OFFSHORE OUTSOURCING: A SWOT ANALYSIS OF A STATE IN INDIA
K.G.K. Nair and P.N. Prasad
Global trends indicate that IT spending will increasingly go to offshore solution providers. This article demonstrates the use of a SWOT analysis technique for identifying the strengths, weaknesses, threats, and opportunities associated with a potential IT outsourcing location. The factors assessed include business conditions, physical infrastructure, IT infrastructure, ﬁnancial institution and government support, and various labor characteristics speciﬁc to a region: the state of Kerala in India.
K.G.K. NAIR is a professor at the department of business administration, College of Engineering, Thiruvananthapuram, Kerala, India. He can be contacted at gopalmanjusha @yahoo.com. P.N. PRASAD is a faculty member at the State Institute of Rural Development, Kottarakara, Kerala, India. He can be contacted at pnprasad_2000 @yahoo.co.uk.
LOBAL TRENDS INDICATE THAT MORE and more IT spending will go to offshore solutions providers (Nasscom and McKinsey, 2002).The worldwide IT recession is compelling companies across the world to cut down costs and shift their operations to the countries having lower costs. While U.S. companies have been the early adopters of IT outsourcing, an increasing trend toward this model is also being witnessed in parts of Europe.According to a Forrester Research Survey, while the average percent spent on offshore providers was around 12 percent during the year 2002, it was estimated to grow to over 28 percent by 2004. Fueling this trend has been an increasing focus on business process outsourcing (BPO). For example, in January 2004, Mike O’ Brian, the Minister of State for Foreign Affairs and Commonwealth for the United Kingdom stated: “We will protect our people without protectionism. Global trading services brings tremendous beneﬁts and BPO (Business Process Outsourcing) is a necessary commercial practice.” (Source: New Indian Express, 8 January 2004). S U M M E R 2 0 0 4
Outsourcing is a means to achieve competitive advantage for many Western companies. A recent Nasscom study reported that over one in four global giants currently outsource their software requirements to Indian companies (Nair and Krishna, 2002). Similarly, a recent survey by Merrill Lynch indicates that the proportion of IT projects outsourced to India by U.S. Fortune 500 companies could potentially increase from below 5 percent to over 15 percent in the next two years (Solitar Systems, 2002). SWOT ANALYSIS METHODOLOGY
A large number of developed and developing countries have been intensively promoting their IT sectors as a strategic industry. The promotion of a speciﬁc offshore location cannot be viewed in isolation, as its viability is linked to many IT and business environment factors that are speciﬁc to a region or country. To examine the long-term sustainability of an IT outsourcing location, it is ﬁrst necessary to identify the factors that would provide a differential
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TABLE 1 SWOT Matrix for Kerala
Strengths Low start-up cost Low connectivity cost Low wages Adequacy of IT infrastructure Low labor turnover High quality of human resources Success of Technopark Presence of second-best IT-enabled services (ITES) destination in India Positive attitude of the government Opportunities Global opportunities: Vast global market Increasing trend in offshoring Business initiatives by non-resident Keralites
Weaknesses Poor image as a desirable business location Poor growth of domestic market Lack of a few large-scale manufacturers Low level of PC penetration, Internet usage, and computer literacy Inadequate physical infrastructure Lack of proper service and maintenance by government departments and agencies Poor participation of nancial institutions Drawbacks in IT policy Poor policy implementation Threats New competition Frequent work interruptions (“bandh and...