Over the past three decades as globalisation has taken hold, India has become a major power in outsourcing. In cities from Bangalore to Hyderabad, more than 4m people staff the sprawling campuses that provide call centres, IT maintenance and all kinds of other services to western businesses.
But the chaotic nature of the country’s coronavirus lockdown, announced at four hours’ notice in March, left many outsourcers scrambling to avoid outages as they switched to remote working, highlighting the risks of concentrating outsourced operations — and work that has been kept in- house but moved offshore — in a single place.
Poland — Europe’s biggest outsourcing and offshoring hub, and one of the world’s top five — is one of the rival centres hoping to profit.
“For those companies that were not thinking about this before, [the pandemic will accelerate it],” said a Polish manager at a global IT group with operations in Poland and India. “Definitely they will look at the situation [and say]: if we are global operating companies, we also have to have our workforce distributed more evenly.”
One challenge for India’s outsourcers in the switch to remote work was strict privacy rules on what can be taken out of the office. Another was the lack of infrastructure. The country is plagued by electricity outages, and staff often lack reliable internet connections at home.
“They don’t have fast broadband at home because it is so expensive, so we have had to give staff a sim card, laptops and pay their phone bills so they can work remotely,” said one Deutsche Bank executive.
Poland’s industry cannot compete with rivals such as India and the Philippines on labour costs. Instead it has sought to lure western multinationals with a combination of its greater proximity to western markets, the legal and regulatory frameworks that come with EU membership, a well-educated, multilingual workforce and good infrastructure.
Executives there hope that the way Poland’s outsourcers dealt with the shift to remote working during the pandemic will be another factor in their favour as companies begin to review their operating models in light of the crisis.
Jacek Levernes, co-founder of ABSL, the Polish business services trade body, said the industry was able to shift 95 per cent of workers to remote working within a week of the lockdown, whereas in some Asian hubs, it took several weeks to get up to 60 to 80 per cent of staff working from home, he claimed.
“To move things from the UK to Poland you can generally save 50 per cent. To move to India can save 70-75 per cent,” he said. “But the difference today is that this is not only a financial crisis, which means that you need to find savings. Resilience is also something that you need to take into account.”
According to Polish executives, some shared service centres in Poland have taken on tasks normally done by colleagues in India, because of the disruption caused by coronavirus. Those shared service centres do everything from transaction processing for banks to supply chain management for multinationals and IT development for software groups.
“We moved people [in Poland] home even before the government announced the lockdown,” said one Polish executive from an IT group with operations in Poland and India.
“India was not able to do this. [They had] to get mobile internet connections, they had to provide laptops, which took a bit longer . . . My organisation probably coped even in India much better than other organisations. Nevertheless the guys from my team supported . . . some of the India processes.”
However, India’s IT companies dispute the idea that they will lose business to Poland and argue that, barring some early confusion, they oversaw a Herculean mobilisation to keep business running.
The chairman of Infosys, an IT outsourcing specialist and one of the country’s biggest companies, said more than 90 per cent of its 200,000 plus employees were working from home within two weeks. “It’s a campaign which was logistically extremely complex,” Nandan Nilekani said. “We didn’t miss a beat.”
The biggest of the Indian outsourcers are cash rich and argue that they are well positioned not only to withstand the shock but to take a bigger share of the global market. For one, they already have centres in dozens of countries worldwide, including Poland, giving them global reach that few can match.
“It’s too early to call the demise of the Indian outsourcing industry,” said Sid Pai, founder of VC firm Siana Capital and a longtime IT industry executive, said. “There will be some pain, maybe significant pain, but I think the larger ones are the ones that’ll be left standing.”
Indian groups are also adapting. Tata Consultancy Services, India’s biggest, said it has built a model allowing it to create virtual teams of workers who can handle projects or manage customer service remotely. Its target is to have only 25 per cent of work done from offices within five years.
“We went into the whole situation like everyone else in a very reactionary mode. In fact, we were not expecting the scale of the impact,” said Amit Bajaj, head of TCS for Europe. The pandemic has sparked “a huge behavioural change in a very short period of time”.
The difference in scale between India and Poland’s outsourcing industries — India employs more than 10 times as many people — means that even if India loses only a fraction of its outsourcing business, it could still provide a big relative gain for rivals.
However, some in the industry say that while there may be some shifts between rival hubs as a result, the pandemic is also likely to trigger bigger changes.
“The discussion will be about offshore, nearshore, onshore, but it will be even more about virtual centres and how to make the leap in terms of digitalisation and automation, and how to move this labour intensive work to machines,” said Marek Grodzinski, a partner at EY in Poland.
“We hear this from many clients. This has, of course, been discussed for years. But in my opinion it went slowly. And now Covid has opened many people’s eyes.”
Additional reporting by Stephen Morris in London
