The Hindu Business Line : `I can see what's wrong'

Your virtual business is halfway across the globe from you and in need of a fix. That's exactly the opportunity Indian IT players are looking for in remote management of infrastructure services. All they have to do is play the game right.

IN a $450-billion market, with frequent billion-dollar deals, deals of tens of millions of dollars may seem peanuts. But the tens of millions of dollars of infrastructure outsourcing wins by Indian companies last year mark the entry of India into this hard-to-enter market and could signal their readiness to take on larger and more complex deals.

"The mindshare is there, the market share is happening,'' says G. K. Prasanna, Vice-President, Technology Infrastructure Services, Wipro Technologies. He is talking about the popularity of India as an outsourcing destination versus the actual managed services business that is coming India's way.

Indian IT companies are establishing case studies, setting up infrastructure, investing in process maturity and working hard to establish their credentials. They seem confident about getting some of the big deals in the space and, according to analysts, they have good reason to be.

Offshore IT infrastructure management is a logical extension of India's offshore-based delivery capability, says an Infosys spokesperson. There is a significant potential for the remote infrastructure management and technical help desk or service desk support from India. Recently, Infosys too started to offer this service and is bullish about its prospects.

Monitoring, remote management and onsite management services for the IT infrastructure of corporates is not new. The playground of IT outsourcing giants such as IBM Global Services, EDS and HP, IT infrastructure outsourcing is big money, stable long-term contracts, involves reduced costs in managing the relationship and provides still comfortable margins of 15-20 per cent. With greater buyer sophistication, the advantages of outsourcing to India are clear; companies such as Wipro and Infosys can now think about the sub-$100 million space and compete with the likes of Perot and Unisys.

Towards more automation

Infrastructure outsourcing has not followed the same route as software services where offshore outsourcing has been highly effective and in fact the preferred business model. One reason for this is that many of the services have to be delivered onsite because of the installed infrastructure at a customer site, says Abnash Singh, Vice-President, vMoksha Technologies, another player in the space.

However, with greater trend towards automation in technology for infrastructure management using sophisticated tools such as IBM's Tivoli, HP's Openview and CA's Unicenter apart from open source software, remote management has been implemented by service providers overseas and that in turn, once customer trust (of mission-critical applications and infrastructure) is established, has enabled remote management of infrastructure services from India. The criticality and risk in handing over your entire IT infrastructure to an outsider - one who is moreover half way across the world - is what has held back such outsourcing deals.

As per a recent Gartner report, the IT Management market in the US alone is expected to be $80 billion in 2006. Traditionally, the larger market-share of infrastructure services has been held by global players such as IBM Global Services, EDS, HP, where each deal could be in billions of dollars. However, Indian companies are now targeting the sub-$100 million space, where players CSC, Perot, Unisys and other mid-sized international players have commanding positions.

Infrastructure services generally include the following major components of services: Helpdesk services, server management, data centre management, network management, asset management, desk-side support, IT security services, maintenance services and applications operations.

An added dimension provided by the larger players such as IBM, EDS and HP is that of strategic outsourcing where they take over the entire IT assets — a one-stop-shop arrangement for all IT operations services. This type of outsourcing is very common overseas in all kinds of industries. In India, this has happened slowly but steadily over the last few years with companies such as TISCO, Ballarpur, Reuters, Maruti, Hindustan Lever and several others implementing such initiatives to varying degrees.

As for the deals that could get offshored from the Western markets, India is already seeing much of the BPO work at one end of this service type. Dell's call centre supports PC customers globally, while HP is supporting its North American PC customers from Digital Globalsoft's facilities. Others provide level 2, and some times level 3 support.

Margins in this business are similar to that of the software services, typically 25-30 per cent. In strategic outsourcing contracts, these numbers can be even higher as the vendor has several options for cost optimisation, including sharing of resources between customers and use of tools. In other engagements, these could be 12-15 per cent. Increasingly, it could become a commoditised service with margins that could be attractive only to a few large players.

In right earnest, soon

As sophistication and capabilities get demonstrated, India will see full-fledged infrastructure operations centres happening and providing `follow the sun' support in tandem with other operations centres elsewhere in the world. The outsourcing of such business will be led by the BPO business, where Level 1, 2 and 3 technical support services will move to India from customers who are already outsourcing software services. EDS has established its offshore BPO centre at Mumbai and so have HP and Dell. These larger providers will lead the way to bringing parts of their infrastructure support operations that are offshorable at lower costs to India. End user customers' CIOs will continue to see offshore infrastructure management as a greater business risk for the near term, but cost reduction pressures will change the situation as will building up of confidence on the offshore services providers, says vMoksha's Singh.

Outlook healthy

The outlook looks very healthy, as more and more companies realise that focus on core business and outsourcing the rest is the way to go. "Leading Indian vendors have established their own brand names significantly among the Fortune 500 companies. From being low-cost service providers, they have matured into highly competitive sources of value beyond mere cost considerations. Some of the Indian vendors have also successfully competed and won deals against global competition,'' says Andrew G. Parker, Forrester's senior analyst for IT services.

At a time when the IT services market, overall, has been stagnant or shrinking for nearly three years, margins have been under considerable pressure, especially in software development project work, consulting and certain types of managed services (such as Web hosting). But with their lower cost base, Indian providers still have a potential to undercut local operators and maintain a respectable rate of return. "Having secured wins in the tens of millions of dollars category, we can now look to the sub-$100 million space. We are in the consideration set, which is an achievement in itself.''

"What we are focussed on now is to sell India and Wipro as the destination for these services,'' Prasanna says. Indian companies have demonstrated their capabilities and are now on the map for larger deals, although the giants in the business — EDS, IBM Global, Accenture etc — are making billion-dollar deals.

Proof of Indian talent

While the offshore-based delivery model is already a proven and accepted business model for application development and maintenance, Infosys and other Indian service providers offer reliable telecommunication links, skilled people, quality and process maturity and voice support skills, according to Infosys. "The growth of call centres/BPO business in India has already proved the voice support and the telecommunication infrastructure capability of India. Skilled people and quality process is anyway the key strength of Indian IT vendors. Hence the Indian IT industry is ready for the IT Infrastructure Management Service from offshore,'' according to the Infosys spokesperson.

Wipro has strong case studies that it would use to convince customers of the advantages of outsourcing IT infrastructure management to it, Prasanna says. Wipro is managing the IT infrastructure of a UK-based energy utility — the entire distributed computing, servers, networks, firewalls, anti-virus etc, and is responsible for 99.5 per cent uptime for 117 locations. "The Global Command Centre at Bangalore set up for this client helps us showcase our capabilities in the space," Prasanna says.

Prising open the market

The strategies to prise open the market include offering value in the delivery model, the type of deals to pursue and moving away from cost-based differentiation while retaining the cost advantage, say analysts. "With a multi-site delivery model, we offer both cost savings as well as reduce the country risk to our customers,'' says Prasanna. Receptiveness among customers has increased, say industry watchers and analysts, adding that companies must address country risk issues, security issues and demonstrate internal process strengths.

"Potential customers need to be satisfied about business continuity and security issues before they outsource their technology infrastructure to India,'' says Jose Cunningham, of Shaw Pitman and Associates, a US-based outsourcing consultant. While outsourcing is tough in the US and tougher still to India, Cunningham says that most of his clients who want to outsource specify India and mention the names of Indian vendors when talking about possible service providers.

Indian companies can offer savings of 25 per cent to customers - savings that nobody can argue with. Yet, Indian companies must move away from the India story and cost-based differentiation. Neither is unique, says Parker. Global IT service giants have moved to set up India facilities to take advantage of both these factors and Indian companies will have to come up with something else to compete with them. "Increasingly, with everyone else doing the same thing, Indian origin or Indian bases will cease to be credible differentiators. This may be the right time to downplay the India Story and show-case individual capabilities to win business against global competition,'' says Parker.

Of course, they must also be competitive in terms of relevance, quality and cost of services offered. More than half of the firms surveyed by Forrester still manage technologies such as IP VPNs and disaster-recovery internally. Among those who outsource network services, ATM, Frame Relay, and Web hosting lead the charge.

It is at this phase of market development that Indian companies will have to move from small, ad hoc deals to large, comprehensive deals that can generate a stable flow of revenues over the long term. Such comprehensive deals may start with consulting engagements and lead to a lot of down-stream work to the level of hardware and software product support and maintenance services. To that extent, there have been very few deals of this kind but Indian vendors are rapidly moving towards developing skills to be able to handle large, long-term projects, say analysts.

priya@thehindu.co.in

Article E-Mail :: Comment :: Syndication

Stories in this Section
`I can see what's wrong'

When the skull talks...

The other side to tests

Make hay all day

Quiz

The fuzzy world of intelligence imitation

Cartoon