In India, business as usual

It’s almost business as usual for India’s IT and outsourcing industry, despite the threat of a border war between the country and neighbouring Pakistan, both armed with nuclear weapons.

Though the danger of a war has made U.S. and European companies nervous, they are unlikely to pull IT-related outsourcing and research operations out of India, but rather hedge their bets by implementing disaster-recovery plans and scouting out alternative sites, according to industry observers and company officials.

Indian companies are the outsourcers of choice for many U.S. and European corporations. Multinational companies also have research and design subsidiaries in the country, where the IT workforce is perceived as well-educated and multilingual, but relatively inexpensive.

“I have not heard of any existing contracts that are being cancelled,” said Ravindra Datar, senior analyst for IT services at Gartner India Research and Advisory Services Pvt. Ltd. in Mumbai, a wholly owned subsidiary of Gartner Inc. of Stamford, Connecticut.

Multinational customers of Indian companies that offer business process outsourcing (BPO) are not pulling out of contracts, but are looking at the political situation carefully, industry insiders agree.

“Our existing customers are concerned about the possibility of a conflict and how it may impact our ability to provide service, but based on our relationship, and the reliability of our service in the past, they are comfortable taking a ‘wait-and-see’ approach,” said Prakash Gurbaxani, chief executive officer of TransWorks Information Services Pvt Ltd, a Mumbai customer relationship management (CRM) and BPO services company.

Executives at multinational companies that have design and development subsidiaries in India say it would be difficult to move work to other locations. “It is close to impossible to move projects of the kind we are doing to another location, because the expertise lies with the people here working on the project, and the option would then be to move all these people elsewhere,” said Rajendra Kumar Khare, general manager of Broadcom India Pvt. Ltd., the integrated circuits design subsidiary in Bangalore, India, of broadband silicon products vendor Broadcom Corp., based in Irvine, California.

“At Broadcom, we have not considered shifting projects out of India because of the threat of war. Instead we are focusing on ensuring the integrity of communications, and the creation of appropriate data backups as a contingency measure,” Khare said.

At Infosys Technologies Ltd. in Bangalore, one of India’s largest software services companies, executives aren’t worried about losing their existing customers. “I don’t think any of our customers is reviewing doing business with us. In fact we signed a new deal just last week,” said Phaneesh Murthy, head of worldwide sales and marketing at Infosys.

Warnings about travel to India from various governments including the U.S. administration may however slow down new business.

“To the extent that customers may not travel to India because of the advisories restraining travel, there could be a delay in finalizing new deals,” Murthy said. On-site visits are a key component of deal-making, as customers prefer to visit their supplier’s facility in India, talk to local managers, and size up the capabilities on the ground before they outsource, added Murthy.

GreenPoint Mortgage, a Novato, California, wholesale mortgage lender, announced this week that it is outsourcing some of its mortgage back-office functions to Progeon Ltd., Infosys Technologies’ new venture in Bangalore for BPO services.

“(The danger of war) is a factor of concern to GreenPoint too, but we intend to start small, and scale slowly,” said Shaukat Ibrahim, president and chief executive officer of GreenPoint Mortgage. “By that time the problem would have been hopefully resolved.”

GreenPoint is outsourcing its back-office functions to India for the same reason a large number of U.S. and European companies are turning to India for BPO services. “We are shifting some of our functions to Progeon to meet our demand for manpower resources, arising from our growth, as well as for cost savings,” said Ibrahim.

The availability of low-cost, skilled, English-speaking manpower in India is likely to remain a compelling factor for foreign companies outsourcing software services and BPO to India, unless there is a long-duration, large-scale war between India and Pakistan, according to Vinay Deshpande, chairman of Bangalore embedded software company, Encore Software Ltd. “We have to recognize that the situation in South Asia is not even closely as grim as, say, the terrorist attacks in the U.S. on 9/11,” Deshpande said.

Border skirmishes between India and Pakistan have been frequent, but have never spun out of control in the last three decades. In May 1999, for instance, India and Pakistan came very close, but avoided, a full-scale war over the alleged infiltration of militants from Pakistan into the Indian-administered part of Kashmir on the border between India and Pakistan.

Companies are taking precautions, however. Some of the components of the back-office functions that are being outsourced to Progeon are being retained at GreenPoint Mortgage’s own facility in the U.S. to enable disaster recovery, Ibrahim said.

Horizon Companies Inc, an Edison, New Jersey, provider of customized information technology solutions and products, has set up a software development subsidiary in Mumbai to help lower costs for its customers. “Surprisingly, none of our customers seem particularly worried at this point,” said Shirish Nadkarni, chief executive officer of Horizon. “We have however given them an assurance that if the work in Mumbai is disrupted by war, we have enough of people in the U.S. who can take over the work.”

Indian services companies too are implementing disaster recovery strategies. “Ever since the terrorist attacks in the U.S. in September 11, our customers have asked us to put in place disaster recovery systems, which may be useful now,” said Srikar Reddy, senior vice president of software services company for Sonata Software Ltd. in Bangalore.

Although multinationals are not in a hurry to pull their outsourcing business from India, continued tensions, and frequent threats of war between India and Pakistan are likely to raise questions about the long-term viability of India as an outsourcing location, Encore’s Deshpande said.

Multinational companies are less likely to pull out altogether from India, instead spreading their risks by having development resources in multiple countries, according to Gartner’s Datar.

“The recent border tensions have certainly brought up issues about not putting all your eggs in one basket,” Gartner’s Datar said.

Besides customers, Indian services companies too will set up development centers in different countries, according to Datar. “Some of the top Indian IT services exporters already have offshore centres in other countries, while some are in the process of setting up such centres,” he added.