Indian outsourcers tackle high-end IT

In this bustling city dubbed the Silicon Plateau, the frenetic pace of hiring for software development operations, call centre activities, and business process outsourcing (BPO) — much of it to serve U.S. companies — is giving rise to a booming tech sector.

“Nowadays, I am happy if I can hire a shop assistant who can speak a smattering of English,” said a manager at an upmarket retail chain in Bangalore, who asked not to be named. “Those who had a reasonable command of the language have been grabbed by call centres and BPO firms at more than twice the salaries we can pay.”

Although some American executives have begun to express reservations about offshore outsourcing, confidence abounds here as Indian technology leaders see burgeoning demand for increasingly sophisticated services.

“It’s unlikely that anything can go wrong for the Indian outsourcing industry,” said Ravi Ramu, CFO of MphasiS BFL Group, a Bangalore software services and BPO company. “There is no competition for India at present, as countries like the Philippines and China cannot scale to offer the large number of skilled, English-speaking people that we have in India.”

Indian outsourcers say they are moving up the value curve, from primarily software coding and maintenance to new areas such as IT consulting, systems integration, infrastructure management, package implementation, and product development.

Outsourcing to India is now being driven from the top — by CEOs and CIOs — and includes strategic development work, unlike a year ago, when new clients typically came to India for staff augmentation or software maintenance work, said Sangita Singh, vice-president of strategic marketing for the technologies division at Wipro Ltd., a Bangalore software services company. Wipro will have added approximately 12,000 employees for its outsourcing business by the fiscal year ending March 31, 2004, he said.

Still, there are signs the country may be falling victim to its own success. Large, multinational technology services companies such as Accenture Ltd., Electronic Data Systems Corp., and IBM Corp. Global Services are hiring staff in thousands in India and are blamed for pushing up salaries. “By tapping the low-cost manpower in India, these companies will be better able to compete for business at the low end that has traditionally been the stronghold of the Indian outsourcing companies,” said Ravindra Datar, an IT and BPO services analyst at Gartner Inc. India Research and Advisory Services.

The BPO industry is also under pressure to move up the value curve. Margins in the call centre business are falling as it is highly commoditized, said Vikram Talwar, CEO of Exlservice Holdings Inc., a BPO company with a marketing front end in New York and operations in Noida, India. Attrition rates of approximately forty percent are pushing up salaries in the call centre industry, making survival in this business quite difficult, he adds.

Although almost any service that can be delivered remotely can be outsourced to India, Indian companies advise caution when deciding which aspects to outsource. “My advice to clients is that if you have never outsourced offshore before, start with your back office rather than the call centre,” Talwar said. “When you give out call centre work, you are putting the service provider at the India end in direct contact with the ultimate customer, and you carry a far greater risk of your business being impacted.”

Not all software development and implementation work can be done offshore, according to Wipro’s Singh. Development of applications that require a high degree of customer interaction or that have a lot of interdependencies with other applications already deployed by the customer are typically done on-site, she added. But on-site work does not preclude Indian companies from getting the business, as Indian software companies are geared to offer on-site work as well.

Meanwhile, Indian services companies are investing heavily in their own IT and communication infrastructure, which has become the lifeline of the Indian outsourcing industry.

The object is to meet the booming demand from offshore, which is transforming the IT industry in India. Nandan Nilekani, CEO of Bangalore-based Infosys Technologies Ltd., succinctly addressed the transformation in January at the World Economic Forum in Davos, Switzerland. “Everything you can send down a wire is up for grabs,” he said.

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