What Automation Portends for India’s Outsourcing Economy

What Automation Portends for India’s Outsourcing Economy

IT and business process outsourcing have been huge factors in the growth of the Indian economy since the 1990s, but in recent years, the vast demand for Indian labor has cooled down as American and European firms have started running out of tasks that could be outsourced, and as “reshoring” has gained traction in Western countries amid controversy over domestic job losses. Last year, the Wall Street Journal reported that the value of outsourcing deals had shrunk by 17 percent between 2013 and 2014, while growth in Indian offshoring jobs was also dwindling, fueled partly by the rise of cloud computing technologies that made some of these outsourced IT jobs redundant.

The rise of AI and machine learning, which promise to automate many IT and business processes, then, would seem like a threat to India’s outsourcing economy, but Milan Sheth, technology sector leader at EY India, makes the case at the Economic Times that Indian outsourcing businesses can actually benefit from these new technologies:

Intelligent automation presents itself as the best-suited solution for majority of rules-driven processes being outsourced today (infrastructure management or IM, business process management or BPM and application management and testing) – redefining the offshoring versus on-shoring debate. While there is a scope to bring down the headcount by over 50% and reduce costs up to 70% in an optimally automated IM contract, automation also poses a dilemma for enterprises–adopt a cost-effective automation fix to solve technology problems or choose an end-to-end automation solution which may require a higher upfront investment?

Robotic process automation and artificial intelligence (AI) are poised to redefine IT-BPM industry. Robotics has played a pivotal role in transforming the shop floor and assembly lines in the manufacturing sector. Now, software robotics is gaining traction across healthcare, insurance, banking and BPM industries. Robots can automate workload of 1.5-2 full time equivalent (FTEs) jobs in IT-BPM industry and still generate net saving of $10,000 per job i.e. work delivered by 2 FTEs at a cost of $40,000 can be performed by a robot, generating net savings of $20,000 by year two of deployment.

Automation is generally perceived as a threat to the economies of Asian countries that have thrived in the global economy as providers of low-cost labor, sparking fears that the manufacturing jobs that have pulled millions of people out of poverty in China and other countries will disappear, leaving millions more unable to climb the same economic ladder. As outsourcers shift production to robotically-enhanced factories in their home countries and Chinese manufacturers invest in automation to compete—and as China transforms from a primarily manufacturing-based economy to a service economy—we may be witnessing the closing chapter of the “made in China” story.

Will India’s story be different?