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Best Practices: Integrating a Multishore Strategy into your Global IT Organization Comparison of Outsourced and Captive Solutions for Capturing Value from Offshoring Outsourcing for Business Growth Transformational Offshoring: Why and How? Guidelines For IT Management: Planning for Offshore Outsourcing Outsourcing to India: Key Legal and Tax Considerations for U.S. Financial Institutions |
Offshore Outsourcing Part 1: The Brand of India By Todd Furniss, COO, Everest Group, Michel Janssen, Managing Director Everest Research Institute
Today, the question is not, "Should I go offshore?" but, "Where should I go?" Indian service providers are the most noticeable. They have worked hard to build a brand around their offshore capabilities. But there are other options for offshore outsourcing. They include:
Of course, U.S. neighbors Canada and Mexico provide offshore options for American companies. They are more colloquially referred to as "near shore" alternatives as opposed to the other "far shore" choices. This article is the first in a series describing the various offshore options. The articles will explore the differences between each region. The goal: to help you decide the best fit for your specific needs. We'll start with India. We just returned from a 10-day trip where we met with nine service providers. Currently, India occupies the premier position in offshore work. Perhaps somewhat uniquely, India as a country has developed a brand. The domestic service providers have well thought out business plans and are deep into their execute phases. At the same time, the public and private sectors have joined hands to brand their offshore capabilities--a message they have communicated clearly and globally. InfrastructureIndia has the technology required for successful offshore outsourcing. In this way, India has benefited from its status of a former British colony. The British approach to colonization was to create new trading partners with England. They built the requisite infrastructure necessary for commerce, including technical, physical, educational and political infrastructures as well as a legal system. Currently, the country is undergoing a massive infrastructure building that is creating a fundamental transformation. Office buildings in the high tech zones have reached or even surpassed global standards. In the technical realm, falling telecom costs the world over have been the driver in offshore outsourcing. India particularly has worked hard to put in telecommunication capabilities that support these efforts. For example, falling telecommunication costs have helped India's call center capabilities. Currently, GE, Accenture, IBM and others have thousands of people working in these centers. Today, the telecommunication costs are equal to the cost of the labor there, making India an attractive location for customer relationship management (CRM) activities. EducationIndia has one of the most developed educational systems in the world. In addition to its college system, which produces hundreds of thousands of graduates a year, India has two prestigious institutions that turn out its premier graduates. The seven Indian Institutes of Technology produce 3,500 graduates a year while the four Indian Institutes of Management produce 2,000 students with MBAs who trained in the American case study format. Together, Indian universities are producing a huge supply of outsourcing employees, creating a deep source of labor for years to come. The Indians are well-suited to international outsourcing. One-third of its college graduates speak more than two languages fluently. Some Indians are conversant in six languages. Almost all of these talented people speak English. Currently, labor arbitrage is the major driver for Indian supremacy. These graduates earn a great deal less than their counterparts in America and western Europe. This lower cost of labor has always been the attraction in India; however, it's only been the recent technology changes and infrastructure improvements that have made offshore outsourcing economically viable for the American BPO market. The Service ProvidersThe service providers have very precise and ambitious growth plans. Many have reached sufficient scale to produce powerful results. And most have extraordinary margins, cash flows and market capitalizations, giving them the wherewithal to execute. For example, Infosys now has a market cap that exceeds that of EDS, even though it is just one-twentieth the size. The Emphasis on QualityIndian service providers claim high quality work and point out their CMM Level 5, Six Sigma, ISO 9000 and BS 7799 certifications. Of course, proper governance is important in all outsourcing engagements to ensure buyers received the quality implied in the certifications. Government SupportThe Indian government realizes that offshore outsourcing is a major economic driver. For that reason, the government is offering a comprehensive package of tax incentives and is backing telecom deregulation to support the growth of this sector. The bureaucracy understands the importance of getting things done rapidly. Such swift action is encouraging foreign companies to do business with India. The Attendant RisksGeopolitical Risk: Many developing nations are open to geopolitical risk. The dispute with Pakistan over Kashmir still simmers. Last month we had to go through 12 security check points at an Indian airport to board a flight. Business Risk: The tyranny of distance can add a layer of difficulty. Like onshore outsource arrangements, vigilant governance must constantly measure the quality of the work and the ability of the service providers to stay within the budget. Also, buyers must make sure the project stays on schedule. Buyers of offshore services also have to determine what and how much work to send offshore. To mitigate the business risk, complicated assignments today are placing 10 percent of the resources onsite, 20 percent off-site (or near-shore) and 70 percent offshore. Political Risk: Buyers have to measure the political risk of outsourcing to an Indian company instead of closer providers in Canada and Mexico. Offshore outsourcing is a highly charged emotional issue, especially in unionized work forces. Language Risk: The Indians speak English. However, there is much variation between American and Indian versions of the same mother tongue. Culturally, the natural divide between East and West seems to apply to offshore outsourcing. Japanese and Korean companies prefer to send their work to Chinese service providers. The Indians are appealing to Americans and western Europeans. The next installation will focus on service providers in the other Asian areas. Lessons from the Outsourcing Journal:
Publish Date: April 2003
For more information... Related Articles Copyright © 2003 - Everest Partners, L.P.
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Today, having an offshore component is becoming a crucial element in an outsourcing engagement. Offshore outsourcing derives its power by marrying technology-enabled services with labor arbitrage. The idea is to move a job or function from a high cost to a lower cost location outside the country. The magnitude of the resulting cost savings is just too compelling to ignore.
