India is Asia's largest consumer of outsourcing

India has emerged as the biggest consumer of outsourcing services in the Asia Pacific region, ahead of Japan, China, and Australia, according to sourcing consultancy firm Technology Partners International Inc. (TPI) in Houston, Texas.

Most of that business, though, went to multinational service companies, such as Hewlett-Packard and IBM. Indian outsourcers don't tend to focus on their home market because they don't find it as lucrative as the U.S. and Europe, analysts have said.

In the first half of the year, outsourcing contracts from India were worth $1.7 billion and accounted for almost a third of contracts awarded in the Asia Pacific. Japan came second with contracts worth $1.2 billion and China third with $1.1 billion.

The demand in India has come mainly from the country's booming telecommunications industry, including two very large contracts worth about $1.3 billion. Still, momentum for contracts in India is huge and the country will stay among the top three consumers of outsourcing even if more large contracts don't materialize, Siddharth Pai, a partner at TPI and managing director of its Indian operations, told reporters in Bangalore on Wednesday.

TPI tracked the contracts worth more than $25 million for its regional survey. Had it included smaller contracts, the Indian outsourcing market would be three times as large, Pai said.

In the global market, the number of outsourcing contracts worth more than $50 million fell 25 percent in the first half of the year, according to TPI. The total value of contracts also fell, by 23 percent.

The global market continues to grow robustly, however, even if business is shifting to smaller contracts, said Mark Mayo, a TPI partner and managing director of its global advisory services. Contracts are getting smaller because companies are dividing work among multiple suppliers, rather than awarding business to one supplier, Mayo said. Many contracts also tend to be short term and have a large offshore component, he added.

Indian outsourcing companies, such as Infosys Technologies and Wipro, had only a 4 percent share of the global market in the first half of the year. That figure does not include multinational companies like IBM that offer services from India.

A new opportunity for Indian companies is what TPI calls Knowledge Services Offshoring (KSO), which is the offshoring of highly complex work, requiring high level skills, such as research and analytics.

Unlike business process outsourcing (BPO), KSO work is non-repetitive and requires staff to use judgment, Pai said. A significant portion of the offshore KSO work will be done by subsidiaries of multinationals rather than by outsourcers, as some of the work is core to a company’s business, he added. Most of the KSO work sent to India currently comes from the financial services industry, Mayo said.