Outsourcing is not a buzzword of recent years, but a new way of industrial integration that has been developed in recent decades. Outsourcing (outsourcing -"use of external resources") is a kind of subcontracting relationship on a global level, in which two parties participate: the customer company from one country and the contractor company from another, while the customer delegates the development and implementation of certain production processes to the contractor in order to reduce the cost or even improve the quality of products.

Outsourcing is divided into inshoring (when the work is carried out internally, but by another company) and offshoring (when the development is sent to another country). Actually, this last one will be discussed in this article.

NATURE, ESSENCE AND ORIGINS OF OUTSOURCING

Outsourcing often turns out to be more cost-effective for the customer company than hiring its own highly qualified (often simply unique, and therefore very expensive) specialists or creating a full-scale subsidiary company abroad. The reverse side of economic benefits is the risk associated with the transfer of the latest competitive technologies and confidential information into the wrong hands, as well as the risk of insufficient quality or prompt performance of work.

A strong impetus to the development of outsourcing in the form of offshoring was given by the economic crisis in the early 1980s. It was then that a number of American automobile companies, seeking to regain their competitiveness in the world market in the context of the economic downturn in the United States, first began to withdraw production from the country, initially to neighboring Mexica1. In the mid-1980s, General Motors closed 10 plants in Flint, Michigan, moving them to Mexico. This allowed American automakers to maintain the profitability of their enterprises.

After signing in the 1990s. Under the North American Free Trade Agreement (NAFTA), this process has been further strengthened. Moreover, it developed not only in the southern, but also in the northern direction. American companies began to transfer production to the territory of their northern neighbor. Canada attracted not only relatively lower salaries than in the United States, but also highly qualified English-speaking specialists.

Since the 1990s, American companies have been paying attention not only to neighboring countries, but also to more remote countries of the world, such as Taiwan and Singapore, which attracted American companies with their favorable investment climate and cheap but sufficiently skilled labor.

The final establishment of outsourcing as a universal production system in the era of globalization took place by the mid-1990s, amid a boom in information technology and the rapid development of increasingly complex and expensive software in advanced countries. The shortage of skilled labor in this area forced companies in the United States, and then in other developed countries, to transfer development abroad. And here, India and China came to the fore, which, as it turned out, have significant advantages over other regions of the world.

GLOBAL OUTSOURCING MARKET AND ITS MAIN PLAYERS

The main outsourcing customer today is the United States. Major customer countries are also Canada and the EU. Performers are mainly from countries in South and Southeast Asia, Latin America, Eastern Europe, and the CIS. Different implementing countries have their own specific advantages that ensure their higher competitiveness in a particular segment of the global outsourcing market. For example, the Latin American countries-Mexico, Brazil, and Costa Rica-which have historically had special relations with the United States, were the first regions where the international subcontracting system was tested. South-East Asian countries-Singapore, the Philippines, Malaysia-with a developed infrastructure and high-tech culture are able to ensure high quality of order fulfillment. Russia, Belarus, as well as such EU countries,

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like Poland, Hungary, Romania, and the Czech Republic, they are attracted by the low salaries of their highly educated and highly qualified specialists. Canada, South Africa, and Israel often serve as the executors of external orders. Although the cost of completing orders is much higher here than in other countries, they are used when you need to ensure guaranteed data quality and security.

In addition to the availability of qualified personnel and the relatively low cost of work, the following factors are important for the development of outsourcing in a particular country: state support for the creation of free economic zones, liberal investment legislation, a favorable tax climate, the availability of educational institutions that train the necessary personnel, a legal framework that protects copyright and transmitted confidential data, the availability of infrastructure and the absence of insurmountable language and cultural barriers between performers and customers. A significant role is played by the business reputation of implementing companies, which is won by many years of high-quality work and is confirmed by relevant international quality certificates.

Taking into account all the above conditions, the recognized world leader in outsourcing, according to The Global Outsourcing Report 2005, is currently India ².

THE INDIAN WAY TO SUCCESS

Outsourcing in India began with contract programming, i.e. programming on a contract basis according to customer specifications. Contract programming was caused by the need of customers for a large number of one-time or special software works.

A key prerequisite for successful development of outsourcing in the field of programming in India was the factor of high quality of labor resources at a low cost. On the one hand, it is a qualified staff that is fluent in English and is annually replenished with new specialists. On the other hand, the salaries of Indian programmers are an order of magnitude lower than those of similar specialists in developed countries (for example, in Canada or Ireland, the average salary in this industry is $ 38 thousand per year, while in India it still does not exceed $ 8 thousand). It was the cost factor that played the main role for the customer when outsourcing in this country was just beginning to develop.

In the last 6 years, starting from 2000, it is the information technology and electronics sector that has developed at the fastest pace in India (30-35% per year).³. The share of electronic products and software in India's total exports increased from 4% in 1991-1992 to 14% in 1999-2000 and 20% in 2005-2006. While India's total outsourcing revenue was only $ 7 billion in 2000-2001, by 2005 it had grown to $ 23.6 billion. Experts estimate that India's total revenue from outsourcing will be about $ 30 billion in 2006 (see table 1).

Leading Indian companies in this industry are Wipro Technologies, Tata Consultancy Services (TCS) and Infosys Technologies. They are followed by "Satyam", "Patni" and others. According to a study conducted by Brown-Wilson Advisors in 2006, 13 of the 50 most efficient outsourcing companies operating in the global outsourcing market are Indian, and five of them-Satyam, Cognizant, Infosis, Patni and Tata-are in the top ten ⁵.

These companies are now united in the National Association of Software Development and Service Enterprises (NASSCOM).⁶. The goal of NASSCOM is to provide the necessary conditions for further stimulating software development and the latest technologies in India ⁷. The achievements of NASSCOM are obvious: it has already promoted a number of government support measures for outsourcing in India (the creation of technology parks, the establishment of a National Working Group on Information Technology and Software Development-see below). Now NASSCOM is actively involved in the development of legislation to protect the intellectual property rights of foreign companies in India.

The state is ready to support the industry in every possible way, which is already very profitable for the country's budget. In 2005, outsourcing revenues accounted for 5% of India's GDP. In the same year, speaking at the opening of the 16th International Engineering and Technology Fair in Delhi, the Minister of Foreign Affairs of India, K. K. Abramovich, was invited to participate in the conference. Natwar Singh stated that "by 2008, the industry will employ 4 million people, accounting for 7% of India's GDP and 30% of India's export revenue." ⁸

Back in 1998, the Indian Prime Minister's Office established a National Information Technology Working Group.-

Table 1

Total revenue of Indian companies from outsourcing

* According to Datamonitor and Gartner Inc ⁴.

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research and software development ⁹. The main task of this group, which includes representatives of government, business and academic circles in India, is to plan and monitor the implementation of specific steps in the development of the IT industry. The Ministry of Communications and Information Technologies is responsible for implementing the instructions of the National Working Group. It also implements the program of creating technoparks and regulates their activities.

The first technology parks as a form of association of scientific organizations, design bureaus, educational institutions, manufacturing enterprises or their divisions within a specific territory were established in India in 1991 under the Ministry of Information Technology. Technoparks were created in order to accelerate the development and implementation of scientific, technical and technological achievements by concentrating highly qualified specialists in one place and providing them with the most up-to-date production and information base. The latest infrastructure has been created in Indian technology parks. They enjoy the support of the government, receive various benefits and tax breaks. These factors make technoparks attractive for domestic and foreign companies. Initially, they were created specifically to attract foreign customers and worked only for them. Now the cities where the largest technology parks are located are Indian outsourcing centers.

In 2006, there were 44 public and 25 private technology parks in India, with some wholly owned by foreign investors.

The Ministry of Communications and Information Technology of India has also developed and implemented a Program for standardization of control and quality of electronic products, which aims to provide the electronic industry of India with world-class quality indicators.¹⁰

The two largest universities in the country that train information technology specialists, the Indian Institute of Technology and the National Institute of Technology (with branches throughout the country), receive state support. It should be noted that India ranks second in the world in terms of the number of specialists employed in the IT sector - 1 million people and exports its software products to more than 180 countries around the world. The main buyers of Indian IT products are the USA, Canada and Western European countries. Such major companies as Cisco, Motorola, Microsoft, Sun Microsystems, IBM, Hewlett-Packard, Intel, Dell Computers, Yahoo! and many others send their orders to India.

In general, customers are satisfied with the quality of Indian software products, although some tend to believe that Indian programmers do not fully cope with particularly difficult or non-standard tasks, but everyone notes their organization, clarity and accuracy of execution, efficiency, ability to communicate with the client, which contributes to the quick solution of problems arising during the execution of the order.

At the same time, there are a number of factors that create certain difficulties for the development of the IT industry in India. One of the main problems is ensuring the security of the transmitted data, because outsourcing is often associated with the transfer of highly confidential, and sometimes secret information by the customer to developers, and its leakage, disclosure or unfair use is absolutely unacceptable. In this regard, developed countries have adopted legislation protecting the use and right to dispose of intellectual property.

India has the Information Technology Act, which was passed in 2000 and deals with the security of data transmission and storage, "electronic commerce" regulations, and IT crimes.¹¹ In 2005, the Freedom of Information Act was adopted, which also protects information and data concerning the strategic and economic interests of foreign States or companies, including those that may lead to copyright infringement of foreign citizens.¹² The law prohibits unauthorized use of such information and provides for appropriate criminal penalties. But, according to experts from NASSCOM, this is not enough. In their report "Research on Information Security Conditions in India", they argue that although Indian companies have state-of-the-art technologies for data protection, more detailed legislation is needed that would be directly aimed at ensuring the data security of outsourcing customers and creating special oversight bodies for its compliance.¹³

Even today, Indian companies conduct special training sessions for their employees when working with customers from the United States or the United Kingdom (where the legislation on intellectual property protection is the most stringent), adhere to the laws of these countries (the liability for violation of confidentiality is stipulated in the contract between the customer and the contractor).

Another limiting factor is the quality of India's infrastructure. This concept is understood as a combination of three components: transport infrastructure, telecommunications, and power grids. In different parts of India, the state of infrastructure is very different.

Even in Bangalore, Karnataka, now known as India's" Silicon Valley, " customers had to install autonomous generators themselves in local companies 10 years ago because they could not provide reliable, uninterrupted operation of the local power grid. And now this problem is finally solved only in the very first IT outsourcing centers-Bangalore and

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Hyderabad, although the Ministry of Energy, together with the Ministry of Nuclear Energy, is making significant efforts to fully electrify the country and eliminate power outages.

In terms of telecommunications, there are also significant disparities between different regions of India. But in general, recently, after the entry of private Internet service providers into the market, there has been an accelerated development of Internet networks and a drop in prices in this sector.

Current trends in outsourcing development in India allow us to say with confidence that not only will the old IT outsourcing centers (Bangalore, Hyderabad, Chennai (Madras), Mumbai (Bombay), Delhi) continue to grow, but new "second-tier" cities will soon enter the arena (i.e., those that are the largest cities in the world). centers where subsidiaries or subcontractors of IT companies from the "first link" cities are located) - Belapur, Ahmedabad, Kolkata, Indore, Kochi, etc. Moving part of the orders to these new centers will reduce the cost of production, because in Bangalore and other cities of the "first link" employees ' salaries have increased significantly and continue to grow. However, the trend of increasing salaries of IT specialists is observed all over the world, and India in a comparative analysis with other countries and regions has significant advantages for customers.

The prospects for further development of outsourcing in India look quite optimistic. This is supported by more than a decade of experience, impressive intellectual resources - an ever-growing number of qualified specialists with relevant work experience and knowledge of customer requirements-and a favorable government policy.

Outsourcing as a phenomenon of the modern economy has covered almost all regions of the world. However, the debate continues about whether this characteristic phenomenon of the new information age has a positive or negative impact on the participating countries. For our customers, the advantages of the cost factor are undeniable: savings on salaries alone are from 10 to 40%. Many of those who support outsourcing also refer to the quality factor. Indians do the same job as Americans for less money and faster. And, for example, Russian programmers are able, according to reviews, to find such non-standard solutions that their foreign colleagues sometimes simply cannot do. Among the main negatives of outsourcing are the dependence of customers on performers and, of course, the" leakage " of jobs to these countries. American labor unions are particularly vocal in their opposition to the "Bengalorization" of jobs (the word, as you can see, is directly derived from the name of the "capital" of Indian outsourcing, Bangalore) ^.14 State legislators are proposing, for example, to introduce laws restricting outsourcing to companies registered in these states. During the last presidential election, the promise of "not letting Indians take jobs from US citizens" was made by both candidates, John Kerry and George W. Bush. ¹⁵ But despite the protests of opponents and victims of outsourcing, the US government is hesitant to impose such restrictions on the activities of its companies. American companies themselves are very optimistic about the prospects for outsourcing and even try to calm their worried fellow citizens. For example, Delta Air Lines reported in 2003 that by moving 1,000 jobs from the company's telephone service centers to India, it not only saved $ ²⁵ million, but also created 1,200 sales agent positions in the United States16.

Table 2

Dynamics of growth of salaries of IT specialists in some countries of the world

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Outsourcing is also not an unambiguously positive phenomenon for implementing countries. On the one hand, it is an opportunity to develop in the field of the latest technologies and increase the number of jobs for its population. But on the other hand, according to opponents of outsourcing, it is serving technologically developed countries through performing the least prestigious "rough" work in the IT sector, while customer companies play on the low standard of living of Indians who are willing to work more for less money than their American counterparts. This fact of exploitation of Indian IT programmers is pointed out by the recently intensified trade unions in India, which demand that foreign companies provide an honest and decent level of wages for local specialists, not realizing that if the level of salaries of Indians is equal to the American one, outsourcing will lose its meaning and disappear as a phenomenon. Outsourcing also implies a strong dependence of this segment of the economy on global market trends, which means that implementing countries must constantly compete with rivals, offering customers a set of advantages that would attract them - low cost, high quality, innovative ideas.

However, the prospects for further global expansion of outsourcing are not in doubt.

Objectively, outsourcing has become a good opportunity for India to effectively realize its intellectual potential and attract foreign investment to the economy, primarily in the telecommunications sector. The changes made in the country for the development of the IT industry have had a positive impact on both the national economy and the development of the country as a whole. But leadership in the outsourcing market needs to be constantly maintained, with considerable effort. Meanwhile, competition is growing. For example, from China.

Nevertheless, India has a good chance of maintaining its leading position in the outsourcing market for the next 5-10 years. According to a joint study conducted by NASSCOM and McKinsey & Co., the outsourcing industry in India is expected to grow at an average annual rate of 25% and reach $ 60 billion by 2010. ¹⁷ However, this requires addressing both current and possible future challenges: McKinsey predicts that the outsourcing industry in India will grow at an average annual rate of 25%. India may face a labor shortage in this industry ¹⁸. According to the company's calculations, if the IT industry currently provides jobs to one million Indians, then by 2010 the number of IT specialists in outsourcing will reach 2.3 million people. India may have to compete for primacy in this area with China, where outsourcing is also rapidly gaining momentum. But with the support of the state (primarily legal, but also economic) and the use of accumulated experience by local IT companies, India is quite capable of maintaining leadership in this area.

¹ History of Outsourcing. Sudhian Media LLC http://www.sudhian.com

² The Global Outsourcing Report 2005 - www.dataart.com/down-loads/global-outsourcing-report.pdf

³ Outsourcing in India - http://www.offshorexperts.com

⁴ http://www.datamonitor.com; http://www.outsourcing.com; http://www.gartner.com

⁵ The Black Book of Outsourcing - http://theblackbookofoutsour-cing.com/topoutsourcingvendors.htm

⁶ http://www.nasscom.org, http://www.nasscom.in

⁷ NASSCOM: Annual Report 2005 - 2006 - http://www.nasscom.in

⁸ Request from K. Natwar Singh, Minister of Foreign Affairs, at the opening of the 16th International Engineering and Technology Fair (Pragati Maidan, New Delhi), February 9, 2005 http://www.indianembassy.ru

⁹ National Taskforce on Information Technology and Software Development.

¹⁰ Standardization Testing and Quality Certification, STQC - http://www.stqc.nic.in

¹¹ IT Act 2000 - http://www.LegalServiceIndia.com

¹² Right to Information Act 2005 - http://www.indialawinfo.com, http://www.mit.gov.in/rti-act.pdf

¹³ The Study on Indian Information Security Environment, NASSCOM, 2004 - http://www.nasscom.org

¹⁴ Outsourcing Outrage as Viewed from U. S., U. K. and India Siliconeer, March 2004 - http://www.siliconeer.com

¹⁵ Ibidem.

¹⁶ Ibid.

¹⁷ McKinsey Global Institute - http://www.mckinsey.com/mgi

¹⁸ Ibidem.

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