India has had an edge in IT outsourcing--which it plans to keep. But it's facing new competition in the United States and abroad
Until now, TRW had used Satyam primarily to write code for projects. The SAP deployment is much more ambitious. "It's a very complicated project," Drouin says, requiring extensive planning and consulting and taking 12 to 18 months. "Satyam has tremendous SAP resources in India," he says. "There are people there that we know and who know us and our business processes."
Other IT executives are developing similar strategic relationships with Indian outsourcers. Tata Consultancy's work with Allianz Dresdner Asset Management Group has grown from integration of packaged applications several years ago to the recent planning, design, and implementation of a customized trading system. Tata analysts gained expertise in financial markets by building a similar system for a Swiss company. "You need the expertise to understand your business requirements and translate that into code and IT functionality of systems," says Oliver Bussmann, global IT head for Allianz Dresdner. The project for the U.S. financial markets could segue into a global trading-system project at a cost of up to $12 million. At $4 million, the U.S. project was one-third of what other services companies quoted.
The savings from using offshore outsourcers can mean the difference between whether a project lives or dies. There's still a chance TRW Automotive's big SAP project will get nixed, but the odds that it won't are much better with Satyam involved. "We probably couldn't, or wouldn't, afford this project if we were depending on a traditional consulting house," Drouin says.
U.S. services companies, many of which have been using overseas resources for a long time, aren't ready to concede the offshore market to Indian companies. Late last year, EDS launched what it calls its "Best Shore" initiative, a plan to enhance its worldwide network of operational centers. EDS's goal: to dispatch work to whichever region is best-suited for a particular job. The company plans to launch a state-of-the-art data center in Mumbai, India, this spring and will strengthen its presence in other locations where IT labor is less costly, including Argentina, Brazil, Canada, Germany, Hungary, Mexico, New Zealand, and South Africa. It will have 20,000 employees delivering offshore or near-shore services by next year, EDS says.
EDS executives say the company's geographic breadth gives it a competitive advantage over Indian companies, which have international operations but are concentrated on the subcontinent. "We have a number of customers who would rather go to New Zealand, for instance, than India," because they perceive it as more politically stable and secure, says Dan Zadorozny, EDS's president of application services. EDS's diverse locations, combined with technology that lets it move a customer's project from one region to another with minimal disruption, provide an added safety net, Zadorozny says. EDS generally includes in its contracts the right to relocate operations if a particular locale becomes too politically or economically volatile. It's a move the company has mulled over about work sourced to its Argentine operations, given ongoing economic and labor strife there.
IBM Business Consulting maintains offices in 160 countries, and, like EDS, it trumpets an ability to operate in virtually all corners of the globe. It has done work out of its Indian offices for British Airways and a major insurance company that wanted to move claims handling offshore, but it's also able to satisfy U.S. customers who don't feel comfortable placing operations so far from home. Mark Langlois, an IBM application-management services executive in Toronto, says some customers prefer using Canadian IT workers, even though savings there are about 50% less than outsourcing to India.
India will have a cost advantage for another four to five years, at which point some companies will be tempted to move elsewhere, at least for routine development projects, Langlois says. "China will be successful because it will then have the cost advantage," he says. One drawback: China lacks laws to protect companies' IT intellectual-property assets (see story, "Foreign Intrigue: Continuity Is A Legitimate Concern").
Another cost-effective location for companies that want to diversify offshore resources beyond India is the Philippines. Companies want to avoid "the risk of putting all of their development eggs in one basket," says Manny Rodriguez, president and managing director of the Philippines division of RCG Information Technology, an IT services firm in Edison, N.J. Revenue for his division, which employs 124 IT workers, has grown more than 30% a year for the past three years, he says. Colleges in the Philippines graduate 40,000 computer technology majors a year, most of whom stay in the country and work for annual salaries of about $10,000 to $15,000, Rodriguez says. His employees specialize in technologies such as Java 2 Enterprise Edition, Microsoft's .Net architecture, and Oracle databases.
World Vision International, a Christian relief and development organization, tapped RCG IT Philippines to develop a fund-raising database because of its low price and its location on the international date line. There's a 13-1/2-hour time difference between India and California, where World Vision is located, making it difficult to communicate during working hours. The Philippines is 16 hours ahead. It's early morning there when it's late afternoon in California, making communications more convenient, says Frank Corlette, senior manager of operations and development.
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