Strategies for sustaining the edge in offshore outsourcing of services: the case of India

Purpose – Offshore outsourcing offers competitive advantages when goods and services are produced economically and with acceptable or superior quality by suppliers located outside a firm's home country. The purpose of this paper is to focus on India as a destination for offshore outsourcing of services and the challenges it faces in maintaining its leadership in this area. The paper discusses the growth of services outsourcing and the economic and environmental forces that have contributed to the outsourcing of high‐end services, also known as knowledge process outsourcing (KPO). Design/methodology/approach – This article surveys the literature of offshore outsourcing and identifies strategic drivers and options that can help India to grow and consolidate its position as an exporter of services and build long‐term competitive advantages in its relationships with global partners. To understand why nations gain competitive advantage in certain industries, Porter's “diamond” model is utilized as a broad framework for examining policies and national strategies that can sustain India's competitive advantage in outsourcing of knowledge‐based services. The paper discusses India's current and prospective assets and liabilities that correspond to the model's four components. Findings – The article discusses India's competitive edge as a leading supplier of knowledge‐based services and proposes a model for sustaining this edge. The model proposes key policy steps to move from the current position (e.g. supplier of business process outsourcing services) to a role of knowledge leader by providing advanced value added services to global clients. This model suggests ways in which a supplier nation can gain leverage in the value chain. Research limitations/implications – The article is conceptual, not empirical. Public and corporate policy implications are presented to strengthen India's competitive advantages in outsourced services. Practical implications – The article presents a strategic roadmap with policy implications that can help move India up the value chain from being primarily a destination for low‐end business process outsourcing (BPO) to that of a co‐equal, high value‐adding partner or principal who offers knowledge leadership in the design and delivery of services for global markets. Originality/value – The article discusses a nation's technical strengths, as well as cultural and infrastructure weaknesses, that can contribute to volatility as a global outsourcing leader. The article also presents strategies that can reduce a nation's vulnerabilities to competitive actions.