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.”

Where Is the Market
Headed?

  • IBM, EDS and CSC are the Big Three of global
    outsourcing, and they are increasing their footprint in India
  • The increase in offshore outsourcing will
    see profits increase for most Indian companies, even as revenues
    decrease

  • Outsourcing contracts are mostly coming from
    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
  • The market for IT consulting, development,
    integration and outsourcing will increase from $696 billion in 2000
    to $1.3 trillion in 2004

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

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