Who will hold the offshoring crown in 2020?

Noshir Kaka is a director in the Mumbai office of analyst house McKinsey & Company. In an exclusive interview, silicon.com reporter Nick Heath spoke to Kaka about his forthcoming report on how India's 50 per cent share of the global offshore technology and business services market could slip away by 2020.

To view the full article Strengthening India's offshoring industry, just published on McKinsey Quarterly, click here.

silicon.com: What will happen to India's share of global IT and BPO market by 2020?

Kaka: Dropping market share is one of scenarios that we have projected by 2020 if India chooses not to release the capacity in its education system.

India produces about three million graduates a year. The entire offshoring industry across IT and BPO is 2.1 million people, so clearly there're enough graduates - the real issue is the suitability of candidates. Effectively we are using a tenth of our workforce that is suitable for this industry. If that trend continues you will have a shortage of suitable talent.

The primary cause is the quality of communications and language skills, the second is that some people are not educated well enough to be able to serve a multinational corporation.

The combined market share of 50 to 53 per cent, which is what India has today, you could see that combined market share decline because India does not have the supply side availability.

But today the new Indian education minister has proposed a public-private partnership in India's education system, where 2,500 model schools would be created, which is something we have been shouting from the rooftops for for a long time.

When will the decline begin to happen?

We have seen an increase in India's market share in 2008.

The global financial crisis has given India a bit of breathing room, it's dropped the growth rates. In 2009/10 we will see low growth, so a supply side constraint will not come through in the next two years.

Beyond that, if gets back to original growth rate and we don't see any change in the education system, we could see those supply shortfalls happening very quickly thereafter.

Which countries look most likely to take that market share?

You have got to separate out those countries that are the volume hubs and those that offer more niche services.

When you look at the volume hubs, it's very hard to get away from China and Russia, which are two of the largest by population locations. China tends to be a lot more engineering, design and infrastructure services led, more catering to North Asia. Russia tends to be outstanding for software product development.

In Latin America, Brazil is one of the few nations that offers an emerging working population of that size. [Much of Latin America] is Spanish speaking, southern-US focused.

In Eastern Europe the talent pools are not as deep as in India and China and more fragmented by language.

Vietnam and Egypt has a reasonable talent pool and a lot of government support to promote this industry, support by real initiatives on the ground making changes to the education system and infrastructure to support this industry.

Which location will be the first offshoring destination choice for the UK and Europe in 2020?

For the Anglo Saxon world, the US and UK predominantly, India will continue to be the country of choice. Even with its talent constraints that I talked about, India continues to introduce about a third of the suitable talent in the world. I don't think that India's dominant position is...

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