OUTSOURCE EVERYTHING except your soul,’ the excitable guru Tom Peters once exhorted. And companies all over the world have responded with a will. Want someone to build you a computer or a fridge? Old hat. How about a complete car or even a house? Done.

Increasingly, it’s not just making things but the services attached to things that are on the move. For example, quietly doing away with the need for a local distribution centre, some Western companies are carrying out critical parts of their distribution activities – sorting, labelling and even placing goods in displays – alongside factory operations in the Far East, ready for direct shipment to individual stores in the UK or France.

But you ain’t seen nothing yet, according to some interested parties. Expanding at anything from 30 to 60 per cent a year, the IT services companies that have been India’s economic growth engine for the last 15 years are living proof that outsourcing appetites are growing rather than shrinking. And leaving behind routine coding and customer-service centres, firms such as Tata, Wipro, Infosys and Satyam have their sights fixed on the wider services sector that makes up two-thirds, to a value of pounds £3 trillion, of the world’s GDP. Although, notoriously, haircuts remain immune to export, an increasingly variety of services will be ‘virtualised’ – sliced and diced at different global locations before being reassembled for final delivery.

‘Just like manufacturing,’ says Ramalinga Raju, founder and chairman of £750m Satyam Computer Services, the fourth-largest of India’s leading IT posse. Healthcare, where a scan may be carried out in one country, processed in another, and sent to a third for another opinion before being sent back home again, is one example. Animation for filmmakers is another. So is architectural and other design – and why not legal and other professional services, asks Raju, who believes that even the smallest service firms will soon be able to take part in the globalisation tango.

India’s exuberant IT firms have come a long way since their founding by a few hopeful pioneers in the wake of the economic reforms of 1991. Then regarded with amused condescension – like Japanese car manufacturers in the 1970s – they were given a boost when the Y2K panic and massive international over-investment in optical fibre combined to multiply both demand and the subcontinent’s ability to meet it remotely.

However, there’s no fluke about their subsequent continuing rise, although Indian firms concede that US suspicion of foreigners since 9/11 has helpfully made it easier to export work from the US than to import people. From their early status as ‘body shops’ – providing cheap invisible programming grunt work – Indian firms have steadily increased in both confidence and competence, simultaneously grabbing market share and moving up the industry value chain.

IT services now account for 8 per cent of Indian GDP, and industry revenues could total £50bn by 2010, according to estimates. These runaway totals suggest that customers buy the story that Indian suppliers can undercut big international vendors such as IBM and Accenture on price and beat them on quality.

While Indian companies are still small relative to the international giants, they are growing much faster – and the multinationals are increasing their Indian presence. ‘An Indian company as the next Microsoft? Why not?’ muses one IT executive. The industry confidently believes it is set to become the service hub for the world, just as China is in manufacturing. For this, however, the Indian outsourcers must meet some tough challenges. One is a looming shortage of qualified manpower, aggravated by high labour turnover rates – more than 100 per cent in some call centres. Depressingly, India has not managed to free itself from some of the West’s worst management habits, just as it has enthusiastically adopted its most excruciating jargon.

In terms of offerings, they must match software quality with an ability to innovate and lead. ‘Customers are no longer coming to us to cut costs – that’s a given. They are saying, ‘What can you do for us that will transform our business?’&’says one senior executive. In effect, through the virtualisation of services, customers want their suppliers to provide not just computer programming or applications, or even the management of their entire IT infrastructure, but entirely new business models – the as-yet-unimagined equivalents of the downloads that have altered the music business forever.

Can the Indian firms go beyond IT to innovate? The best argument that they can is the rapid and imaginative evolution of their own business models. In time, though, a la Tom Peters, they must surely run up against the corporate version of the body-mind problem. Can a company have a soul without a body? Just how much can a company outsource and still keep its own identity? Indian software is pretty good, but it hasn’t yet solved that one.

The Observer, 1 April 2007