Offshore providers add consulting services to arsenal

Rapidly growing India-based IT services providers are adding sophisticated consulting services to their operations in an effort to compete directly with the major U.S. IT consulting firms. And for their part, U.S. services firms are expanding operations in India and elsewhere to reduce the cost of IT services by shifting more work overseas.

“There is no doubt that the race is on,” said Stephen Pratt, head of Infosys Consulting, which was formed in April by India-based Infosys Technologies Ltd. “It’s no secret that the winning model will be high-end business consulting combined with high-quality, low-cost technology delivery done offshore.”

For users of these services, it will likely mean increased competition as offshore development becomes a standard part of any outsourcing offering by U.S.-based companies. And a decision on what vendor to use “comes down to cost,” said Don Weiner, managing director and global head of technology at Deutsche Bank in New York.

“Let competition dictate who gets the business,” Weiner said today during a conference sponsored by the Information Technology Association of America (ITAA) and the Nasdaq Stock Market Inc., where analysts discussed how emerging trends may shape the offshore market.

Weiner said he takes that view because a company uses an Indian firm only for commodity IT services, such as application maintenance, while retaining all the subject matter, architecture, design and project management expertise.

But Weiner said increased industry expertise among Indian providers will help those firms improve their service delivery.

Infosys worldwide employs 25,000 workers, 4,000 of whom are in the U.S. Infosys Consulting now has 150 employees and wants to expand that number to 500 in the U.S. in three years. India-based workers who provide everything from technical expertise to competitive analysis for clients will do a large part of the work, and Pratt sees Infosys’ ability to leverage the low costs of offshore work as a key competitive advantage.

At the same time, major U.S. IT business services providers have been expanding their offshore operations and developing expertise in those locations. For instance, in April, IBM bought India-based Daksh, a 6,000-employee business-process-outsourcing provider.

The broader impact, as Indian offshore providers add consulting services and U.S. firms build and buy offshore capability, is a blurring of the difference between domestic and offshore business and IT services providers, said Stan Lepeak, an analyst at Meta Group Inc.

The decision for users of these services “is not whether I should be onshore or offshore … it’s what firm has the best capabilities,” Lepeak said during an interview.

At the ITAA forum, some financial analysts said they believe U.S. providers may not be able to price their services as aggressively as Indian firms because their customer on-site support costs are higher. Large offshore firms typically keep 30 per cent of their workforce at or near the customer, with the balance of the work completed in India. The exceptions are business process outsourcing operations and call centers, where the ratio of workers in India is much higher.

But both sides — the U.S. companies and the India-based providers — “have big transition risks,” said Gregory Gould, managing director at Goldman Sachs & Co. U.S. IT services firms face a “very traumatic” restructuring as they boost the amount of offshore workers, while the move by offshore firms into more complex lines of businesses is equally fraught with risks, he said.

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Jim Love, Chief Content Officer, IT World Canada

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