To cut costs in its growing business, the IT services subsidiary of Swedish transport equipment company AB Volvo moved some
work offshore in 2002 to MindTree Consulting, a software services company in Bangalore, India.
The subsidiary, Volvo Information Technology AB (Volvo IT), has an operation in Poland that is doing application maintenance,
but it wasn't easy to increase the number of staff in that country quickly, said Pär Forsberg, Volvo IT's competitive sourcing
manager.
Working with an outsourcer gave Volvo IT flexibility in staffing. "We needed to be able to ramp up and down quickly depending
on demand from clients and MindTree was able to meet that requirement," Forsberg said. MindTree also offered skills in the
broad spectrum of technology areas that Volvo IT was working on, including Java, .Net, and technologies from SAP AG, he added.
MindTree now has about 300 staff doing work for Volvo IT, mainly in applications development, up from less than 20 four years
ago.
Volvo is one of a large number of multinationals in the U.S., Europe, and Japan that have been flocking to India to outsource
software development work, or to set up their own development operations in the country. Many of the U.S. and European companies
are also moving call centers and back-office processing work to India.
The influx has been a boon to India's economy. Its revenue from software exports and IT services grew by about 33 percent
in the year to March 31, to US$23.6 billion, according to Kiran Karnik, president of the National Association of Software
and Service Companies (NASSCOM). The numbers include the revenue from both Indian outsourcing companies and the Indian software
and services subsidiaries of multinationals.
India offers these companies a vast pool of talent at lower cost than they can find in the U.S. and Western Europe.
"We've started to see the cost benefits of migrating roles from the U.K. to India, and we are now also seeing a lot of innovation
around our IT and business processes coming from the Indian operation," said Meena Ganesh, chief executive officer (CEO) of
Tesco's Hindustan Service Center, a subsidiary of U.K. retailer Tesco PLC.
Tesco has 1,600 staff in Bangalore. About half develop software, and the rest run back-office processes such as internal support,
payroll and accounts payable. Savings have been in the range of 30 to 40 percent, in line with the average for India, Ganesh
said.
Multinationals like Tesco are also looking beyond low-cost coding work to tap the ability of their Indian staff to innovate.
Yahoo India Research and Development, in Bangalore, does product development in the areas of multimedia search and user behavior
analysis, said Venkat Panchapakesan, CEO of Yahoo Inc.'s Indian subsidiary. With over 750 staff, the R&D operation is Yahoo's
largest outside the U.S.
India's key strength is that about 2.5 million students graduate every year. Education is still in English, a legacy of nearly
two centuries of British colonial rule. English has also served as a link between India's numerous cultural and linguistic
groups.
To take advantage of the low-cost labor, companies are expanding their operations at a fast pace. Dell Inc. has said it will
double its staff in India to about 20,000 in the next three years. It already runs call centers and does software development
in the country. It also said recently it would design servers and storage gear in Bangalore and build a PC manufacturing plant
in Chennai.
Services companies are also moving in. LogicaCMG PLC of London has 2,300 staff at its offshore operation in Bangalore, and
will expand its facility by November to accommodate up to 4,000, said Rahul Patwardhan, CEO of LogicaCMG's global delivery
center. Capgemini SA plans to increase its staff in the country from 5,600 today to 10,000 by the end of next year.
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