IT Enabling Indian Firms: The Importance of IT Outsourcing Companies

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.