HR outsourcing has become a here-and-now, commonly accepted business practice in India. That the opportunity is limitless is evident from the fact that recruitment process outsourcing (RPO)""a subset of the total HR outsourcing market""will alone account for a worldwide business of $30 billion. The reason for the rapid growth of outsourcing is obvious. Given the mounting amount of paperwork, HR departments in many companies have ballooned into mini-empires, struggling to manage a typhoon of paperwork and keep down the cost of staff. Research has shown that 87 per cent of the funds in a mid-sized company's budget for HR goes towards routine processing transactions, rather than strategies that could actually impact business, enabling it to gain efficiencies. Mid-sized companies in fact spend almost twice as much as large companies in maintaining an HR head count. There is no doubt that HR outsourcing has tremendous cost savings potential for companies. Typically, companies end up saving 30 to 40 per cent of their cost by outsourcing their HR processes. | |
| Despite its many advantages, it seems the Indian HR outsourcing industry is just skimming the surface. The total market for HR outsourcing in the whole of the Asia-Pacific region is estimated to be around $4 billion. That is just 5 per cent of the world market, and India's share in even this small pie is negligible. |
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| The biggest problem""and this is why the HR outsourcing industry in India is on the back foot""is the government's and the industry's failure to tackle issues like data security and data privacy. Most foreign companies insist that their outsourcing agreements contain detailed and precise contractual specifications regarding data privacy and protection. This is where Indian HR outsourcing companies face a major handicap. It's a chicken-and-egg situation. The lack of data privacy concerns in India have ensured that the vast majority of HR outsourcing giants keep away from India (only 2 per cent of the Indian HR outsourcing market is controlled by the organised sector), while the unorganised sector, which controls 98 per cent of the market, couldn't care less about these issues. This has directly contributed to the perception that Indian outsourcing companies lack domain expertise. |
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| The other point is that Indian HR outsourcing companies will have to move up the value chain and do something more than just recruitment procesing, as by 2010 India may become too costly to provide low-end services at competitive costs. For example, Evalueserve says Indian salaries have increased at an average rate of 14 per cent a year. If this trend continues, it is quite obvious that India will get priced out of the market by competitors from some of the transition economies of East Europe as also by some Asian rivals. It is vital therefore to look at the supply side of the labour market. |
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