Mgmt

Abstract

Outsourcing is becoming more prominent in a range of IT industries. Organizations are focusing on core business and are wishing to achieve large cost savings. For the purpose of this paper, let us just imagine there is a company called Ezy. It is a West Australian company; it provides a range of medical services and wants to outsource its system for following up patient accounts to an accounts service provider in Bangalore, India. The Indian firm already provides similar services for similar medical services companies in the United States.

This paper tries to do a political risk assessment for Ezy by firstly identifies critical and relevant issues, predicts potential political events which may affect Ezy's operations if it decided to outsource to Bangalore, the events' probability of occurring, and finally concludes whether Ezy should do the outsourcing or not.

Issues Relevance to Ezy

Political climate

India is the largest democracy in the world. It is a sovereign democratic republic and has a parliamentary system of government with a federal structure. The central government in New Delhi has exclusive jurisdiction over all matters of national interest such as defence, communication, banking and finance, international trade and foreign affairs. The state governments have primary responsibility for matters such as law and order, education, health and agriculture.

Political climate is stable, although the current ruling government is a coalition of several political parties, which came together to form the National Democratic Alliance.

Economic climate

In the last decade, significant structural reforms helped India become one of the world's fastest growing emerging economies, boosting living standards and reducing poverty. Economic liberalisation and rising incomes also stimulated rapid trade growth with Australia and significantly increased Australia's foreign direct investment in India.

India is a big, diverse economy with a current growth outlook that overshadows most Asian markets. While the pace of growth in the medium to longer term will depend largely on the speed and extent of ongoing reform, at a time when almost all other Asian economies are anticipating contraction or slow growth, the Indian market cannot be ignored. Several fast growing sectors and states provide increasing opportunities for Australian traders and investors to build on that success.

Labour laws

India has one of the largest pools of scientific, technical and managerial personnel, besides a sizeable skilled and semi-skilled labour force.

Foreign citizens may engage in most trades and business in India, provided they conform to the regulations concerning residence and work permits or the equivalents thereof.

Trade unions play an important role in large businesses and Indian legislation requires the recognition of trade unions. Legal minimum wages are fixed for workers and employees. There is also a comprehensive legislation that protects staff from arbitrary dismissal.

The India Budget provides more and recent information on Labour and Employment.

back to top...

Investment

India has implemented a series of economic reforms with the view to attract private sector investment and participation in the economy, including foreign investors.

India offers a broad scope for foreign investments due to:

* strategic location - access to the vast domestic and South Asian market

* a large consumer market estimated to be growing at eight per cent per annum

* automatic foreign investment approval in 60 categories of industries

* skilled manpower and professional managers available at competitive cost

* vibrant capital market with over 9000 listed companies

* policy environment that provides freedom of entry, investment, location, choice of technology, production, import and export

* English being a widely spoken language

The government has recently opened up the insurance sector for limited foreign participation. It is also looking at allowing up to 74 per cent, up from the current 49 per cent, foreign stake in the telecom sector.

As part of the ongoing economic reform program, the policies and procedures governing foreign investment and technology transfer have been significantly simplified.

The central and state governments offer several incentives to attract investment. Available incentives include central and state government subsidies for the capital requirements of projects and tax holidays.

Several programs are designed specifically to promote growth in undeveloped regions, new industrial estates and other industrial development parks. Investments in certain specified industries may receive concessionary rates for power and water, etc.

In addition, the central government has also evolved an attractive package of incentives for 100 per cent export-oriented units and units located in export processing zones. These incentives include concessional rent for lease of industrial plots, duty free imports of capital