Australia views the Indian option to outsourcing

Outsourcing is looking more attractive as manpower within IT departments continues to be stretched to the max.

With “value for the dollar” the current mantra India is being hawked as the quickest way to save a few bucks.

A report, by the Department of Foreign Affairs and Trade’s Economic Analytical Unit, India: New Economy Old Economy, outlines “significant opportunities” for Australian companies to cut costs by investment in, and outsourcing to, the IT-enabled sector in India.

Total revenue for India’s IT sector is expected to reach about US$11.4 billion in 2000-01, and about 70,000 Indian workers are employed in the IT-enabled sector, specifically looking after outsourced call centres, back-office support and data processing services. Unlike the Indian software sector, which is tipped in the report to experience skills shortages and wage increases, this sector has a much larger pool of potential employees.

Phil Hassey, senior analyst, Asia-Pacific region IS outsourcing services for IDC Australia, said that savings by outsourcing back-end operations to India could be as high as 70 percent on labour-intensive jobs.

“However, cost savings are hard to quantify. For example, a CRM implementation is quite labour intensive, (so) the integration savings would be quite significant if done in India.”

Figures on how many companies in Australia outsource to India now are not available, but Hassey said that, while there are “very few” at the moment, “very significant growth” is forecast.

“I think large enterprises in the first instance will tend to be leaders by using this sort of strategy to reduce costs and refine business strategies. Industries such as retail, financial and telecommunications will be the first industries (to experiment).”

Australian-based companies already outsourcing operations to India include GE Capital, which runs store cards for Coles Myer. It moved its call centre for customer queries to New Delhi in 1999.

ANZ Bank has a Bangalore-based subsidiary that employs 20 percent of its technology staff, or about 450 people. These staff provide solutions for ANZ’s internal IT needs and work with the Australian and New Zealand IT teams to develop financial services software products.

The bank said the subsidiary would be key to its strategy to leverage its intellectual capital in the development of new market opportunities.

While the benefits of outsourcing offshore are easy to see – cheap, well-skilled labour – Hassey said there is a risk/return trade off.

“Security is a little bit of an issue and India is also located near a trouble spot.

“There are different grades of (outsourcing) locations, some are more strategic, some are more risky than outsourcing in your own country. Companies can go to Pakistan, which is even cheaper, but the risk is higher.”

As for infrastructure concerns, Hassey said things are improving, especially in Bangalore where the government is proactive.

“Infrastructure is reliable enough to have good risk/cost returns. The big (outsourcing) players (such as IBM GSA) are over there, so they must feel it is satisfactory enough.”

However, the report suggests companies invest in back-up infrastructure, particularly for power and telecommunications.

To play it safe when outsourcing to the likes of the Philippines, Malaysia or New Zealand, which are other markets popular with Australian companies, Hassey said a company needs to be actively involved with its third party for things to work out, due to the lack of control caused by distance.

“When outsourcing, enterprises should look to a company of size or go through an outsourcing player such as IBM. Companies have got to do their homework before signing over and should talk to other clients.”