Offshore, U.S. IT Services Firms Go Head-to-Head

Growing competition could result in lower costs, better service for users

June 28, 2004 (Computerworld)

NEW YORK -- Rapidly growing IT services firms based in India are adding sophisticated consulting services in an effort to compete directly with the major IT consulting firms. At the same time, U.S.-based providers are expanding their offshore operations to cut costs.
"There is no doubt that the race is on," said Stephen Pratt, head of Infosys Consulting Inc., 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, the twin developments likely will mean increased competition -- and potentially better pricing -- as offshore development becomes a standard part of any outsourcing offering by U.S.-based companies.
Cost Considerations
Increasingly, the decision about which 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," said Weiner, in response to a reporter's question at a conference on how emerging trends may shape the offshore IT market. The event was sponsored by the Information Technology Association of America and Nasdaq Stock Market Inc.
Weiner said he takes the view that cost is the key factor because his 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 he added that he expects providers in India to gain increased IT skills, which should help them improve the level of services they can deliver to users.
Pratt said the Infosys Consulting unit now has 150 employees in the U.S. and would like to expand that number to 500 within three years. However, India-based workers who provide everything from technical expertise to competitive analysis for clients will do a large part of the work, and Pratt said he sees Infosys' ability to leverage the low costs of offshore work as a key advantage for his company.
But the move by U.S.-based IT and business consulting firms to expand their offshore operations may help level the playing field. For instance, IBM in April announced plans to buy India-based Daksh eServices Pvt., a 6,000-employee firm that does business process outsourcing work.
The differences between domestic and offshore IT services firms are blurring, said Stan Lepeak, an analyst at Meta Group Inc. The decision for users now "is not whether I should be onshore or offshore," Lepeak said. "It's what firm has the best capabilities."
But both U.S. services firms and companies based in India "have big transition risks," said Gregory Gould, an analyst at Goldman Sachs & Co. in New York. Domestic firms face a "very traumatic" restructuring as they boost the amount of work they do offshore, he noted, while the move by offshore firms into more complex lines of business is fraught with the potential for failure.