Indian outsourcers tackle high-end IT

BANGALORE, INDIA -- In this bustling city dubbed the silicon plateau, the frenetic pace of hiring for software development operations, call-center activities, and BPO (business process outsourcing) -- much of it to serve U.S. companies -- is giving rise to a booming tech sector.

"Nowadays, I am happy if I can hire a shop assistant who can speak a smattering of English," said a manager at an upmarket retail chain in Bangalore, who asked not to be named. "Those who had a reasonable command of the language have been grabbed by call centers and BPO firms at more than twice the salaries we can pay."

Although some American executives have begun to express reservations about offshore outsourcing, confidence abounds here as Indian technology leaders see burgeoning demand for increasingly sophisticated services.

"It's unlikely that anything can go wrong for the Indian outsourcing industry," said Ravi Ramu, CFO of MphasiS BFL Group, a Bangalore software services and BPO company. "There is no competition for India at present, as countries like the Philippines and China cannot scale to offer the large number of skilled, English-speaking people that we have in India."

Indian outsourcers say they are moving up the value curve, from primarily software coding and maintenance to new areas such as IT consulting, systems integration, infrastructure management, package implementation, and product development.

Outsourcing to India is now being driven from the top -- by CEOs and CIOs -- and includes strategic development work, unlike a year ago, when new clients typically came to India for staff augmentation or software maintenance work, said Sangita Singh, vice president of strategic marketing for the technologies division at Wipro Ltd., a Bangalore software services company. Wipro will have added approximately 12,000 employees for its outsourcing business by the fiscal year ending March 31, 2004, he said.

Still, there are signs the country may be falling victim to its own success. Large, multinational technology services companies such as Accenture Ltd., Electronic Data Systems Corp., and IBM Corp. Global Services are hiring staff in thousands in India and are blamed for pushing up salaries. "By tapping the low-cost manpower in India, these companies will be better able to compete for business at the low end that has traditionally been the stronghold of the Indian outsourcing companies," said Ravindra Datar, an IT and BPO services analyst at Gartner Inc. India Research and Advisory Services.

The BPO industry is also under pressure to move up the value curve. Margins in the call-center business are falling as it is highly commoditized, said Vikram Talwar, CEO of Exlservice Holdings Inc., a BPO company with a marketing front end in New York and operations in Noida, India. Attrition rates of approximately

Forty percent are pushing up salaries in the call-center industry, making survival in this business quite difficult, he adds.

Although almost any service that can be delivered remotely can be outsourced to India, Indian companies advise caution when deciding which aspects to outsource. "My advice to clients is that if you have never outsourced offshore before, start with your back office rather than the call center," Talwar said. "When you give out call-center work, you are putting the service provider at the India end in direct contact with the ultimate customer, and you carry a far greater risk of your business being impacted."