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BW Businessworld

ROUNDTABLE: OFFSHORING

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In the aftermath of the global financial crisis, the $50-billion Indian software services and business process outsourcing industry finds itself in a significantly altered universe. While prospects for the outsourcing business remain robust, customers now demand greater flexibility in service terms. This is forcing both Indian and multinational firms that deliver software services from here to re-examine the traditional ways of doing business. At the Nasscom India Leadership Forum 2010 in Mumbai, Nasscom and Businessworld  held a roundtable of multinational software services companies to deliberate on the issues before the industry today. Panellists included James Champy, chairman of Dell Services’ consulting practice, Stephanie Moore, chief marketing officer of UST Global, Salil Parekh, CEO of financial services (India and Asia Pacific) at Capgemini, Harsh Manglik, chairman of Accenture India and vice-chairman of Nasscom, and Peter Lowes, principal and leader of outsourcing advisory services at Deloitte Consulting. BW’s Snigdha Sengupta moderated the roundtable. Excerpts:
 
BW: Customers want more flexibility. They want pricing to be more outcome-based, service providers to have more skin in the game and more diversity in delivery locations. What impact is all this having on your business?  
 
Moore:  We are a beneficiary of a lot of that desire for flexibility. One of the messages we are selling to customers is “come, work with us because we are flexible the way big offshore service providers used to be five years ago”. As Infosys Technologies and TCS grew up to look more and more like Dell Services or Capgemini or Accenture, they had to install the same types of rigid processes. So, customers suddenly miss the flexibility and intimacy. We’re capitalising on that.
 
Parekh: Clients are pushing for more flexibility but not just in pricing and approach. It is even in how we engage with them. So, there has to be flexibility in terms of how we scale up projects, the methods we use to deliver services, and how we partner with other vendors to provide joint services. Frankly, because of the way the economy was in the past 12-18 months, we have become much more ready to be flexible. Clients have taken full advantage of the situation to get back some of the decision-making power.
 
BW: But it must be difficult for a larger vendor to become flexible?
 
Lowes: I wouldn’t agree. The entrepreneurial cycle allows new entrants to do things that are uniquely creative. But the larger service providers have the ability to achieve change on a large and dramatic scale when they choose to do so.
 
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Champy: The way I think about flexibility is that 90 per cent of what we do will still be standard stuff. Clients, even large corporations, are much more willing to accept standard processes and services wherever they work. Five years ago, there was this so-called move to best-of-breed services. I am now seeing companies say that is too expensive and if you give us a single integrated service that meets our needs, we will take it. The 10 per cent difference in flexibility comes in how we manage a relationship. The differentiation will come with client relationships, the skills of the client relationship manager, and the way the manager responds to the needs of the client. It is a very thin slice of the work that we do, but it is very critical and right at the top of the relationship. 
 
Manglik: It is flexibility not just in terms of the relationship but the objective. It will include models that take a more holistic view and are based on outcomes. People may need to be more flexible in the nature of SLAs (service level agreements) and how much skin they put in the game. It is also clear before us at Nasscom that there are certain technological movements, such as cloud computing and software-as-a-service, that will resonate somewhere.
 
BW: Does this make the India-centric offshoring model less relevant?
 
Moore: We just inaugurated a new centre at Manila and what was really great was that our people from there came to India to be trained in the processes that have been developed here. Indians have set the standard for the global industry. 
 
Champy: I think the large Indian outsourcing players must adapt and learn to become global companies. If they can go through that transition, and it is a big one, they can become very powerful competitors. One of the other challenges that Indian companies will have to recognise, as they become more global, is that their cost base is going to change.   
 
Manglik: From my Nasscom vantage point, I see that happening. If you look at the larger firms, their priority is to expand their presence in the US, for instance. India’s relevance will not reduce but there will be other dimensions to consider in the global outsourcing model. 
 
Parekh: India would not continue to be the only major centre for offshoring. It would not surprise me if in 5-7 years, we have some very large service providers emerging from China. Currently, in terms of sheer scale, India is 10 times larger than most other centres. While it is quite clear that India retains the lead, there are lots of competitors out there, from a location perspective, and for any global company there has to be some diversification beyond India. 
 
Lowes: India’s destiny in this industry is not just about scale or labour arbitrage. It is about talent and importantly, about management talent. There is a profound opportunity for Indian management talent to think more globally about their ability to help implement the global operating model that large customers seek. 
 
BW: How big a concern is the whole protectionism wave in the US?
 
Champy: Some of the threat is real in terms of tax legislation that will affect companies that work offshore. Also, the visa issue is real. But I have not seen companies postpone their decision to globalise operations. 
 
Moore: It is going to be very difficult for the US to get access to software professionals at the scale they need today. Regardless of what the Obama administration does, it is not going to be able to replace all the folks in India or China or Latin America that are working with companies in the US.
 
Champy: The way I see US multinationals dealing with it is more on the tax issue. We are all anticipating that the money we would have normally kept offshore, we would probably continue to keep offshore, but we are going to have to pay taxes on it. I don’t think it will change the way we operate at all.
 
snigdha(dot)sengupta(at)abp(dot)in
(This story was published in Businessworld Issue Dated 22-03-2010)