Getting the Tide to Rise

A

large amount of newsprint has been utilized to keep us abreast on the economic

downturn in the United States, its impact on India and Indians and our export of

software professionals to that country, and how they are being forced to return

home. Also, we are said to be slipping against traditional rivals China, that

master of mass production. There are reports on how since they have beaten us

hollow in producing and selling toys, they will also manage to do the same in

software and services outsourcing. All in all, the situation reeks of one where

the entire intelligentsia is anxious and at a loss for what to do, waiting for

the inevitable to happen...

In a nutshell, we in India seem to have a problem in handling sudden

failures. In a world that is changing ever so rapidly, failure is nothing but

delayed success. Success teaches us nothing, and all insight comes from what

does not work…and on our own ability to move forward. But how do we move

forward? What has changed is the mix of onsite-offshore work. What has also

changed is that in the e-business era, technology and business have become

integral parts of the same coin.

The growing footprint

IBM, EDS and CSC are the big three of global outsourcing, and all of them are

increasing their footprint in India. IBM has announced plans to hire more

software professionals. According to IBM India officials, the company will add

1,700 new professionals to its existing base of 2,800. Also, there are plans to

increase the total headcount to 10,000 over the next couple of years.

EDS has bucked the downturn with strong Q1 results. According to EDS chairman

Richard Brown, "We have seen no slowdown in our overall market. Companies

around the world are continuing to invest in the IT segments we serve to boost

their productivity." EDS has won some major outsourcing deals on the basis

of its brand-name recognition and experience in specific vertical industries.

And in order to serve it’s customers better, it is opening offshore centres in

India.

The same has been the case with CSC, which is increasing its Asia-Pacific

footprint. But why is offshore outsourcing so hot? Last year, Infosys’ billing

rates for offshore work was $32.3 per hour. For onsite work, it was $68.7 per

hour. For HCL Technologies, the corresponding rates were $36 and $67.3. American

and other customers can buy more for less from offshore centres. Also, profit

margins will be higher for Indian companies, as operating costs are lower. Thus,

offshore outsourcing should see increased profit margins at most software

companies, even as overall revenues decrease.

The focus areas

The areas seeing most increase in activity in outsourcing contracts are

applications maintenance, B2B infrastructure, wireless and broadband networks,

CRM solutions, call and contact centers and enterprise systems integration.

Vertical markets on a roll are manufacturing, telecommunication service

providers, retail, insurance and technology. For instance, Reliance Industries

has begun to target the call centre-back office outsourcing market, while other

Big Daddy Bharti Group plans to invest $12 million in the call centre area by

2003-04.

In the past two years, there has been significant growth in the service

market for deploying e-procurement solutions. e-procurement software vendors

like Ariba, Commerce One, PSDI, Intelisys, Netscape and Harbinger have made

alliances with major management consultancy firms and system integrators to

deliver consulting, implementation and operations management services in

deploying and managing e-procurement solutions.

For their part, the integrators realize that customers–enterprises in most

cases–need not only consulting, implementation and operation management

services, but also transaction security, payment processing, catalogue content

management, order aggregation, supplier management and procurement industry

expertise. Thanks to the non-strategic nature of indirect goods and significant

savings and fast realization therefrom, organizations are becoming more prone to

outsourcing procurement business functions to a third provider, one that is

better able to manage the process.

A new group of independent e-procurement ventures is emerging in the market.

Companies that have a proven expertise in the procurement industry, process

re-engineering, information technology and financial processing form these

ventures–they then go on to offer the whole outsourcing basket of procurement

processes.

The new entrepreneurs

The world got to see India’s talents when the Y2K bug came calling. Thanks

to our education system, we got a chance to rewrite code–in time and

under-budget. Since then, we have been moving up the value chain, mixing

technology applications with business solutions.

Consider neo-IT, an outsourcing exchange founded in June 1999 by Indians. It

provides an e-business technology platform for the sourcing, procurement,

management and delivery of IT services to Global 2000 companies. neo-IT’s

software and services introduce an IT services procurement and supply chain

methodology, and reduce an enterprise’s total outsourcing costs by 20-60%.

neoIT witnessed a 150% increase in business last quarter and expects to sign

major multi-million dollar outsourcing contracts this quarter. According to its

managing director Avinash Vashistha, "There is a substantial increase in

the interest to outsource must-do IT work, as is evident from our strong order

book position. Providers of such services, especially who can demonstrate their

ability to execute projects with quality and punctuality, will benefit

greatly."

Dataquest (USA) estimates that Global 2000 companies currently spend over

$75,000 per project in the RFP process and up to six months’ sourcing and

selection of an external service provider for each IT services project. The

Gartner Group estimates that the worldwide market for IT consulting,

development, integration and outsourcing will increase from $696 billion in 2000

to $1.3 trillion in 2004. While 60% of Fortune 1000 companies indicated that

they would be outsourcing more than half their IT services by 2004, 80% have no

formal process in place for procuring those services, according to Gartner.

Indian service providers with a core experience should augment their offering

and presentation to demonstrate their ability to execute the job as per global

standards of quality and delivery. There is a lot of business out there. Focus

needs to be on offshore development and a long-term plan to move up the value

chain of the customer’s business. From application maintenance to systems

integration, to consulting to end-to-end outsourcing…the list is long, and

growing.

Ishan Ranjan is VP, projects, CMIL. He

can be reached at . Previous columns can be read at dqindia.com