visa-holders have made the headlines a lot recently——first as the country’s
blue-eyed boys making the megabucks, and now for the large numbers sitting it
out on the benches.
In May 1998, the US issued 65,000 H1-B visas, with over a half this number
going to those engaged in IT-related work. By July 1999, the total number had
jumped by over 75% to 115,000, of which a healthy 60% were issued to IT
professionals. Typically, the numbers were shooting because of the inherent IT
skill shortage in the US. IT solutions had been widely embraced as a necessary
ingredient for business success, and e-business, ERP, client-server and
migration services were in great demand.
The dream lasted two years till the last quarter of 2000, when profit
warnings across the IT slate indicated the beginning of a slowdown. Belts were
tightened and IT budgets came under pressure, with costs at the wrong side of
the CFOs’ knives. But time-to-market remains critical in the global economy.
Why outsource? It provides available skilled IT personnel resources at a
fraction of the cost, while also allowing an accelerated project delivery
schedule. This is because one is working on the time difference and converting
it into an advantage. The projects are fixed-price contracts, lower-cost doors
built into a watertight deadline edifice.
Majority turn believers
The Harvard Business Review identified outsourcing as one of the most
important management ideas and practices of the last 75 years. Till now,
technology and thought leaders were doing outsourcing offshore. That is changing
as a majority of the Fortune 1000 companies realize the benefits.
Outsourcing is defined as the transfer to a third party of the continuous
management responsibility for the provision of a service, governed by a service
Outsourcing itself is a relatively new term, and can be applied to many
different types of commercial relationships between buyers and providers.
Co-sourcing, subcontracting, facilities management, managed services and
strategic in-sourcing are different faces of outsourcing.
Ultimately, outsourcing is merely a way of getting something done, by someone
What is interesting is how outsourcing enables an organization to run more
efficiently and cost-effectively. And how it improves the level of productivity
throughout an economy by focusing on what it is best at. The US technology
companies have been staunch believers in the benefits of offshore outsourcing
and many have set up wholly owned offshore development centres. Texas
Instruments, Motorola, Citibank, Oracle, Apple and Arthur Andersen are but a few
cases in point. Others have outsourced their offshore development work to one
vendor or the other. Cisco, General Electric, Nordstrom, Target Corp and
Northern Telecom are some examples of this movement. Today, over 220 of the
Fortune 1000 companies are outsourcing offshore.
But what are the different offshore outsourcing alternatives? There are five
types——one is professional services, the second individual project
outsourcing, the third an offshore development center with dedicated personnel
and resources, the fourth a joint venture with an offshore vendor, and the last
a wholly owned offshore subsidiary.
Speaking to US corporations, one found increasing commitment to outsource
offshore. Boeing has been outsourcing to India. It is the largest aerospace
company in the world, with its heritage mirroring the history of aviation; it is
now looking to build strong relationships with its providers.
Providian Financials is the fifth-largest bank-card provider in the US.
Realizing that time is one of the customers’ most valuable resources,
Providian is considering outsourcing to Indian companies. West Group, the
leading provider of e-information and solutions to the US legal market, is
considering going offshore for its outsourcing needs by September 2001.
The big change that one is witnessing is that no longer are technology
companies the only ones doing offshore outsourcing. This slowdown is getting
mainstream companies in manufacturing, utilities and healthcare to look at
Chasing a moving target
Offshore outsourcing is not that you call in the provider, tell him the job
and put your feet up and relax. Successfully managing offshore contracting
requires substantial attention, discipline and interaction. According to the
Giga Information Group, "Only those companies with significant programming
requirements and software process maturity have traditionally entered into
substantive offshore contracting relationships." Success does not happen
overnight. One needs to believe it will add value. And a disciplined approach to
project management is the key.
Target Corp has been Outsourcing since 1993. It is America’s fourth-largest
general merchandise retailer, operating 1,200 stores and 19 distribution centers
across the United States. It has been outsourcing offshore in order to reduce
costs, has 16 projects with offshore components and 12 moving in that direction.
According to Randy Kirihara, senior manager, Target Corporation,
"Offshore outsourcing is not easy, it takes time. Senior management
commitment and follow-through are critical." And that commitment is now
beginning to manifest itself in increasingly larger number of companies. West
Group is an example where top management is firmly committed to outsourcing
In this process, provider partnerships are critical. And Fortune 1000
companies are looking to build them long-term. They are trying to build them
senior management to senior management…and man to man.
India is clearly the preferred destination for IT outsourcing. But we need to
get off tehelka and take some quick and fundamental decisions for the country as
a whole. We are ahead on the road to the future, but competition is catching up.
Ireland, the Philippines and Israel are the ones to watch. And then there would
be China and Russia to contend with. For us, people have always been the
strength. But in IT outsourcing technologies, trends and tactics keep changing
constantly, and we need to be in position to continue to leverage, in order to
maintain and strengthen our position.
Today, India boasts 250,000 software professionals, with 70,000 new graduates
coming out each year. Of the 250,000, 60% have five or years more of experience.
The challenge is in nurturing more project managers, and people with business
skills. High growth rates continue to outstrip supply of experienced project and
program managers. Processes are going to be critical. As client organizations
would be looking to get better quality products and services at increasingly
lower costs, a typical customer asks these three basic questions when selecting
a service provider:
Is the provider a viable and
Does he have the
required delivery capability and
Is the pricing
As many as 170 software companies are ISO 9000 certified in
India, and another 150 are targeting this certification More than the
certification, it is important that Indian providers achieve the required market
positioning and strategic direction, have the extent, flexibility and quality of
management processes, and are able to build in inflation guarantees.
Infrastructure and environment are key issues too.
Infrastructure issues of power, transportation and telecommunications within the
country need to be sorted out. Internet penetration is still in its infancy.
Bandwidths are a joke. The opportunity for India is huge, but we need to tighten
our belts and put our best foot forward. The India Inc brand needs to be
Ishan Ranjan is VP,
projects, CMIL. He has also been founder-editor of Voice & Data.