Capgemini makes India hub for services

India will be the hub for the offshore services delivery strategy of French IT services company Capgemini, an executive said Thursday.

"In terms of ability to scale number of staff and everything else, I don't think any other country can offer what India can," Aruna Jayanthi, vice president for outsourcing at Capgemini India said Thursday on the sidelines of a conference in Bangalore, India.

The company has about 4,600 staff in India already, and will increase that number to 6,000 by the end of this year, and to 10,000 by the end of next year.

Capgemini's customers have saved up to 30 percent of costs by using a mix of offshore delivery from India and on-site delivery of services, Jayanthi said. Almost all the deals Capgemini is bidding for include offshore delivery from India, she added.

The company has delivery centers in other countries like China and Poland, but the Indian operation is the largest. The company's staff in India has grown 80 percent year-on-year over the last two years, Jayanthi said.

A number of multinational companies, including services companies like IBM and Electronic Data Systems have set up operations in India to take advantage of India's large number of skilled low-cost staff.

However, on account of the poor infrastructure in India, outsourcing companies have to pay for captive generation of electricity, higher telecommunications costs, and for transporting staff to and from work. These costs account for about 24 percent of total costs, according to the National Association of Software and Service Companies (Nasscom) in Delhi.

Despite these higher costs, it still makes good business sense to expand in India, as salaries for engineers are still about one-fifth of salaries in the U.S. or Europe, said Jayanthi. Besides, the infrastructure-related costs in India are coming down, she added.

Capgemini's Indian operation delivers IT services and business process outsourcing (BPO) services. About 60 percent of the work done in India is for customers in the U.S. For work in Europe that requires local language skills, such as BPO, the company has set up an operation in Krakow in Poland, but IT services and software development work typically gets done in India.

Currently, only about 10 percent of the staff in India work on BPO, as the company decided to do BPO out of India only late last year, Jayanthi said. The company is planning to expand its BPO operations in India, but they are unlikely to be the dominant activity there, as BPO is still a smaller business than IT services for Capgemini worldwide, she added.