Offshore increasingly attractive

Satyam chief B. Ramalinga Raju remembers the day in 1992 when he decided the IT services work he was doing for John Deere & Co. could be better done halfway around the world.

The founder and chairman of Satyam Computer Services Ltd., one of the first and largest offshore IT services firms in India, recalled how ludicrous the idea seemed at the time. When he bounced it off a John Deere executive, he admitted to Raju that “it doesn’t seem like a very pragmatic idea.”

To help ease his concerns, Satyam set up what came to be known as “Little India,” a John Deere building that played the role of the country – operating on Indian time, and communicating with the rest of the company via satellite only.

“That project was very successful,” Raju said. As a result, “we became the first Indian company officially allowed to have such an (offshore) connectivity.”

Raju made the comments at a Satyam-sponsored seminar in Toronto this month hosted by TIE Toronto – a networking group for Asian business professionals – that outlined the pros and cons of offshore IT outsourcing. In attendance were representatives from dozens of large Canadian firms flirting with the concept.

While the notion of shipping software development and maintenance work overseas may have been a radical concept in 1992, much has changed in 10 years. Today India’s exports of software and services are worth US$9.5 billion to the country, according to estimates from the Delhi-based National Association of Software and Service Companies (NASSCOM).

While that may represent millions in reduced costs for companies in Canada and other Western nations, there is a flipside. Stamford, Conn.-based Gartner Inc. recently released a report which stated that by year-end 2004, one out of every 10 jobs within U.S.-based IT vendors and IT service providers would move to emerging markets – such as India – as would one of every 20 IT jobs within user enterprises.

An IT executive from one of Canada’s major banks did little to dispel that notion.

“Some companies are going to outsource their entire IT shop,” said Chuck Housnell, senior vice-president and CIO at Toronto-Dominion Bank. “People are going to need to make decisions about what do with our IT people to bring them on that journey.”

Terry Stuart, a partner with Deloitte Consulting, said IT workers, in particular developers, need to take a realistic look at their future job market and to start preparing themselves for it now.

“The people who go first through that door, those will be the most sought after IT programming managers in the marketplace,” Stuart said.

However, Peter Sweers, senior vice-president of domestic and wealth management systems development at the Bank of Nova Scotia in Toronto, said not all dealings with Indian outsourcing firms will necessarily result in layoffs. He labelled the work his bank is doing with outsourcers as “staff augmentation,” and said they take on tasks his in-house IT staff simply don’t have time for.

“There’s way more demand…than we have the capability to deliver,” Sweers said, adding that the work done with Indian firms isn’t “any different than doing work with a (partner) here.”

Still, all panellists agreed that the concept of shipping work offshore is being looked at in a serious way by many of Canada’s larger firms – many for the first time. And it’s a trend that will likely grow quickly.

“We’re seeing a lot of activity,” Stuart said. “The time for this has come.”