Can India’s Dominance in the Global Services Industry Be Challenged?

The short answer is that it would be very difficult.

Why? Let’s look at the numbers. The top five most-populous countries are China, India, the U.S., Indonesia and Brazil, in that order. Apart from its population’s limited English skills, Brazil is relatively richer than other emerging markets and has an economy powered by natural resources and commodities. As of yet, Indonesia has not been able to jump on the global services highway because of internal structural issues, and the foreseeable future doesn’t promise much change. The U.S. is the demand market with the bulk of the global services industry, while China, as we know, is making fervent efforts (led by its government) to get its fair share.

What about the next five most-populous countries: Pakistan, Nigeria, Bangladesh, Russia and Japan? It seems none of these countries is on the verge of taking a bite out of the global services industry, save Japan that is a demand market like the U.S.

Further down the list, we find the Philippines, Vietnam and Mexico, which is the last country on the list with more than 100 million people. Mexico and the Philippines and, to some extent, Vietnam are already participating in the global services economy, playing to their strengths instead of a broad-based presence. In particular, the Philippines has done extremely well, especially with its voice-based BPO services that have grown at a blistering pace and have even recently surpassed India.

If we shift the discussion from current population to future population growth and workforce numbers, we find that, apart from countries in the African continent, India is projected to continue to add the most millions to its workforce over the next 25 years. The age distribution also means that India will create a young workforce which will last for the next two to four decades before it shifts.

This almost explains India’s lion’s share of the export of services.

But how many millions does this industry really need to reach its potential? From a services standpoint, the global services industry has the potential to touch $1 trillion over the long haul. If we assume an average employee revenue productivity of US$35,000 per annum, we are talking about 30 million workers.

Where will these 30 million be employed? Perhaps far-fetched at this point, this large employment number could be broken down as such:
1.  India and China will account for 65%, with India as two-thirds, or 40%, of the total
2. Other highly populated countries will probably account for another 25% (spread across another 6-8 countries in different continents)
3. The remaining 10% will be a mix of onsite (located in the developed countries) and spread across relatively small-sized economies for their language, technical and other specialized skills

While China’s rise over time is inevitable, India is likely to remain the 700-pound gorilla in the global services industry despite its public governance issues and widespread corruption. These issues are not new for India, but, as many say, the Indian economy grows in spite of the government, not because of it.

The question is not whether India will reach its potential – but at what pace and when.

By Dinesh Goel, Partner, ISG

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