India top outsourcing destination for digital services: survey

India remains the top outsourcing destination for global businesses aiming to build and expand their digital services portfolio worldwide, a joint Nasscom-Avasant survey showed. 

The ‘Digital Enterprise 5.0: Digital Readiness in the Era of AI’ study that surveyed 548 companies worldwide said more than half of travel and transportation, telecom, media and entertainment, and construction and engineering companies chose India for third-party outsourcing services.

Almost half the telecom, media, entertainment, discrete manufacturing, and energy and utility companies surveyed said they outsourced digital services work to their capability centers in India last year.

Last year, around 45% of high-tech and travel companies, and 43% of telecom, manufacturing, and construction firms, nearshored operations to India.

Nearshoring helps businesses reduce costs and improve supply chain efficiency by relocating operations closer to their primary markets.

Top companies outsourcing digital services to India included Google, Wells Fargo, and Unilever, the joint survey by India’s IT industry lobby and the leading IT consultancy showed.

Google has leveraged a substantial talent pool in India for outsourcing its software development, management, and IT infrastructure, while Wells Fargo established a technology development center in Hyderabad in 2006. This center supports the company’s banking software applications and testing.

Unilever has outsourced its human resources services, ranging from recruitment to payroll processing and performance management, to India.

Digitech spending shows an uptick.

Over 90% of global enterprises in diverse sectors, including banking and financial services, healthcare, high tech, manufacturing, construction, and engineering, have increased their spending on digital technology adaptation such as artificial intelligence and machine learning (AI/ML), big data, cloud, cybersecurity and intelligent automation in 2023, up from 75% in 2021.

Interestingly, overall technology spending in enterprises has swayed widely from 9% in 2021 to 8% in 2022 and further down to 4.4% in 2023, per Gartner and IDC.

“Ever since the 2020 pandemic turn of events, and more so since the digital consumption spike of 2021 tempered, technology spending has witnessed an interesting de-coupling of total tech spend of an organization and its digital spend. While tech spending has grown at a declining rate since 2022, enterprises have taken big strides in their digital investments, barring some discretionary spend control due to macro factors,” mentioned Sangeeta Gupta
senior vice president and chief of strategy at Nasscom, in the survey note. She added, “We are witnessing strategic rethinking of technology use cases, spending methods, and sourcing approaches in this age of AI. Generative AI has brought back the focus on an enterprise-scale AI strategy and execution plan. With AI underwriting enterprise analytics, companies now emphasize innovation, productivity, customer experience, operational efficiency, faster
time to market, and competitive differentiation over sole cost control.”

Among participants in the survey, 38% were from North America, 25% from India, and 9% from Europe. Additionally, 32% of the surveyed companies fell within the $5 billion revenue bracket, while 35% operated at the $500 million revenue scale. The rest of the companies belonged to the category with less than $500 million in revenue.

Most of the 548 surveyed companies were from financial services and healthcare and life sciences sectors. These were followed by companies in the high-tech, manufacturing, construction and engineering, retail, travel and transportation, manufacturing, industrial and telecommunication gear, chemicals, pharma and agri-processing, and telecom-media and entertainment sectors.

Trends in 2023

The survey showed that 70% of enterprises allocated over 20% of tech spending to digital in 2023, up from 57% in 2021, marking a 25% growth in two years.

About 84% of enterprises have over 6% of their workforce as digitally skilled, recording 2X growth in companies with over 15% digital workforce.

“With shifting business focus, enhancing digital skills within the workforce to keep up with the changing job requirements is of critical priority. Here too, established enterprises are seeing the relevance of Generative AI as a way to boost efficiencies, enhance profitability, and outpace competition. These organizations are trying to gain systemic advantage by fixing the fundamentals – data, cloud, tech integration, and sourcing. Enterprises are working towards integrated tech use cases that cut across organizational silos to harness the power of high-quality data to then customize, personalize, and adapt services and value to customers.” said Gupta in survey notes.

Enterprises entering into a contract with digital service contracts have shown a trend of entering into long-term contracts ranging from 2-3 years; enterprises going for more than four-year contracts have shown a 2X rise in 2023 from 2021.  

Emerging Trends for 2024

The survey indicated that the chief customer experience officer is now seen as a key digital leader, increasingly focusing on integrating digital strategies directly into the core business unit’s \operations and objectives.

This approach involves spreading digital capabilities throughout the fundamental aspects of the business unit to enhance its strategy.

Interestingly, demanding companies reduced their over-tech spending rate, but spending on digital technology continued its upward trajectory.

Surveys showed that older enterprises opt for digital transformation as an effective, sustainable cost-reduction method.

In 2024, the survey forecasted, generative AI/ML will remain a top tech area, but cybersecurity will become a more crucial factor than ever.

The survey indicated that enterprises will likely attach more weightage to cybersecurity for the next 18 months until the first half of 2025 as Gen AI adoption grows.