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The Great Move East…

This blog is a little later than ideal, primarily as I have been busy travelling. A stint in India followed by a business course in London has, however, been provocative and educational.

Interestingly one of the themes at my business course was understanding the future trends and the impact they may have on our business. One of the pronounced themes for the next 20 years is ‘the great move east’ – the centre of the world economy moving from Europe to the East.

IndiaIndia and China, along with other emerging economies like Brazil and Indonesia, will power the world in 2025. When you visit these places it is easy to see why. My recent trip to India was astonishing… the number of people, the pace of progress and the low cost base means they are an economy growing at speed and on the brink of following China as a world power.

We did see lots of inefficiency in India. It was rare to see a job done by one person when 3 could do it. At the airport, you scanned your carry on baggage (activity 1), received clearance by way of a label (activity 2) which was inspected and stamped separately before you boarded (activity 3). With such a low cost of labour, over employment and inefficiency will be evident for some time to come. We were told by our Indian guide (who incidentally had a second person with him to clean and distribute drinks and the like) that the average wage in a call centre in India was $500 – per month! So with average wages at around 10% of Australia’s, it is no surprise that companies are off-shoring / outsourcing their simple transactional activities to India.

As a business that is in the business process outsourcing business, are we worried at the prospect of Indian competition? Not at this stage. We see the market for outsourcing in India to be in the transactional areas, where little or no skill or expertise is required. We know that one of the key concerns for our customers is their brand and protecting it from damage. We don’t see too many companies with strong international brands being prepared to offshore or outsource key back office functions that are more than basic transactional or simple processing services. We do know that some law firms and insurance broking businesses outsource simple functions like dictation transcription . From our perspective there is no doubt there are some basic claims that will be off-shored in future, but companies are unlikely – in the foreseeable future at least – to offshore claims of any complexity where local knowledge is important.

What was obvious from my visit was that India is definitely on the rise. We ignore the capabilities and significant cost advantages of countries like China and India at our peril.

Jon Broome
Managing Director

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