Gaining Ground - InformationWeek
04:09 PM

Gaining Ground

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

On a recent mild March evening, executives from an IT services firm hosted a reception for customers and analysts at the Westin hotel in Santa Clara, Calif. The exuberant vibe and happy chatter over white wine, crab puffs, and chicken vindaloo created a distinct feeling of déjà vu--just three or four years ago, the same banquet room may well have been the site of a dot-com launch party.

Of course, the host this time wasn't a dot-com making merry. It was Satyam Computer Services Ltd., a technology-services company based in India, celebrating double-digit revenue growth and "a growing presence in Silicon Valley," according to the invitation.

American companies are finding that sending IT work offshore can cut project costs by as much as 70%, a compelling savings in a cost-conscious economy. Indian IT outsourcers including Satyam and its competitors, such as InfoSys, Tata Consultancy Services, and Wipro Technologies, among many others, have reaped the greatest benefits from the trend, honing their business models over the last several years to provide top-quality IT work, while maintaining relatively low costs. Satyam's revenue grew 12% to $343.4 million in the first nine months of its fiscal year ending March 31, while those of Infosys, Tata, and Wipro climbed about 30%.

Now Indian firms, feeling the heat from competitors in other low-cost locales, such as China, Eastern Europe, Malaysia, the Philippines, and Russia, are attempting to add high-end consulting, systems design, and even complete business-process modeling capabilities to their repertoire. Meanwhile, U.S. IT services companies are expanding their offshore sites and directly hiring low-cost staff. And boutique firms in the United States tout the advantages of experienced American IT professionals willing to work for less money, while pointing out obvious security concerns inherent in doing work in a foreign country (see story, "Made In The U.S.A.: Small Firms Tout Cheap Native Talent").

New competition is why Satyam, like other Indian outsourcers, is pushing to develop closer, more strategic relationships with its U.S. customers. "We're moving up the value chain," senior VP Vijay Prasad says. The company wants to encompass a wider range of services that include initial IT consulting, system planning, and implementation. "The question is, how do we maintain supremacy?" Prasad says. "What we need to do is engage right up front in customers' decision making and business planning."

Staff-level programmers don't play a huge part in this strategy--top-level consulting talent does. For example, modeling enterprise resource planning and customer-relationship management systems requires in-depth knowledge of a company's business processes, because the technology and processes are intertwined.

In the past three months, Satyam has hired 35 consultants from the top U.S. consulting firms, Prasad says, some of whom will relocate to India and others stay close to U.S. customers. Consulting services will carry higher price tags, Prasad admits, but buyers will still see substantial savings in programming and application development costs.

Satyam is offering exactly what auto-parts manufacturer TRW Automotive Inc. wants as it contemplates a large-scale project to standardize its business processes on SAP software at facilities around the world. Earlier this month, Satyam opened an office in Chennai, India, dedicated exclusively to the $10 billion-a-year TRW Auto- motive, a customer for more than two years.

Joe Drouin, VP and CIO of TRW Automotive. Photo by Bob Stefko.

TRW Automotive wouldn't be able to afford its planned SAP deployment without offshore outsourcing, CIO Drouin says
Joe Drouin, VP and CIO of TRW Automotive, says the center looks just like a TRW Automotive facility, with the manufacturer's posters on the walls, its logo on the screensavers, and access limited to I.D.-badge-wearing TRW Automotive "employees." TRW Automotive doesn't own the building; it doesn't even pay rent. TRW pays an hourly rate for the 40 programmers and engineers at the center, which includes overhead, such as the cost of the PCs and other technology infrastructure. That adds up to about 30% of the typical hourly rate charged by a U.S. IT-services company, Drouin says. He considers the Satyam center a strategic asset. "This long-term, dedicated group of folks can think strategically and get involved with more business processes," Drouin says.

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