Offshore Outsourcing Market Deals With 'Underpricing'

The barrier to entry into the field of business process outsourcing (BPO) is usually quite low.

To understand this, first the question of "What is business process outsourcing" must be answered. Outsourcing refers to finding specialized service providers, outside of a company itself. Business processes are the tools that a company uses to conduct business.

More specifically, these business processes can refer to tasks such as providing technical support and data entry.

More recently, with advances in technology, a wider range of business processes are being considered for outsourcing. These are going to include more white collar, knowledge jobs such as financial analysis, accounting, and engineering.

The best candidates for BPO are tasks in which the complexity can be controlled by a simple set of rules. In the case of call centers, operators can be given scripts that clearly dictate what action they are to take. These operators are in a sense robots, however, robots with a very empathetic, human voice.

The software industry has also become a strong candidate for offshore business process outsourcing. Software development is typically regarded as a very complicated activity. However, to manage this complexity, the software industry was very clever to adopt standards. These standards set rules for communication, of code, of machines, and of humans.

Once these sets of rules are learned, it is very easy for an engineer in India to write code that will work in California.

Thus, it is a result of these standards that the marketplace for offshore business process outsourcing is so competitive. The barrier to entry is low. Quick witted engineers can learn these standards within months.

This low barrier to entry has resulted on price pressure on larger offshore business process outsourcing companies such as Wipro and Infosys.

In addition to a low barrier to entry, the BPO market faces downward pricing pressure from the large population. The supply of labor available is a place like India is immense. The United States is already a decade into tapping India for resources. However, the demand for 500,000 workers is like a fly on an elephants back for a country with a billion citizens.

It is not hard to imagine that every citizen of India with dreams of a good life is now figuring out how to participate.

What will be interesting is how these large companies react to this downward pricing pressure. In any country, it is hard to hand an employee a pay cut. At the same time, an office in which people doing the same job are paid differently will quickly find tension.

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