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IT Enabling Indian Firms: The Importance of IT Outsourcing Companies

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Digitalisation and Development

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Abstract

The literature on the role of information technology outsourcing (ITO) only rarely considers purchasers in developing countries. This is an important omission and even more so in India, which has an IT outsourcing industry that is well placed to bring world-class applications of the technology to domestic firms. This chapter assesses the sector’s role in India using evidence from econometric analysis covering 10,100 firms over 5 years as well as qualitative responses from 29 in-depth interviews. The econometrics shows that there is a strong positive impact of IT outsourcing on output and productivity, and that the effect is bigger than that achieved by buying hardware and software alone. Comparing with studies from around the world also reveals that the effect of ITO in India is typically larger than firms in developed countries achieve with investments into IT—so that ITO facilitates catching up. The qualitative evidence helps to understand why these strong effects occur. It suggests that ITO companies are engaging in a conscious process of learning in both developed markets and India, and that in doing so, they bring innovations to India and assist in adapting them to the local context.

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Notes

  1. 1.

    Certain portions of this chapter draw from the author’s previous work, cited at the end of the chapter as Kite (2011, 2013, 2018).

  2. 2.

    Kite (2018) includes a range of econometric tests and robustness exercises to support these findings. These include a first difference model, a Blundell and Bond (1998) estimate which corrects for production function endogeneity, a test for attrition bias in the sample, and estimates by sector, by public versus privately owned firms and by Indian versus foreign-owned firms.

  3. 3.

    Unfortunately, PROWESS does not include a measure of firms’ skill level, although clearly including such a measure would improve the analysis here. Commander et al. (2011) carried out primary research to create a skills profile variable in their study on IT in Brazil and India, this necessitated using a much smaller sample in their econometric work.

  4. 4.

    To protect the identity of interviewees, many of whom are senior professionals in well-known companies, all of their real names have been replaced by pseudonyms.

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Acknowledgments

With thanks to Simon Commander, Chrisanti Avgerou, Fredrik Tell, Ben Groom, Duo Qin, Arlene Luck and participants at Economics of ICTs (Information and Communication Technologies): Transformation, Digital Divides and Development, Delhi School of Economics 2018.

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Authors and Affiliations

  1. Gracious Economics, 4th Floor, 18 St Cross St., London, EC1N 8UN, UK

    Grace Kite

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  1. Grace Kite
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Correspondence to Grace Kite .

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Editors and Affiliations

  1. Delhi School of Economics, Delhi, India

    Dibyendu Maiti

  2. Head of Department, Centre for Technology, Innovation and Culture, Oslo, Norway

    Fulvio Castellacci

  3. Senior Research Fellow, Norwegian Institute of International Affairs, Oslo, Norway

    Arne Melchior

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Kite, G. (2020). IT Enabling Indian Firms: The Importance of IT Outsourcing Companies. In: Maiti, D., Castellacci, F., Melchior, A. (eds) Digitalisation and Development. Springer, Singapore. https://doi.org/10.1007/978-981-13-9996-1_5

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  • DOI: https://doi.org/10.1007/978-981-13-9996-1_5

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