Ford opens IT hub in India to save millions

Ford Motor Co.'s accounts payable processing unit in India typically loses power three or four times each day. On top of that, it's difficult to establish a telephone connection there. Meanwhile, employee turnover for IT staff in this region is an eye-popping 30% per year.

But these daunting challenges won't stop the world's second-largest automaker from opening a major IT hub in India later this month.

Dearborn, Mich.-based Ford disclosed plans

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Shift in Gears

Ford plans to open a major IT hub in Chennai, India on March 29:
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The 80,000-square-foot facility will cost about $10 million to equip.
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It will handle CAD/CAM development, e-mail processing and application development.
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The staff will include 700 to 1000 outsourced developers and e-mail processors.
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Ford expects to save $30 million to $60 million per year.

last week to shift much of its computer-aided design and manufacturing (CAD/CAM) development, e-mail processing and application development tasks to a subsidiary it's setting up in Chennai, India. Although Ford already has limited IT operations in that country, the latest effort is expected to help the automaker cut its costs by an additional $30 million to $60 million per year because IT labor costs in India are a fraction of those in the U.S.

Eventually, Ford hopes to make the site a mainstay of its global technology operations, said John Larson, director of Ford Asia Pacific - Information Technology.

"Nobody is doing exactly what we're doing," said Larson. "If it is successful, we want to see [the Indian facility] take on more responsibilities, as long as it's cost effective."

Advantages Abound

"There are advantages to having IT systems in India, in terms of the costs, time difference and other features," said Gerard O'Shea, an analyst at The Yankee Group in Boston.

For instance, according to Yankee Group research, it costs $12 for a U.S. company to field a 30-minute customer support call in the U.S. and about $3 to $5 for an e-mail response. By contrast, those costs may be significantly lower in India, O'Shea said.

Ford plans to spend $10 million on the first phase of getting the subsidiary, Ford Information Technology Services of India, up and running.

That investment will cover the equipment and technology needed to operate the IT hub but not the costs for personnel. To handle its labor, Ford will outsource all of its software development, e-mail processing and other IT management services - a staff of about 700 to 1,000 workers - to Indian contractors, Larson said.

Numerous U.S. firms, such as New York-based American Express Co. and Benton Harbor, Mich.-based Whirlpool Corp., have also outsourced call center support to Indian contractors, whose personnel costs are significantly lower, analysts said. But Ford is planning to forge ahead with another aspect of customer care: e-mail processing.

"Its pretty hard to send or receive an e-mail [from] Ford, because we have never had the capacity to do e-mail processing," Larson explained.

The e-mail processing center will be managed by Percepta, a joint venture that Ford launched last April with Denver-based Teletech Holdings Inc. to improve its customer support services.

Ford isn't the only big company that's turning to IT to help pare costs during tough times. Last week, Fairfield, Conn.-based General Electric Corp. announced plans to step up its software development outsourcing to India to the tune of about $400 million this year, compared with the $280 million it spent last year.

Larson said GE's success influenced Ford's decision to open the hub in Chennai.

Challenges Remain

But Ford will still have to contend with India's wobbly infrastructure and high turnover rates for IT staff.

To meet those challenges, Ford is planning several steps. The Chennai subsidiary will link to Ford's global private network using a 2M bit/sec. circuit that runs through Singapore. Ford plans to double the capacity of the network to 4M bit/sec. by year's end.

And to help lower its IT turnover rates in India, Ford plans to offer U.S. and European work visas to the top 15% of the outsourced developer staff. Most developers "are going to move outside India anyway, so they might as well work on Ford programs," Larson said.

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