Will they upset Indian outsourcing applecart?

Shashwat Chaturvedi

MUMBAI: In 2003, the world was quite a different place. U.S. forces had landed in Iraq; a supposed Monkeyman (caped crusader) was roaming the streets of London helping old ladies cross the streets.

Meanwhile, India was purportedly 'shining'. There was a virulent campaign against outsourcing underway, yet significant amount of work was being outsourced to India. The clients were a wee bit unsure about the model and how it would work out. The very same year, Sand Hill group conducted a study on offshoring in the U.S., taking into account different clients' view on Indian players and the whole idea of offshoring and outsourcing.

Three years later, the world continues to be a different place. U.S. forces rule the streets of Baghdad, London celebrates Queen Elizabeth's eightieth birthday. Back home, the shine seems to back as the stock markets are on a roll. The latest Sand Hill – Persistent Systems 'Report on Offshoring' gives the industry a 'thumbs up' sign.

But on closer reading, the report also hints at many factors that could upset the Indian outsourcing applecart.

The biggest one is the cost factor. Clients abroad are concerned about the increasing costs; estimates show offshoring vendor costs in India growing 15 per cent to 18 per cent every year.

Says a respondent, “I think the cost advantage is starting to erode as time progresses. The offshore organizations are experiencing tremendous demand, so they have increased pricing strength. As that pricing strength grows, our costs grow, which may lead us to reduce offshoring or bring those activities back in-house.”

But, Anand Deshpande, chairman and managing director, Persistent Systems, isn't perturbed by it. “While there are growing concerns over the increasing costs, it is still not a big issue. Cost is no more the main factor for which the clients are outsourcing or offshoring work to India. The only fallout could be that clients will offshore less strategic work to other destinations. The bulk will still come to India, evident from the fact that close to 84 per cent of respondents affirmed that was India was the first offshoring destination,” he said.

The report suggests that clients should have a price protection clause in the agreement, whereby the spiraling cost could be curtailed.

Communication was another big issue with clients in the U.S. Respondents across the board spoke about communication issues with the team in India. The time difference puts added pressure on the team in U.S. to be able to interact on a daily basis.

“Remote management is a significant challenge to our efforts,” said one respondent. “The wife of one of my engineers complained that he spends from 10 p.m. to 12 a.m. on the phone with India almost every night. That's not good. If he's too burned out, he loses creativity,” added another respondent. “Communication will be an issue whenever a company off shores its work. But with time, things ease out. This is not something that is specific to India,” clarifies Deshpande.

Significantly, the number of people who were “very satisfied” with offshoring in 2003, has dropped by 15 percentage points. Whereas the respondents who were “not very satisfied” in 2003, has increased from four-five per cent.

A bad omen? “No. The expectations of the clients have changed over the past few years. The clients do not simply outsource; they look for strategic partnerships. The needs and requirements on the client side have changed. The initial euphoria has given way to more circumspect assessment,” pacifies Deshpande.

Clients in the U.S. are also increasingly worried on intellectual property rights (IPR) related issues. The numerous incidents at Indian companies, where strategic data related to certain clients was comprised does not help India's cause. Deshpande acquiesces, “I agree, a lot more needs to be done to assuage the IPR concerns. It is an important and sensitive issue for the clients.”

Then, there is the most-talked about issue on shortage of talented people. The report mentions that experienced technical staff is tough to find and retain than it was in the Silicon Valley during the Internet heyday. Thus, quality and productivity are suffering.

“It is one of the most talked about issues in India. What more can I add, except that we as a industry need to find an answer for this and fast,” says Deshpande.

The offshoring industry is maturing and India is developing into a powerhouse. The concerns need to be addressed, as the competition is hotting up. And one can't just rest on the laurels. Three years later, when the world will continue to be a different place, hopefully India's place in the offshoring market be the same or stronger.

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