Indian outsourcers tackle high-end IT

The pace of hiring for software development operations in India is frenetic

The tech sector is booming in the bustling city of Bangalore, India, which has been dubbed the Silicon Plateau. Software development operations, call centers and firms that offer business process outsourcing (BPO) services -- much of them for U.S. companies -- are hiring at a frenetic pace.

"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 centers and BPO firms at more than twice the salaries we can pay."

Although some U.S. 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, chief financial officer 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 being driven by CEOs and CIOs and now 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 time its fiscal year ends March 31, 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 Global Services are hiring people by the thousands in India and are being 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 India Research and Advisory Services Pvt. in Mumbai.

The BPO industry is also under pressure to move up the value curve. Margins in the call-center business are falling because 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 40% are pushing up salaries in the call-center industry, making survival in the business difficult, he said.

Although almost any service that can be delivered remotely can be moved 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 center," Talwar said. "When you give out call center 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 said. But doing the work on-site does not preclude Indian companies from getting the business, since Indian software companies are geared to offer on-site work, too.

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


Copyright © 2004 IDG Communications, Inc.

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