Generation Next for IT Outsourcing

You know that we have reached the next phase of outsourcing when India is conveniently and brutally struck off from the list of low-cost offshore centers in quite a few top line Information Technology (IT) companies. We cannot harp on our low cost model and our ability to get more work done for less cost anymore. Those days are gone when you would get people who would code HTML in exchange for food, housing and an internet connection. Now software engineers in Bangalore and Gurgaon zoom around in swanky cars, sport Rolex watches and charge a bomb per hour of work, the tagline here is very clear. India has reached Phase 2 of the outsourcing story. And at least in the realm of the IT world, it is now a “developED nation”. Any IT Indian company trying to flaunt low cost as a differentiator will not survive in this market. India now needs a USP, and it is not difficult to guess what it shall be for most companies, it is their outsourcing skill and experience in the ability to execute, implement and manage work remotely in a better, and not just cheaper manner.

When I was doing my MBA, this concept of “value addition in off shoring” was somehow made out to be an obvious parameter. But when I went back into the industry the scenario seemed much less mature than I had read in the books. The perception, which to an extent was not very incorrect, was that you outsource, or more particularly, offshore work only when its low skill and non-critical and you can take the ‘pain’ associated with it. Let us admit it, off shoring work is pretty much a painful exercise. It is tough to understand just how painful until you sit down with the customer and listen to some of the horror stories. It is not the typical call center kind of pain, it goes deeper than that. The customer can take only so much pain in order to save cost. And when the cost factor starts depleting and you don’t have much more to offer, there is cause for concern. And so, taking “value addition in off shoring” for granted is a mistake. It is a lot of effort to prove that you add more value from another continent, because whether it is consulting or hard coding, it is always more convenient to have a person sitting across your desk to do the work for you, and then later on have coffee with.

As a part of my work, I interact with a number of small vendor companies, a lot of whom we partner with in projects. A few days back I was at lunch with one of the board members and co-owners of a small but extremely influential German company, primarily dealing with SAP projects. This German gentleman surprised me by telling me that he had decided to shut down his already small operations in India and had opened a new center in Riga (Riga is the capital of Latvia, a small country in the Baltics). The reason was that he did not consider India a low cost center anymore. He already had offshore centers in Singapore and Philippines which, in his opinion, were easier to manage, given their westernized business maturity and low cost. Also, the “near-shore” center in Latvia, though of course slightly more expensive than India, was closer to the time zone and had better cultural proximity to the clients. Also, being a Schengen country, it would allow free travel for the consultants and developers to nearly all European countries for workshops and implementations/rollouts. I think that makes perfect business sense.

So is India going to be left behind in the race for outsourcing? The answer is a clear NO. An interesting point in the story above was that though the company mentioned above does not have an Indian presence, a lot of the senior managers and partners in my German friends’ company were Indians.

So firstly, Indians have certainly made a mark in the international IT market. I attend around 4 meetings on any given average day, with clients, vendors, competitors and internally with different global divisions. There is hardly a single meeting where at least one Indian is not present. Indians have penetrated the IT world in a very thorough way, and the penetration has not been due to the low cost, it has been more due to skill, experience and exposure to this industry known to evolve and change with lightening speed. Some of the western countries are miles behind in the race because of their lack of ability to cope with the changing equations in the IT outsourcing and off shoring business, which India and Indians are so good at.

Secondly, India as a country and a geographical location is perfectly poised to become the “hub” of all the outsourcing destinations, if not the ultimate outsourcing destination itself. When you want to start a center in Manila, whom do you want to appoint to do the setup and manage operations there? An Indian of course. Does it make sense to operate the Manila center from the US or Europe, or does it make more sense to manage it as a combined set of operations, along with Hong Kong, Beijing and Singapore, managed and run centrally from India along with all the offshore centers of India? The latter of course! So India can easily shift to the hub of the Hub-and-Spoke model of outsourcing. But note that the skill set and USP of India and Indians in this scenario changes in a major way. The skill set has to shift from being able to manage low cost and low skill work to being able to operate, coordinate and manage multi cultural Asian and African offshore centers and act as an offshore interface to the western world. This shift is clearly visible in most big Indian companies, and multinational companies with a big Indian presence. Most of the IT giants in India have already opened centers in China, Philippines and Thailand, some even in countries in Africa. They have of course used their Indian management to branch out to other Asian and African regions and most still have the top management layer as Indians because of their off shoring experience and their business maturity in outsourcing.

So what is the message for India and budding Indian IT consultants and managers who are still in engineering and business colleges? Do not build your skills or aim for jobs where you can be overtaken by lower cost countries in the next 5 years. Build your skills where the market and the demand will last. Build your profile towards niche management and consulting skills that depend on expertise, experience and leveraging the existing mature platform of the Indian IT boom. Move from having application based knowledge to functional skills in specific verticals like finance, supply chain and customer relationship management.

The future of Information Technology will not be software, application or platform specific, it will be more specific to business processes and ability to understand industry specific needs. It will need more knowledge and understanding on the functional and business side, rather than the IT side. IT in India will shift from technology expertise to business expertise that can leverage technology. Are you poised for this change?

– Abhishek Sinha (Batch 2005-07)

(Abhishek is currently working for IBM Global Business Services and is based out of Stockholm, Sweden. He is the Service Delivery Manager for the SAP BW and MDM Program of a large telecommunication technology client of IBM in Europe. He is responsible for business development and delivery of key SAP projects in this area delivered from more than 5 global locations spread across the world. He is part of the Client Engagement Team for the largest account of IBM in the Nordics.)

Disclaimer : All opinions expressed in this article are personal opinions of the author and do not reflect or represent the opinion or strategy of the company he is currently employed with. The author does not represent his company or its opinions in this or any other blogs.

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