The Hindu Business Line : Follow the leader

Seven Indian cities - Delhi, Bangalore, Hyderabad, Mumbai, Pune, Chennai and Kolkata — lead the pack for the most favoured outsourcing destinations globally. They are ahead of competitors such as Manila, Shanghai and Moscow, according to a report by neoIT, which advises global companies on offshore operations.

But there are 17 other global cities, including Prague, Buenos Aires and Dalian, vying to get into the top league. Some of these emerging outsourcing destinations are now at the bottom of the list in the top 24 cities, says neoIT in its report titled: "Offshore Insights: Global City Competitiveness."

And in the last couple of months, Indian information technology and IT-enabled services companies have been exploring these, and other emerging cities. Tata Consultancy has entered Uruguay; Satyam is in Cairo, Egypt; Firstsource (earlier ICICI OneSource) in Buenos Aires, Argentina, and 24/7 Customer in Guatemala. While reasons such as cost arbitrage, availability of skilled manpower and near-shore presence have been cited, Indian companies seem to be following global leaders such as IBM, Accenture, EDS and Stefanini.

These giants have already established a large outsourcing presence in some of the new cities that Indian companies are stepping into. For instance, in Buenos Aires, Accenture, EDS and Stefanini IT Solutions are already present. In Dalian - Accenture and IBM Global Services; Mexico City - EDS and Stefanini; Moscow - IBM Global Services; Prague, Czech Republic - Accenture and EDS; Sao Paulo, Brazil - Accenture, EDS, IBM and Stefanini. "Yes, we are, to a certain extent, following companies such as Accenture, IBM and EDS to compete with them in that country. However, it also a fact that we are entering new countries, such as Uruguay, ahead of them," says S. Ramadorai, CEO, TCS. "Clients also want us to be near them and we are going places to take advantage of issues such as local language," he says.

TCS plans

TCS is looking at an investment of $30 million (around Rs 135 crore) and employee strength of 500 in Uruguay over the next five years.

Its global development centre (GDC), which is located in the Free Trade Zone of Montevideo, will handle systems development, maintenance and outsourcing, besides testing and certification of software products by third parties, especially Microsoft.

The centre will service most of the Latin American countries, including Uruguay, Chile, Argentina, Brazil and Venezuela, besides some parts of the US. Clients who will be actively serviced from the centre include BCI Bank, AIG, Compaq and Eli Lilly.

Tracking the biggies

According to Abhishek Sharma, Senior Analyst, neoIT, yes, it is true that Indian companies enter new destinations following global leaders Accenture, EDS and IBM, who have already set up presence there.

Indian companies' entry into China, Eastern Europe and South America was fostered by the need to match the global delivery footprint of IBM, Accenture and other providers. Many customers consider this as a key component to a global service delivery.

Indian companies are already competing with global players.

However, the primary motive behind forays to build delivery facilities in new and sometimes near-shore destinations is to better service and support US and European customers, not necessarily to compete within a new local market.

The move provides customers with an effective onsite - near shore-offshore delivery option mix (which some customers now require), as opposed to offshore-only delivery, he says.

Government IT spending

There are other reasons too to enter new destinations.

Increased IT spending by governments is a key factor pushing Indian software companies to identify new destinations, says Subu D. Subramanian, Senior Vice-President and Director, Satyam Computer Services.

The Government looks at IT investment to create employment locally. In some of the emerging outsourcing destinations, the local government looks to provide a lot of support, he says. For instance, Satyam recently entered into an agreement with the Government of Egypt to set up a global development centre in Smart Village, Giza in Cairo. The centre will accommodate about 300 professionals over the next two years and serve as a technological development and software support facility for Satyam's West Asian customers.

There are four types of opportunities available for IT companies in various countries. They are business opportunity, targeting local companies, presence of global multinational companies that require support from software vendors and offering services to near shore clients.

The big companies concentrate mostly on high-end opportunities such as consulting, leaving the mid-level and low-level technology to others — "this is where we play a key role and have an edge over the big players," he says.

Blend of the best

Firstsource (earlier ICICI OneSource), a BPO company, recently commenced operations in Buenos Aires. This is its fourth near shore/onshore facility after the UK and the US and adds Spanish language capabilities to the company.

Ananda Mukerji, MD and CEO, Firstsource, says the company's aim is to be a credible global player in the BPO space.

This requires the company to offer clients a variety of delivery capabilities, ranging from pure onshore, nearshore and offshore delivery, to blends of all of these.

This was the primary reason to expand overseas to Northern Ireland in the UK, the US and Argentina. This also ensures that "we become outsourcing partners to clients and not just offshore providers." Outsourcing is increasingly driven by a composite of cost considerations, process efficiency, increasing operational flexibility and increasing overall productivity.

Any destination that allows one to deliver this basket of value can be considered, he says.

Tuning in to customer

24/7 Customer, a BPO company, has set up a centre in Guatemala.

According to its Chief Operating Officer and Co-founder S. Nagarajan, "we are following our customers' preferences rather than competition."

While India is still a leading option, customers today are aware of what other offshore destinations can offer and are looking for a multi country delivery where necessary. Also, other countries that have seen the success of the India offshore wave are now positioning themselves with specific value propositions for specific customer segments. Hence the multi country/new destination option, he says.

The large global companies traditionally get their revenues from one primary lead country such as the US or the UK (their home country) and have part of their revenues from the offshore model.

For Indian companies the revenue model has been the reverse — primarily from an offshore destination and now near-shore destinations, both proven and new.

Playing the card right

If it were a new destination such as Guatemala, the advantage would lie with the first mover.

However, in an established near-shore/offshore destination such as Belfast, there will be country-specific competition that Indian companies will face.

Cultural alignment/affinity, time zone alignment, language and ease of trainability are other benefits that Indian companies see in entering emerging destinations, says Nagarajan.

Land of promise

Ukraine, especially Kiev, is emerging as a new destination for outsourcing high-end technology solutions.

Prior to the dissolution of the Soviet Union, Ukraine was the computing centre supporting the USSR's massive military infrastructure.

Now, with a deep pool of software engineering talent with expertise ranging from J2EE to .NET platforms, this region has become fertile ground for outsourced product development, according to Rohit Sharma, Director, Marketing, GlobalLogic India, part of the US-based GlobalLogic that has centres in India and Ukraine.

Benefits

According to neoIT, emerging destinations allow Indian companies to expand their global footprint, resulting in the following benefits:

Access to additional markets, many of which are emerging users of IT, BPO and KPO (knowledge process outsourcing) services

Risk mitigation, as more delivery locations can be leveraged in times of business disruption crises

Time zone and geographical proximity advantages

In some locations, IP laws are in accordance with WTO standards

Certain `cultural compatibilities' and stable geopolitical climates

Lower employee turnover rates than currently being experienced by Indian-based delivery facilities

In some locations, favourable treaty and trade provisions, which allow easy access by local personnel to US and European customer sites.

raja@thehindu.co.in

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Follow the leader