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Entrepreneur’s guide to outsourcing to India: Software development and managed IT services

Trends come and go, but India remains a top offshore outsourcing destination for global organizations seeking IT expertise.
The flag of India composed with functions and variables found in software code
Published on
May 21, 2024
Last updated on
June 11, 2024

For years, fast-paced market shifts, growing skills shortages, and the latest technologies have driven the outsourcing needs of organizations across the globe. As time passes, trends come and go, and workforce challenges change, but India remains a favorite outsourcing destination for companies from developed countries looking for cost-effective technical expertise.

From custom software solutions through data management services to IT help desk and customer support, Indian outsourcing companies continue to deliver the world-class tech skills and quality of service that top companies seek.

Read this article to learn the reasons companies prefer outsourcing to India, the top services local tech experts excel in providing, the best Indian cities to consider when contracting out IT functions, and the advantages of partnering with a reliable service provider like Maxima Consulting.

Before you outsource: India quick facts

Digital map of India, a top destinantion for outsourcing software development

Geographical and demographic overview

India is a country in South Asia known for its incredible diversity and a prolific offshore outsourcing sector.

It covers an area of 3,287,263 square kilometers (1,269,219 square miles) and ranks as the seventh-largest country in the world. With an estimated population of 1,400,744,000, India is the second-most populous country globally, inhabited by 17.3% of the world’s population.

Mumbai and Delhi are the nation’s largest major cities by population, followed by Bangalore, Hyderabad, Ahmedabad, Chennai, Kolkata, Surat, and Pune.

Hindi and English serve as the state’s official languages, but India is home to a total of 447 languages.

Historical and modern achievements

India’s rich history began around 2500 BCE and produced many significant achievements, including:

  • Standardized weights and measures, advanced mathematical concepts, and numerous contributions to astronomy, physics, and medicine.
  • Multiple modern innovations, including the USB (Universal Serial Bus) and fiber optics.

Government and economy

The Republic of India is a federal parliamentary republic with many enterprise-friendly policies.

According to the International Monetary Fund (IMF), India’s projected real GDP growth in 2024 is 6.8%. In 2022, India’s annual R&D spending reached USD 158,691 billion.

Companies from the USA that outsource to India include:

  • E-commerce giant Amazon,
  • Financial services corporation American Express,
  • Telecommunications company AT&T,
  • Digital technologies provider CISCO,
  • Computer hardware developers Dell,
  • Automobile manufacturer Ford Motor Company,
  • Internet and software solutions leader Google,
  • Famous IT services company HP Inc.,
  • Long-established tech company International Business Machines Corporation (IBM),
  • Software and operating systems developers Microsoft.

Education and workforce

India has the competitive edge of possessing the second-largest workforce and the second-largest education system in the world.

With over 58,000 institutions of higher education (nearly 2,400 of which were added in 2021-22), India’s education system is the second-largest in the world.

According to the latest “All India Survey on Higher Education” published by the Ministry of Education, the total enrollment in higher education reached 41,400,000 in 2020-21. Engineering and technology students represent 11.9% of all undergraduate enrollments.

According to the CIA World Factbook, India’s vast talent pool consists of 554,145,000 people, making its workforce the second-largest in the world.

In 2023, the IT sector in India engaged more than 5 million employees, and that number is expected to double in the next 10 years.

Why Indian outsourcing services are so popular?

Indian software developers working in an outsourcing company

In 2024, India remains a global leader in IT outsourcing services despite fierce competition from other countries like the Philippines, Costa Rica, Poland, and Romania.

There are many reasons outsourcing to India is so popular, and documenting them all wouldn’t be possible, but the list below is a good start to understanding the country’s unique position.

Reason #1: A steady economic growth

Persisting public support for science and technology education, pro-business reforms, and investments in infrastructure development all contribute to India being projected to become the fastest-growing economy among G-20 nations in 2024.

In recent years, the business-friendly Indian government has introduced many reforms to improve the ease of doing business and stimulate innovation, entrepreneurship, and business growth in the country.

In February 2024, the country’s Finance Minister revealed plans to raise spending on infrastructure by 11.1% year to year—to nearly $134 billion.

Reason #2: A vast pool of expert talent

The large talent pool in the Indian information technology and business process management (IT-BPM) sector continues to grow.

According to Statista, the IT industry employed over 4 million people in 2021. In 2023, there were already 5.4 million tech employees in India.

Reason #3: An established and dependable outsourcing industry

Business process outsourcing to India has a long history, stretching back to the turn of the 1960s and 1970s when public support for the country’s technology industry started.

A growing talent pool of skilled IT professionals and significantly lower labor costs (compared with the USA, the UK, Canada, or Australia) were the factors that attracted most companies to start outsourcing to India.

Today, numerous local third-party service providers have decades of offshoring experience. Their willingness to tackle even the most complex IT challenges makes Indian outsourcing companies extremely competitive, indicating that India will remain a preferred destination for outsourcing services for many years.

Reason #4: Lower cost of doing business

It’s no secret that one of the core drivers for companies to outsource to India is how cost-effective this solution is. The low cost of labor is associated with a lower cost of living compared with countries like the USA and the UK.

It is especially noticeable in application development, data analytics, digital marketing, and IT customer support and maintenance projects. For example, a median software engineer’s salary in India is only $30,374 a year, compared with $178,200 compensation for an employee performing the same role in the USA.

Aside from workforce expenses, businesses that outsource to India typically save costs associated with infrastructure and maintenance and benefit from tax breaks and other governmental incentives designed to appeal to foreign investors.

More reasons to outsource to India

Digital tablet displaying various outsourcing graphs and charts

When building workforce and location strategies, weighing the benefits and disadvantages of each potential offshoring location is important. A reliable global outsourcing partner can help you decide if outsourcing to India is a good choice for your organization, but it’s also reasonable to seek additional confirmation from independently conducted studies.

In many relevant rankings assessing the quality of work, workforce skills, investment risks, and associated costs, the country is placed very high, and the researchers commonly highlight many advantages of outsourcing to India. Here are some examples:

Global Services Location Index: Evaluating countries’ offshore outsourcing appeal

India’s standing as one of the world’s top outsourcing service providers is clearly acknowledged in the Global Services Location Index, published biannually by Kearney. This reputable ranking measures countries according to their attractiveness as offshore locations.

Similar to 2021, in 2023, India received first place in the overall ranking, outperforming China and Malaysia. Lower costs, a vast talent pool, employee expertise, and talent regeneration capabilities were cited as the top reasons India and other countries on the podium continue to top the GSLI.

Global Innovation Index: Assessing the scale of innovative solutions across the globe

WIPO’s Global Innovation Index (GII) aims to capture the innovation performance of 132 economies. In 2023, India was named the no. 1 global leader in innovation in Central and Southern Asia and in the lower middle-income group.

The country received 40th place in the overall GII ranking, surpassing other emerging outsourcing destinations, for example, countries like Poland, Brazil, the Philippines, and Mexico.

English Proficiency Index: Testing the world’s English skills

Education First publishes the English Proficiency Index annually to compare English skills in 113 countries and regions. In the 2023 edition, India, with a score of 504 points, was ranked 60th globally and 9th in Asia.

However, various regions in India earned utterly different results, with Rajasthan and Himachal Pradesh scoring a remarkable 573 points and Uttar Pradesh receiving only 433 points. Moreover, major cities like Jaipur, Mumbai, Chennai, Coimbatore, Bengaluru, and Bhopal scored even higher than the top Indian regions.

It is also worth mentioning that typically, software developers and other IT-BPM sector employees in India speak English very well, as communication skills in this language are necessary for them to understand clients from overseas and perform their jobs.

Overview of the IT industry in India

Data shows that the number of employees in the IT industry has been steadily increasing for years. According to the Economic Times, as many as 450,000 people joined the industry only in the fiscal year 2022. Furthermore, even 44% of these new hires were women, making the IT sector the largest private-sector employer of women in India.

Some of the most popular services outsourcing companies in India provide include:

  • Software development, web development, and mobile app development
  • Data processing and management services
  • IT help desk services
  • Software maintenance and support solutions
  • Software testing and quality assurance
  • Infrastructure and operations IT tasks
  • Expertise in niche technologies

Doing business in India - outsourcing pros and cons

As all companies are different and have unique business requirements, no location on Earth will ever be perfect for everyone. Before committing to partner with IT outsourcing companies in India, you should carefully consider all the advantages and disadvantages of this approach.

The four most common disadvantages of India outsourcing solutions

1. Time-zone differences

Although India spans two separate time zones geographically, the Indian government established India Standard Time (IST) after gaining independence in 1947 to synchronize the time used throughout the country.

The standardized time zone equates to UTC+05:30, which means time in India is:

  • 12:30 hours behind Los Angeles, California, USA,
  • 9:30 hours behind Boston, Massachusetts, USA,
  • 4:30 hours behind London, United Kingdom,
  • 3:30 hours behind Amsterdam, Netherlands,
  • 3:30 hours ahead of Tokyo, Japan,
  • 4:30 hours ahead of Sydney, Australia.

Working across different time zones is always an organizational challenge, as it often results in communication delays and limits the time suitable for calling someone or organizing a meeting.

However, in some cases, businesses also recognize the time zone advantage. For example, the coordinated efforts of a globally distributed workforce can simplify providing round-the-clock customer support services.

Combining the capabilities of an in-house team and remote teams can also ensure the 24/7 availability of cybersecurity professionals, ready to step in whenever systems and data security are threatened.

2. Communication difficulties

In the realm of software development, data security, quality assurance, and other managed IT services, good communication is key to success. Coordinated teamwork between in-house employees and third-party consultants usually leads to excellent results, while miscommunications and competition between teams can result in significant drawbacks.

Companies willing to take full advantage of outsourced work need to research cultural and societal differences between cooperating countries, adapt their recruitment strategies to local talent expectations, and implement adequate human resources policies.

A reliable outsourcing partner with sufficient global experience will facilitate transparent and efficient communication with modern collaboration and project management tools.

3. Low-quality services

Some companies with previous experience in outsourcing to India report disappointment with the quality of work performed by Indian service providers. While that may be true in some cases, judging an entire outsourcing industry based on a few bad apples would be unfair.

The truth is that whenever businesses outsource tasks and projects to third-party vendors guided solely by price tag, they’re at risk of trading the quality for lower costs. It doesn’t matter where the software outsourcing company is located; if its only differentiator is being cheap, you can be sure its services won’t be on par with the performance of your in-house team.

In IT outsourcing, striking the right balance between the quality of work and lowering costs is crucial. Businesses must carefully consider what constitutes the minimum service quality they can accept, or a bid to save costs can easily turn into a whirlwind of unforeseen expenses.

Fortunately, there are several things you can do to protect your business from losses connected to low-quality vendors when outsourcing to India and beyond. For example:

  • Learn about your potential partner’s work environment, including retention rates, the quality of their human resources department, and other back-office support essentials.
  • Start your outsourcing partnership by delegating only non-core tasks to your vendor of choice to assess the company’s expertise, communication skills, and performance.
  • Carefully formulate your service-level agreement (SLA) with the outsourcing company to make your expectations clear and impose adequate fines on the vendor if they fail to deliver.

4. Issues with data security

With the number of cyber threats going steadily up each year and the necessity to comply with relevant regulations in all countries, cybersecurity becomes a top issue for companies operating across borders. Even more so, if the outsourcing project concerns data directly, like in data entry and data mining projects.

  • To secure your data when contracting out your IT functions, assess the security expertise and data management capacities of your potential service provider.
  • To protect your business processes from leaking, compose a strict non-disclosure agreement (NDA) that outlines the vendor’s responsibilities and details penalties for contract breaches.

The advantages of outsourcing to India summarized

Indian data security expert working on mobile app development for an outsourcing firm

Among the many benefits of outsourcing to India mentioned in this article, these six particularly stand out:

  • Large talent pools: India possesses a vast pool of experienced IT-BPM specialists, and its continuously refined higher education system produces a steady supply of prospective employees.
  • Ease of communication: English is an official language in India, making it easier for foreign companies to do business and interact with authorities.
  • Business-friendly environment: In recent years, the country has introduced many initiatives to simplify and digitize procedures related to doing business.
  • Growing economy: In 2024, India is the fifth-largest economy in the world and is on its way to becoming the fastest-growing one.
  • Offshore outsourcing powerhouse: India has been among the top outsourcing destinations for decades now, and local outsourcing companies are among the world’s most experienced IT service providers.
  • Lower costs: Outsourcing to India is cost-effective because of the cost of labor, office space, and amenities on the one hand, as well as tax incentives on the other.

Top outsourcing destinations for IT services in India

When it comes to IT customer support services, software, technology, and business operations, most of the major Indian cities can be named an advantageous outsourcing destination.

To facilitate your business decision on choosing a suitable offshoring location, our outsourcing experts strongly recommend conducting your business activities in the following cities: Pune, Bengaluru, Hyderabad, and Chennai.

These four metropolises represent some of the most important advantages of outsourcing to India. Learn more about Pune, Bengaluru, Hyderabad, and Chennai in our previous article about contracting out software development to India, which describes the top Indian cities for IT outsourcing in detail.

Access top Indian professionals with our global outsourcing services

Maxima Consulting is a people-centric company with a proven history of successful partnerships with global clients interested in outsourcing to India. From software development outsourcing to recruitment process outsourcing (RPO) to Build-Operate-Transfer projects, we have successfully delivered excellent outsourcing work to companies from many countries and in multiple industries, including those in transportation and logistics, energy and utilities, telecommunications, banking and finance, and accounting.

Contact us today and unlock the advantages of outsourcing to India with tailored workforce and location strategies, high-quality services compliant with international standards, and excellent project management and back-office services. We guarantee that your remote teams always meet your business requirements and regularly exceed your expectations.

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