Keeping it in the family

Vishwanath Kulkarni

SAY you're stranded in the middle of nowhere.

And lo, and behold, transport appears - and in this case the car or bus intends to go right up to your destination; no question of getting off at the nearest point; in fact it looks like the ride's meant just for you. Would you take it?

You bet I would, you'd say.

Something similar is happening in the IT industry too. Companies are stranded in the midst of the global slowdown.

Getting home means cutting costs while boosting sales in a grim market. And companies are concentrating on trimming costs through measures ranging from paycuts, pinkslips to outsourcing their projects to cost-competitive countries.

And talking of outsourcing, India is being seen as a major destination for companies the world over to outsource their projects. But the question cropping up now is - are US companies better off offloading their work to their own Indian subsidiaries, instead of outsourcing work to Indian companies?

Industry watchers say US companies that have set up development centres in India are increasingly flooding them with projects, offloaded from the parent.

The availability of a huge pool of talent and the cost advantage have spurred many American MNCs to set up their own development centres in India. Oracle, Hewlett-Packard, Sun Microsystems, IBM, Texas Instruments, SAP, Intel, Cisco are among companies with a significant presence in the country. Recently, ADC Telecom announced the opening of its Indian subsidiary. It has earmarked some $25 million to invest in its India development centre which is expected to house some 300 engineers.

These India Development Centres (IDCs), or the engineering centres as they are known in some cases, are said to be reporting an increased flow of projects of late. The logic is obvious: it's far more cost-effective to get work done in India compared to getting it done onsite.

Riding the wave

Confirming the trend, the Director of HP India Software Operations (HPISO), Subrahmanyam Vempati, says more and more projects are being offloaded to the Indian subsidiary.

''Moreover, customers in the West are expecting their vendors to take up more ownership, treat their business as ours,'' says Subrahmanyam. There has been a significant change over the last few years; more and more customers are asking to take ownership and now additional work.

''We have demonstrated more ownership and have proved that getting work done out of India is more cost-effective and have also proved that not only code writing but also high-end work can be done out of India at one-third the cost,'' says Subrahmanyam.

HPISO, which grew at 40 per cent during 2000-01, expects to grow more aggressively during the current year. The additional growth is directly attributed to the increased flow of projects.

Like HPISO, IBM India has also seen an increase in the inflow of projects from its parent company. Says Uday Shukla, Director, IBM Global Services Ltd, the export arm of IBM India, ''India is becoming increasingly important vis-a-vis the global IT services and solution delivery mechanism. As India strengthens its credentials as a supplier of quality IT solutions to the global market, more and more development work is coming into India.''

IGSI Exports leverages the best of IBM and the Indian IT talent to offer quality services to customers across the globe, besides serving IBM customers, starting from legacy systems to application development and maintenance and testing.

IGSI Exports has also set up India Software Labs that works with IBM Software Labs across the globe on IBM Software Group products, including operating systems such as OS2 and Linux, middleware such as Websphere, Websphere MQ, Lotus, Tivoli and also in the areas of Emerging Technologies such as Pervasive Computing, Embedded Software and Bluetooth. IGSI Exports also includes the Technology Group that works on ASIC designs and Firmware and Microcode for other IBM Micro electronics labs across the world.

Sun stays out

However, for Sun Microsystems, it's business as usual at its India Engineering Centre. ''We have not seen any increase in inflow of projects from our parent company after the slowdown set in. Rather, we are sticking to our earlier plans for India, which are going as per schedule,'' says K.P. Unnikrishnan, Country Manager, Sun Microsystems India.

Plum projects for 'world-class talent'

Bhupinder Ahuja, analyst at Deutsche Banc Alex Brown, says that ''more and more work is outsourced to Indian companies as it is found to be cost-effective. Also because of the talent the country possesses.''

The fact that MNC subsidiaries are on a hiring spree is a tell-tale sign that cost-competitiveness is driving the flow of business. While Oracle is expanding its development centre and plans to recruit 700 more, Cisco is also going ahead with its $200-million investment plans. Cisco, which laid off several employees in the West, is pretty bullish on India recruitments.

Says Bill Ahlstrom, who leads Cisco's enterprise device and network management applications software division, ''Our experience in India is extremely successful. We have been associated with India for the past six years. As we work more in India, we realise the strengths of the talent pool here. This is world-class talent and Cisco will definitely continue the best use of this talent in our R&D centre in India.''

The kind of projects that are being sourced to the India Development Centres are not only just the run-of-the-mill kind, but also those in the R&D space, says Subrahmanyam. Nearly 60 per cent of HP's developmental work on the UNIX platform is x being done out of the Bangalore-based ISO.According to Subrahmanyam, HPISO is currently working on the Infini Band - storage solutions expected to hit the market in a big way in two to three years time. It is also working on the APIs for Linux.

Moving up the value chain

Shukla feels that the work that is being done out of India in the area of offshore outsourcing has definitely moved up the value chain over the years. ''IBM worldover has a very strong focus on R&D and IGSI Exports has a vibrant culture of fostering research and development activities in the organisation.

IGSI Exports began contributing to IBM's worldwide IP portfolio about two-and-a-half years ago and today, with almost 50 inventors who have collectively accounted for over 85 inventions, it has become an important contributor.

The last calendar year alone, patent applications were filed in the US for 40 inventions by IGSI inventors and IGSI was one of the leading contributors from the Asia-Pacific to IBM's IP portfolio.''

''In about 80 per cent of the cases, the inventions were created solely by Indians working in India on their own initiative. Many of these inventions relate to advanced areas in software technology such as compiler optimisation, algorithms, network security, operating systems, and many more,'' Shukla adds.

Obvious advantages

The advantages of outsourcing work to IDCs are mani-fold. While cost-effectiveness and quality are important, this trend also benefits companies doing IP-related work. ''Most companies prefer to keep work related to IP in-house,'' says Subrahmanyam.

Shukla feels IDCs offer the same advantages offered by the usage of any utility service such as Electricity or Transport. Organisations can get the best of hosting and storage facilities without making huge investments and pay on a 'usage' basis. This allows organisations to focus their energies and investments on core business areas.

`Indian vendors don't lose out'

The obvious question that arises as more and more MNCs offload work to their IDCs is whether the third-party (read Indian) vendors will lose out in the race?

No, says Subrahmanyam, adding that the whole environment becomes more challenging for them. HPISO also plans to sub-contract a major portion of it to its partner-vendors, he adds.

IBM's Shukla says the growing importance of India as an offshore outsourcing destination can only mean more business coming into India. Third-party Indian vendors also have the potential of utilising the potential that increasing offshore opportunities offer. Again, in a lot of cases, domestic third- party vendors are partnering with MNC outfits to enable service delivery and manage business volumes.

Also, not every MNC can set up base in India, says Ahuja. And when a new technology comes up, it's the services companies, which have the capability to adopt technology, that set up teams and deliver goods. This is where the Indian companies have a chance, he adds.

IDCs get cracking

Even as the flow of work increases to IDCs, many of them are ramping up their infrastructure by investing more and by adding to the headcount. While HPISO, which has some 1500 engineers, is planning to add a couple of hundred more on a selective basis, IBM is also reported to be increasing its headcount by some 700 engineers. Oracle is busy creating its infrastructure at Phase II of its development centre and plans to add another 1,000 engineers in the next 12 months to its existing workforce of some 1,000 people in India.

vishwa@thehindu.co.in

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