Use the word "outsourcing" in the United States, and it conjures up scary images of a posse of Indian software engineers who have displaced their American counterparts, and forced them to stack boxes of cereal in supermarkets for a living.

Yes, India made maximum use of its labor-cost advantage, unfortunately displacing many efficient and able Americans from their jobs, just because they were willing to work for a fifth of their salaries. Low salaries, English speaking skills, a good education system, large numbers of fresh graduates, and Government encouragement in foreign direct investment all worked towards making India the world's outsourcing hub.

However, the labor-cost advantage is no longer a reckoning factor in India's outsourcing business today. Other developing nations have piggybacked on India's labor arbitrage model with varying degrees of success. India itself has outgrown the model. Rising salaries, high attrition rates, and poor infrastructure in the major Indian cities have collapsed the labor-cost advantage.

Threatened by these internal and external influences, India has found itself a new outsourcing model. It has moved up the value chain, offering a host of high-end services to its clients. Basic call centers gave way to Business Process Outsourcing centers, and today, India is heavily into Knowledge Process Outsourcing.

There's just one catch. The new model works well for non-IT areas such as Accountancy, Management, Law and Marketing. That means professionals such as Chartered Accountants, Managers, Lawyers and Marketing Consultants are on the outsourcers' most wanted lists.

But what about pure IT? Will India be able to move up from call centre support and back-end coding to becoming the new world leaders of the IT world? Can India displace the US completely and be the new Innovators?

According to an April 2006, Gartner survey, India does have the potential to become a world leader in innovation if it has both a high quality work force capable of innovation, and drastic improvements in its basic infrastructure. Here's how I think Indians need to take these two factors seriously for things to work in their favor:

1. India has to improve its infrastructure, standard of living, and revolutionize the way Administration works. Every year hordes of we Indians leave the country in search of a better way of life. Most of them are graduates from the country's leading technology schools, and the finest talent the country possesses. If the infrastructure and standard of living improve, if Governmental red tape and bureaucracy disappear, it would lure them back to work in India.
   
   
2. The current scenario of India being merely "code churner" to the US has to change. This will change only when Indians start specializing rather than attempting to be jacks-of-all-trades, and learning to be less reticent, and more communicative at work. Currently, Indians strive to have basic knowledge in as many technologies as possible, so that they get chosen for that many projects. The fear of not knowing a technology, and thereby missing an opportunity is upper-most in every techie's mind. Specialization would add years of in-depth experience and make resources invaluable to a project.
   
   Soft skills, especially communication, is another key area Indian techies need to work on. There are instances where Indians have lost out on outsourcing contracts just because they were too reticent at work. Programmers in other outsourcing nations on the other hand, don't hesitate to speak up and put forth new ideas, or better alternatives to clients. The sooner Indian techies realize this, the sooner will the nation's latent talent in innovation sprout.

To some extent, India is already showing signs of innovative IT initiatives. A team of researchers at India's largest software and Information Technology services company, Tata Consultancy Services, is working on the possibility of automating the activities of its employees, in an attempt to drastically reduce replication time. This would help TCS's clients save millions of dollars in time and money. TCS is not alone. Several Indian companies are actively involved in innovation, developing new technologies ahead of requirements, and then presenting them to outsourcers.

There is certainly a shift in the way some Indian companies are handling outsourcing. The non-IT sectors seem to be fully geared up to ride the new wave of outsourcing. The question however is, will India's IT engineers begin to concentrate on specializing in their domains, and working on their soft skills soon enough?

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