Offshoring: Why businesses launch IT operations in India

More than 750 multinationals have now outsourced IT to Indian captive units...

From modest beginnings 25 years ago, India has become a magnet for multinationals' overseas IT operations. But the reasons for having a captive unit in India have been undergoing a significant change, says Saritha Rai.

When Texas Instruments set up an offshore R&D operation in India in 1985, it became the country's first captive unit. But the semiconductor company was pioneering in more ways than one.

Demonstrating how far captive units have come since those early days, Indian outsourcing trade body Nasscom has just released a study showing Indian captive units generate $11.1bn in revenue - a fifth of India's total outsourcing exports. Captives have also grown 300 per cent in the past seven years.

Until Texas Instruments' entry into India in 1985, the government had not permitted private companies to import equipment to send data overseas in real-time. The imported satellite dish that enabled Texas Instruments to communicate 24/7 between India and Dallas arrived at the company's Millers Road offices in Bangalore on an ox cart.

Equipment arriving at the Texas Instruments Bangalore office

Equipment arriving at the Texas Instruments Bangalore office in 1985
(Photo credit: Texas Instruments)

Today, state governments vie with each other to provide land and infrastructure to multinational companies. The captive scene has matured and Indian units provide value to their parent companies, says Chandramouli C S, director global consulting at Zinnov Management Consulting, who led the Nasscom study The Captive Landscape in India. "Their local managements are empowered. They are driving transformation, expanding into newer services and emerging as centres of excellence."

Software design centre
Texas Instruments was the first multinational to establish a software design centre in India and it was an exciting experience for the first batch of 17 engineers that the company recruited. Each engineer had a workstation and used the latest software tools, something unheard of in Indian companies in those days.

"It was a dream come true," recalls Srini Rajam, one of that initial intake. Rajam went on to become the managing director of Texas Instruments India and is now the chairman and CEO of Bangalore-based embedded software and products company Ittiam Systems.

The initiative by Texas Instruments paved the way, both strategically and in terms of infrastructure, for a flood of other multinationals to enter India. Motorola set up its India captive a few miles away and leased spare communications capacity from Texas Instruments. HP, Microsoft, Boeing, General Motors and others followed. There are now over 750 multinationals in India, employing close to half a million workers.

In India, captive units range from customer support services to engineering and product design. "Indian captives are no longer regarded as...