The Outsourcing Advantage of India - Essay Example

Table of Contents Introduction 2 Discussion 2 India's History 2 introduction 3 The Arrival of the British 4 China's History 7 The Outsourcing Advantage of India 10 Conclusion 13 References 14 Introduction China and India have the two most rapidly growing economies in the world today. China experienced 9.5 % real growth in GDP between 2001 and 2005 while India's numbers were no less impressive at 6.8% in the same period.(Economist. 2005) Both countries had benefited tremendously from economic deregulation over the last 15 years or so but in the area of outsourcing business India has succeeded in achieving an advantage over China despite Chinas strength in many other markets. The reasons for India's advantage lie in the unique conditions of India's history. To understand this phenomenon it is important to step back and examine the historical and cultural factors that have gone into shaping these countries' respective business climates Discussion India's History India has a civilization that dates back to as early as 3000 B.C where evidence of large scale city structure can be seen in the archaeological record in the ruins of Mohenjo-Daro in North West India. (Mcleod, 2002, p. 11) Encompassing a large geographical area that extended from North West Frontiers that bordered to the Levant and then further east to the mountain ranges on the foothills of the Himalayas that enclosed Nepal to the eastern forest lands with south east Asia then finally to the large peninsula that reaches out into the body of ocean that on either side is named the Arabian Sea and the Indian ocean. The area encompasses a huge diversity of cultures and language. There are as many as 25 languages with dialect variations and many beliefs.(Mcleod, 2002, p. 11) Hinduism Jainism and Buddhism saw their birth within India's borders and Islam came to India through conquest in the North and by more peaceable means in the South through the avenue of Arab maritime trade. In its early history there have been instances of an India that extends to some approximation of its present borders. The most well known of these early unification attempts were under the benign rule of the great Asoka who extended territorial control throughout the west and the Deccan plains to areas below the line of Vindaya mountain ranges that traditionally marked the geographical divide between North and South India. Following the Asoka's death there was reversion to previous borders. Subsequent political structures within the region were marked by more local authority. The North was marked by a series of invasions from the Northwestern border of various tribal groups. The arrival of the Mughals saw the introduction of Islam to India. While the North saw the creative tension of the commingling and development that grew out of the conflict between Hinduism and Islam and lead to the development of its culture in new directions, the south saw the development of a series of powerful regional maritime kingdoms. The Arrival of the British The first contact between the British Empire and India came through the initial ventures of the British East India Company that first established its base in the Capital city of Calcutta the Eastern State of Bengal. The company gradually expanded its field of operations. While the early relationship with India was one based on trade the company gradually came under the arm of the British Government's desire to expand its growing political empire by annexing India. Over the next 100 years the British Government experienced in the ways of Empire and the exploitation of the tremendous regional differences in the area, used the principle of “ divide and rule “ to extend its control over India. A large part of the tremendous success of the British in establishing such a large empire at the height of its powers lay in the genius for organization and administration. Within the various regions there was established an elaborate structure of administrative bureaucracy known as the Indian Administrative Service. The lower level positions in this vast bureaucracy were peopled by Indians. In this way a tradition of working in the English medium was established . (Mcleod, 2002, p. 142) This was supported by the widespread implementation of an a system of laws and administration that paralleled the British System with a basis on the tradition of English Common law and the trials by judge and jury. The communication between the vast land space of India was furthered by the construction of a system of railways that crossed the entire nation and linked previously widely separated regions. The physical connection established by the institution of rail lines did much to unify the previously vastly separated regions into the modern idea of a nation. (Mcleod, 2002, p. 80) The establishment of the Indian Administrative Service then established a tradition of working in a white collar field in an English medium early on. It became a way to advance to the highest positions available within the context of British rule. Up and until recently the brightest students in India have vied for the Indian Administrative Civil Service exam and competition for the available positions has been extremely competitive. The twin factors of improved communication between the previously disparate areas of India's widespread geography and the establishment of tradition of a civil service in India in an English medium did much to lay the groundwork for the great present day success of the outsourcing business. In the early part of the 20th century a growing sense of national identity and the awareness of the inequities of British Rule lead to the Independence movement under the charismatic leadership of Mohandas Gandhi and Jawararlal Nehru. Under Gandhi's method of civil disobedience the British were eventually forced to relinquish control of India. (Mcleod, 2002, p. 110) The terms of the separation with Britain were not filled with any large measure of acrimony and the relationship between former colony and colonizer was from the beginning on harmonious terms despite Britain's history of exploitation in the way of many countries in the age of empire. India, however, was divided along lines of religion with the birth of Pakistan in the western region of the states of Punjab and Sind and in the east of the area of the eastern part of the state of Bengal. Today the relationship with Pakistan remains in a state of simmering enmity with India over the contentious area of land dispute in the Northern state of Kashmir that borders both nations. East Pakistan separated from west Pakistan in 1971 and formed the nation of Bangladesh. Pakistan was formed out of a need to appease Muslim leaders in the early resistance to British rule with a nation for Islamic people in India but it hardly has been the rule. India today contains more Muslim inhabitants than both Pakistan and Bangladesh. The aftermath of the mass migration of large populations of people across their respective borders in 1947 left a large scar on the national consciousness and continues to remain an area of concern. Both India and Pakistan possess nuclear capability and have lived through two wars and more recent standoffs. This historical grievance remains a blight on the future development of the area as Pakistan and Bangladesh have both lagged behind India's remarkable economic renaissance. It is hoped that India's leadership provides an anchor for the region. In the period after Independence India's first prime minister guided his democratic government through a series of 5 year plans of economic development in the pattern of the Soviet Model. There was a sense of wanting to take India in its own direction in the wake of the history of its colonial domination. This was to be echoed in China to a greater degree as will be seen later. The need for India to assert its own economic independence to go along with its political independence inadvertently delayed the development of the economy. The early socialist model of India's economy was at last reversed in a series of economic deregulation changes engineered in large part by then finance minister Mohaman Singh who is the current chief of state as Prime minster of the Coalition party in large part dominated by the Congress Party. With this understanding of the context of India's current business climate and the the conditions that allowed to establish a certain foothold in the outsourcing market. With this in mind it is important to examine the historical and cultural factors that have relatively speaking limited China's progress in the area. China's History China's earliest recorded history is seen in a large body of records that date as early as 1600 B.C. (Huang, 1997, p. v) The historical record shows a series of dynasties of groups vying for power in the expansive Chinese geography. Initially the first kingdoms were established in the North and through much migration and intercommunication a written language and advanced culture developed in China. The first establishment of Imperial rule that extended across China occurred under the brief duration of the Qin dynasty early in around 221 B.C. (Huang, 1997, p. 44) While the Qin dynasty was to last less than 20 years the imperial control of the became a feature of its political organization in the subsequent times right up to the modern era. Unlike India where the concept of a unified country only took realization under British Rule China had a firm sense of its own national identity very early in its history. By this time it had also had established the philosophy of Confucianism by the great philosopher Confucius. The ideas of Confucianism of correct behavior were to define the Chinese National character in the future. The idea of correct behavior and balance and respect of traditions that marks Confucianism is still a feature of modern Chinese life. (Huang, 1997, p. 12) China's strong national identity and strong belief in its own inherent cultural superiority led to a policy of Isolationism. Before the modern era China had only experienced conquest by a foreign power by the Mongols in the mid 13th Century A.D. Mongol rule in China lasted less than a century. The resistance to foreign rule that characterized the overthrow of the Mongols was to be a feature of China's fierce sense of autonomy in the modern era. China's isolationist stance was again disturbed by the two so called Opium wars with the British. In the aftermath of these wars China was forced to cede Hong Kong to the British and open up a number of ports to foreign nations in a series of unequal treaties. The humiliation of these events were to be a feature in China's future political development. China's adoption of Communism unlike the the Communism of Russia occurred as a result of lingering memories of colonial domination. The conflict between the Nationalists under Chiang Kai Shek and the Communists under Mao Zedong was characterized by a mutual form of alliance of any foreign intrusion shown in the resistance to aggression by Japan in... (Roe, 2000, p. 41) Under the rule of the Communist party with the leadership of Mao Zedong China's economic development underwent a prolonged period of stagnation. The Cultural Revolution and the economic reforms of 1965 led to widespread social upheaval and thousands of deaths through starvation. (Huang, 1997, p. 291) The Outsourcing Advantage of India According to industry analyst Vanaja Sarma Global IT outsourcing amounted to $39.6 Billion in 2004. India's share of this income was $17.2 Billion dollars. China's share on the other hand amounted to only $ 1.9 Billion dollars. Sarma suggests that the difference is due to the established place of the English language in India and the relatively better knowledge of western business practices by Indian businesses.(Sarma. p.1 (2005)) While this certainly states the reason for the differences on a surface level it does not explain the root causes of the difference. Back in 1995 China's economic advantage appeared to extend to every area of the economy as Turcq illustrates: Despite facing the same issues, India is some three to ten years behind China in many respects, and lacks its depth of experience. Both countries are pursuing similar development models as well (Exhibit 5). Each has opted to deregulate, open up to trade and foreign investment, allow competition in most sectors, and rely on market forces rather than public policy to determine resource allocation and economic progress. (Turcq, 1995) Today China still enjoys advantages in other parts of the economy apart from the Outsourcing disparity. ECONOMIST.COM COUNTRY BRIEFINGS http://www.economist.com/countries China: Economic Data May 13th 2004 From the Economist Intelligence Unit Source: Country data    2000  2001  2002  2003  GDP per head ($ at PPP) 3,980 4,340 4,720 5,180 GDP (% real change pa) 8.00 7.50 8.00 9.10 Government consumption (% of GDP) 13.08 13.39 13.20 12.90 Budget balance (% of GDP) -3.62 -2.97 -2.96 -2.50 Consumer prices (% change pa; av) 0.35 0.73 -0.77 1.17 Public debt (% of GDP) 30.40 30.60 31.10 29.60 Labour costs per hour (USD) 0.59 0.69 0.80 0.92 Recorded unemployment (%) 8.20 9.30 9.75 10.10 Current-account balance/GDP 1.90 1.48 2.80 2.20 Foreign-exchange reserves (mUS$) 168,278 215,605 291,128 401,036 Copyright © 1995-2001 The Economist Newspaper Group Ltd. All rights reserved. ECONOMIST.COM COUNTRY BRIEFINGS http://www.economist.com/countries India: Economic Data May 25th 2004 From the Economist Intelligence Unit Source: Country data    2000  2001  2002  2003  GDP per head ($ at PPP) 2,360 2,500 2,620 2,830 GDP (% real change pa) 3.95 5.14 4.59 8.10 Government consumption (% of GDP) 12.85 12.46 12.51 12.80 Budget balance (% of GDP) -5.28 -4.73 -5.90 -5.40 Consumer prices (% change pa; av) 4.01 3.78 4.30 3.81 Public debt (% of GDP) 56.52 57.66 60.60 62.20 Labour costs per hour (USD) 0.59 0.62 0.66 0.74 Recorded unemployment (%) 9.17 9.20 9.90 9.50 Current-account balance/GDP -0.59 0.37 0.91 0.50 Foreign-exchange reserves (mUS$) 37,902 45,871 67,666 98,903 Notes  Labour costs per hour   Wage earners in manufacture of textiles Copyright © 1995-2001 The Economist Newspaper Group Ltd. All rights reserved. This data shows that there is not an area where China does not dominate India and yet the tremendous disparity between the two countries remains in the Informational Technology Outsourcing. The differences in the cultural history do much to explain the comparative and absolute advantage that India enjoys in outsourcing. The establishment of the Indian Administrative Service in an English medium with British legal and political institutions did much to give India the tools to succeed in the Outsourcing Industry. India's open relationship with the west did much to make it receptive to western business practices that underline the outsourcing industry. China on the other hand was marked with an isolationism and a protective approach to its own sovereignty born out of a sense of identity that was centuries in the making. This isolationism was furthered by the sense of grievance toward the exploitation that occurred during the colonial years. Today while both countries have had great success in emerging from the protectionism of the socialist models of their own economies that dominated their past history they have had difference success in the outsourcing industry. Conclusion The relative success of India in the Information Technology Outsourcing Industry has a great deal to do with the differences in the history of these two countries. India has had an infrastructure developed conducive to the Outsourcing Industry with its use of the English language as a matter of its relationship with Britain. China's isolationism and relatively less familiarity with the English language has led to this relative disadvantage. But China will make strides in this disparity through the sheer force of its ambition as the world has already witnessed. References Ambler, T., & Witzel, M. (2003). Doing Business in China. London: Routledge. Retrieved May 28, 2006, from Questia database: http://www.questia.com/PM.qst?a=o&d=104269713 Bullis, D. 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