According to a NASSCOM study, half of the Fortune 500 companies prefer India as their outsourcing destination, including 80% of the U.S. and European companies. These stats are supported by the findings of Kearney in the Global Service Location Index, which puts India in the number one spot for the most attractive country to outsource business services.
Companies outsourcing to India gain heavily by cost-cutting up to 60% and soaring productivity, the two vital driving factors behind any successful business.
Along with other reasons, the availability of skilled talents from top institutes and the Dollar domination over the country’s currency, the Rupee, has made India an excellent outsourcing destination.
Why do companies outsource to India?
India has a service-dominated economy, with 54.27% of the GDP from the IT and other service sectors. A considerable part of this comes from outsourcing, and let’s get to know what prompts international companies to outsource their work to India.
An abundant supply of tech talent pool
Thanks to the 15 lakhs of engineering graduates passing out every year in India, the country has an adequate supply of skilled talent. With the massive availability of innovative talents that global companies can employ, the chances of increasing productivity and scaling up are high.
Cost-effective labor availability
India is a developing nation and uses the currency Rupee. As of April 2023, 1 Dollar is worth more than 80 Rupees. This offers a tremendous advantage for global companies to tap talents from India at a considerably low cost.
High-quality services
The quality of work produced by the graduates of prestigious institutions in India stands on par with global standards. This attribute is evident from the fact that many top international companies have Indian heads who graduated from top universities, including IITs and IIMs of India.
Some popular names include Satya Nadella, who heads Microsoft; Sundar Pichai of Alphabet; Shanthanu Narayan of Adobe; Lakshman Narasimhan of Starbucks; and Aravind Krishna of IBM.
Similarly, there are enormous prospects for finding talents from India who can contribute to the success of global enterprises.
Tech and infrastructure availability
India has been keen on providing infrastructure to global companies to promote their presence and to make outsourcing easier. The special economic zones with lower tax rates for cyber parks in top tech hubs such as Bengaluru and Hyderabad; manufacturing units for companies such as Nestle, Suzuki, and Merck; are a few examples of global presence in India.
Huge market opportunities
With a population of over 1.4 billion, India offers tremendous market opportunities, prompting international companies to consider outsourcing to India. Having cost-effective labor and entering the world’s largest populous market at the same time is like hitting the jackpot.
Understanding the Indian job market can help employers consider the possibility of outsourcing work to India. A general question may arise about the kind of outsourcing to follow.
Pros and cons of outsourcing work to India
Why do popular companies indulge in outsourcing work to India? Let’s look at the top pros and cons of outsourcing work to India.
| Pros | Cons |
| Indian companies outsourcing helps bridge skill gaps with the abundance of skilled professionals. | Social and cultural differences may reflect in the working mindset of an outsourced team. |
| The availability of top tech talents in India producing high-quality outcomes is an excellent factor in promoting outsourcing work to India | Language barriers could be a hurdle to smooth communication between the teams. |
| Cost-effective employment is another factor that encourages companies to utilize talents in India. | Time zone differences may interfere with the time working to meet deadlines. |
| The Indian company managing the outsourcing might get confused with the project and could affect the results. | |
| Cases of improper payroll management and noncompliance to labor laws may create issues in the project handling, which is a risk to you as an employer. |
Compliance with labor laws is crucial; those handling your project must ensure these are met without fail.
Employment compliance in India
India is a country with strict employment policies in place. For that reason, the rules and regulations need to be followed compliantly to keep away from penalties. Employers need to know the working conditions, average salaries for each job outsourced, the leave policy followed, employee benefits provided, and other requisites. Some criteria include:
- Employee Contract: In India, employee contracts must be in a language understood by both parties involved. Contracts are generally in English, provided that both parties understand it.
- Probation Period: The probation period for Indian employees can last up to 6 months.
- Payroll Cycle: The payroll cycle in India is monthly.
- Minimum Wage: The minimum wage in India varies per state and with industry associated. As of 2022, the national floor-level minimum wage across the country is 178 INR per day.
- Overtime Pay: The standard working hours in India are 9 hours each day and 48 hours each week. Including overtime, the maximum working hours must not exceed 60. Furthermore, the overtime hours per quarter must not exceed 50. Employers must compensate for the overtime at 200% of the regular hourly rate.
These are some of the employment specifications prevailing in India. Get to know more about the working conditions in India here.
Challenges for outsourcing work to India
As you have read above, to outsource work to India, you need to clarify certain hurdles do not exist to threaten your chances of success. What are the challenges you might face? Take a look:
- Smooth payroll management: As the project owner, you need to ensure that the company’s payroll management is smooth and without any complications.Improper payroll management can cause legal issues which may affect your project’s delivery.
- Compliance with labor laws: Noncompliance with labor laws can result in penalties and a ruined reputation, which is another reason to clarify if the outsourcing partner meets all the regulations.
- Quality of professionals working on projects: You might be handing over the baton to a company who might not be employing top talent, but just mediocre ones. This can weaken the quality of your project and can be challenging to you.
How can you overcome these threats? What other way can you utilize to ensure the reputation and quality are not compromised?
An alternate choice of outsourcing work to India – Employer of Record
Outsourcing is an age-old process of having skilled talents working for your enterprise outside your organization. Instead of outsourcing, how about you expand your business to India at a lower cost?
The most attractive new-age alternative to outsourcing is expanding your company to India using an Employer of Record (EOR) provider.
Usually, to expand your business to India and to hire talent, you need to set up an entity in the country, but with EOR, you can hire employees with preferred skill sets at a comparatively lower cost.
Multiplier, a SaaS-based EOR provider, is a company that takes up the legal responsibility of employing staff on behalf of your organization. Officially the employee will be registered as an employee of EOR but acts as if they are registered with your company.
Multiplier helps you with the following:
- Generate employment contract in just 3 min!
- Quick and easy onboarding process
- Smooth payroll management
- Payment facilitation in the local currency
- Legal compliance with labor laws
The significance of Multiplier as your EOR provider is that you can focus on growing the business rather than spending valuable time on legal compliance and operational aspects.
With remote working much in practice these days creating wonders, Multiplier can help you employ top-skilled talents from India to work for you as your employees. Thus you are expanding your business and reaping the best benefits at a lower cost.
Learn the cost of setting up an entity compared to using EOR for your business expansion to India. Click here to download.
