The Outsourcing Butterfly Effect

June 19, 2018 | Arnab
Outsourcing Growth

When Harry Robertson took the reins of American Express’ sprawling new back office in New Delhi’s suburban outpost of Gurgaon in the late 1980s, little did he know that the move would set in motion a chain of events that would see India’s millennium city, Gurgaon, get transformed from non-descript semi-arid farmland to a glittering oasis of glass offices and towering housing complexes in just 20 years’ time.

In many ways, the story of Gurgaon has parallels to that of Dubai, though the scale is much smaller. Soon, sleepy old-world towns like Bangalore, Pune and Hyderabad would become synonymous with synergy and technological innovation, with Bangalore already becoming one of the 10 fastest growing urban sprawls in the world.

Who Knew?

The outsourcing story has been told often, and told well. However, what started as a mixture of foresight and necessity has become a multibillion dollar industry in its own right. Today, the flow of investment is not one-sided any more, with IT companies becoming global players in their own right; though the ratio is still skewed firmly towards the West, especially the US. But that one small, at best locally, significant moment marked the beginning of not just India’s post 1990s growth story, it also started a new chapter in the organic relationship between the West and India – the India of non-violent revolutions, of magicians and snake charmers, of medieval architectural masterpieces, of invisible iron curtains, of the hippie trails… Who knew?

Who knew that one day the US Navy, which had sent its 17th fleet into the Bay of Bengal in support of regional ally Pakistan in 1971 against India, would one day hold military exercises with the Indian Navy! Who knew that India, which in the 1970s had an anti-US movement shunning Western food items like Coke, would one day become the largest market for Dominos outside the US? Or that Dominos would end up serving toppings like chicken tikka masala!

India’s Deng Xiaoping moment!

Before the Wall came crashing down under the might of people, signaling an end to Cold War and the Soviet Union as a superpower, India as a country was deemed rather close to the USSR. Its admiration for socialism aside, the US and the West’s perceived closeness to Pakistan also played a big part. Indian economy was also very different, dominated by state-run enterprises and a system which generally discouraged independent large-scale private ownership of businesses. Post 1990s, with India looking to open up its markets, the then Finance Minister and ex-governor of World Bank, Dr. Manmohan Singh (who would later go on to become the Prime Minister) gave India its Deng Xiaoping moment. Standing in India’s parliament, with a nation which still counted its flock in the millions watching, Dr. Singh declared India open for business.

By the mid 90s, outsourcing to India – then mostly contact center operations (read call center) – was in full swing. And for the first time, India’s youth were face to face with something that is pretty much a given in countries like the US – a walk-in interview with the offer of a job at the end of it. The call centers in New Delhi’s suburbs like Gurgaon and in upcoming cities like Bangalore saw the rise of a completely new class – the sub-25 middle class. These were India’s millennials, fresh out of universities and English educated. The charm of “easy money” was always going to be hard to resist, never mind the night shifts. Never mind having to spend hours in trying to adapt accents that did not come naturally and never mind having to spend eight hours on the phone talking with people on the other side of the globe. The greater exposure to Western culture and customs – crucial to the call center employee’s functioning – also led to a greater acceptance, and inevitable absorbance of these same customs.

America absorbed! 

With money came a desire to spend it as well. The ultra-consumerist Indian middle-class was being born. McDonalds opened its first outlet in South Asia in New Delhi in the late 1990s- targeting an increasingly Westernized young middle class. Today, it counts India as one of its largest markets globally. And from being a chic hangout place for the English-speaking elites, chains like McDonalds have become so seamlessly absorbed in the Indian scene that driving down to the foothills of the Himalayas from New Delhi along National Highway 24, I came across as many as six operating as stopovers, surrounded by the greenery of rural India!

Today, apart from McDonalds and Dominos, plenty of other American chains are operating successfully in India and raking in enormous profits. Outsourced American businesses were among the first movers in this new Indian scene. With time, brand USA has become the dominant presence in Indian cities. That has allowed money to flow uninterrupted into the US, since the consumerist trends have kept demand from the Indian consumer at ever increasing peaks. Being associated with these brands has also become a mark of upward social mobility for the Indian middle class. For the Indian youth, these offer a chance to touch the American dream, if not necessarily live it.

And that’s not all, American soft power is there all around for anyone to see in urban India. Consumption of Hollywood and American entertainment content is reaching new heights. Recently, Avengers released across 2,000 screens in India and raked in a cool $43 million! American dramas, fantasies, factual entertainment and police procedurals are heavily consumed in urban India. Sample this, AETN networks, the network that owns History Channel, counts India as one of its biggest markets. Such is the demand for American content that stars of History Channel show Pawnstars, Rick Harrison and his son Corey, visited India for a special episode in 2013 – recognition of the importance of the Indian market for the network. Internationally acclaimed magician and TV star, Dynamo, also did the same.

The giant is awake and it’s hungry

With Indian economy waking up and an ever expanding middle class based in its urban sprawls, the demand for infrastructure, goods and services have increased manifold. The biggest asset of a developed economy like that of the US is technological knowhow. And this is where Western firms have rushed in to satiate a growing demand for the same. From metro railway projects to defense – the race is on for a slice of the Indian pie. Similarly, developed economies like Germany and Japan are in the hunt to corner knowledge transfer contracts through public-private partnership and build transfer models. A good example is the contract bagged by Japan to build India’s first high-speed railway line. The US, though, stands the best chance among all developed nations to dominate the three sectors that have the biggest monetary potential – defense, power and aviation.

The India-US Civil Nuclear Agreement is a great example of this. India is an extremely power-hungry nation, with its last few frontiers getting electricity access only just now. It needs necessary technological knowhow to produce high amounts of clean energy and for US power companies, there is huge potential.

In civil aviation, India has become the third largest market globally, and growing by roughly 11% annually. American aircraft manufacturers like Boeing are poised to make significant windfalls from future orders from Indian airline service providers. In 2015, Boeing projected India’s demand for aircraft to touch 1,740, valued at $240 billion, over the next 20 years in India. This would account for 4.3% of global volumes.

However, it’s the US defense sector that will benefit the most. Manufacturers like Lockheed Martin expect an order in excess of 100 F16 and F18 aircraft in the near future as the Indian Air Force, one of the largest in the world, is eager to leave its Soviet legacy of MiGs behind. India has legitimate security concerns, sharing most of its land border with two countries it counts as unfriendly. It’s safe to assume that India would want to significantly boost and modernize its military arsenal, especially given the fact that today, thanks to increasing organic contacts between the two nations and intertwined business relationships, India considers the US as its strategic ally – a huge plus for the US in the area where China has been almost scarily dominant.

The butterfly effect

Trade has almost always been the first point of contact between civilizations. Today, thanks to more than 3 million people that outsourcing directly employs, and millions more that subsidiary industries and services employ, India has the West and largely the US to thank for a thriving and prosperous middle class. Today, this same class is the one of the biggest consumer groups for American brands globally. This class identifies more with America and its culture and does not shy away from allying with American interests. This is that same India, which used to support Soviet-backed regimes in Afghanistan and historically used to treat the Soviet Union as a strategic ally. The same India whose five-year plans and state control over business mirrored that of the Soviet Union!

And then one fine day, an outlet of a popular American pizza brand was serving Tandoori Paneer (Indian goat cheese) in a far-flung Indian town – who knew?

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