shende, founder and principal analyst of Ascentius Consulting, an IT and telecom analyst firm, agreed that the total market would be higher if offshoring from developed to developed country is taken intoaccount.
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