Home > Magazine > Cover Story > Outsourcing Capital of the World: The Georgia Connection

 

Outsourcing Capital of the World: The Georgia Connection

Email
July 2003
Outsourcing Capital of the World: The Georgia Connection

By VIREN MAYANI & PARTHIV PAREKH

If ever Atlanta needed validation as an international city, the 1996 Summer Olympics certainly provided it. The brand value of Atlanta went up a few notches. Indeed, some of the most dominant after-hours images of the Atlanta Olympics were centered around the gathering place (Centennial Olympic Park) which was coined "Global Village" with much aplomb. That, it turns out, was a symbolic prelude - as Georgia is now well on its way to being part of a more realistic global village.

For example, these days, when booking a flight online with the Atlanta based Delta Airlines, the reservations are likely handled by employees of Spectramind, a division of Wipro - Delta's Indian outsourcing partner.

With Georgia being home to many Fortune 500 companies such as Delta, Home Depot, Coca Cola, UPS, and others, some of which are already outsourcing services to India, more of the same can be expected.

R. Siddharthan, the Regional Manager of Tata Consultancy Services (TCS) affirms this by saying that his company has seen a steady 20%+ growth in the last three years for its South East US Market, with the most current year being the best at a 40% growth. The indications are clear: Georgia is fast jumping on to the outsourcing bandwagon."

Yet... it can be said that Georgia is not exactly on the mind of the outsourcing bigwigs.

In fact, very little hard data is available from research sources such as Gartner, McKinsey and even NASSCOM, about outsourcing to India originating here. Nationally, Georgia is ranked by many industry observers as trailing behind other outsourcing hotbeds such as the Northeast, the West coast and even the Southwest.

The reasons cited are many. Vinod Keni of the Aquarian Group, a financial services outsourcing provider, who was also a speaker at a recent business forum titled, "India's Emerging Markets," believes that the South's lingering conservatism is partly responsible for the slow growth in such international partnerships. Others, who did not wish to be named, agreed that the ?good old boys' network is perhaps more pronounced here compared to say, California, where a substantial percentage of the population is foreign born.

Georgia's lower rank has also to do with an integral concern of capitalism: cost! One of the key advantages of outsourcing - the drastic cost differential between U.S. and Indian wages - is somewhat minimized in the South where the cost-of-living is relatively lower. The spread between Georgia IT wages and those of India are not significant enough for some companies to justify the benefits and the perceived risks.

Georgia's increased weighing towards the manufacturing sector over the service sector also comes into play. The largest portion of outsourcing to India comes in the form of IT-enabled services. Hence, the service sector, more so than manufacturing, is the one that is naturally inclined towards outsourcing. For all its roster of Fortune 500 companies, Georgia still lags behind other regions in the service sector - notwithstanding notable exceptions such as Delta Airlines .

Backlash towards back offices

The nationwide backlash against outsourcing that has gained momentum of late, does not bode well for Georgia, which is already lesser of a contender in the field. Lately, some of the most persistent business news has been the continued job loss of more and more Americans. It therefore comes as no surprise that the backlash is gathering steam. The press around the nation is full of headlines lamenting the export of American white collar jobs overseas. The Atlanta Journal Constitution is no exception. A June 27, 2003 headline shouted, "Protests grow as tech jobs move offshore." The article went on to describe a rally in New York of IT executives who had been out of work for months.

Such backlash is starting to become a genuine concern of the outsourcing providers. This is perhaps the reason that locally many provider companies prefer to keep a low profile rather than tout their big name clients in the mainstream media. Even though Georgia is not amongst the handful of states that have proposed legislation restricting outsourcing, it is not because the business environment here is more tolerant of it, but because it has not reached a level compared to that in other states.

The opinion of providers on this matter is all across the spectrum. Some acknowledge that the huge cost advantage in India does not allow for a level playing field for American workers. Yet, they are fast to add that it is the nature of capitalism and open markets - both very American concepts indeed.

Chand Akkineni of Softpros, Inc. concurs. He explains how American technology routinely results in job losses for Indian workers. For example, he cites, a Nortel telecom switch easily displaces a couple hundred telephone operators; but no one complains as it is done in the name of progress.

Backlash or not, Vinod Keni believes in the viability of outsourcing. According to him, the issue is not just cost savings, but also increased efficiency. He says, "One of the surveys we worked on with Ernst & Young about U.S. companies in India, especially the ones that have back offices there, it was found that not only labor costs were saved but there was a marked improvement in the processes." He believes that outsourcing is irreversible, despite the current uproar. "Just like manufacturing reengineered in the early eighties, BPO (Business Process Outsourcing) will also create a seismic shift before it finally gets accepted as a norm. Larger companies have no choice but to outsource to show the returns and margins they promised to Wall Street."

With such tides - whether justified or not - against the outsourcing, one would think the providers, specially the big tier companies along with the Indian government and embassies would launch a PR campaign to counter some of the negative perceptions against outsourcing. But no such organized efforts are evident.

Ani Agnihotri, founding member and president of Georgia Indo American Chamber of Commerce (GIACC) laments that. According to him, there must be a concerted effort of PR that can help counter the backlash. To the best of his knowledge, companies such as Wipro, Infosys, or other top tier providers do not contribute to building the local community. Such though, is the common practice of American companies that strive to be ideal corporate citizens. He believes such practices should be encouraged even as the companies should work in conjunction with the Indian government, embassies, and the press to counter the bad publicity levied on outsourcing.

GIACC, along with Georgia Tech's Dupree College of Management, recently organized a business forum titled "India's Emerging Markets" which featured Dr Sam Pitroda who is responsible for revolutionizing India's telecommunication industry, amongst the speakers. The forum dealt at length with offshore outsourcing, along with a host of other topics. Not surprisingly, the business forum also included Hon. Ajay Malhotra, Minister-Counselor of Commerce, Embassy of India, Washington, D.C., as one of the speakers.

Ani states that about 50% of its members are technology companies; out of which about 20% are in the outsourcing business.

The most recognized top tier providers are Tata Consultancy Services, Satyam, Infosys, and Wipro, each with local offices or representation. Others such as Accenture which are not India based, but nevertheless dominant India-outsourcing providers, also have local offices and projects. NIIT, which has its principal American office based in Atlanta, along with others such as Patni and Birla Consultancy are considered a mid-to-top tier providers.

As was the case with the late 1990s boom in recruiting and placement of software professionals, so is it with outsourcing today: many startups and micro companies have been drawn to it, some finding their niche. However, since there is usually more at stake for clients looking to outsource, than perhaps just recruiting an IT professional who might not work out, this industry faces more scrutiny and buyers are much more vigilant and demanding.

We spoke to various companies across the tiers, and in diverse sectors. Following are snapshots of some that we hope will provide a sweeping overview of the Georgia-India outsourcing connection.

PROFILES IN OUTSOURCING

TOP TIER PROVIDER:

Tata Consultancy Services (TCS-America)

TCS-America, a wholly owned subsidiary of Tata Sons India, is headquartered in New York, and has 48 offices in the U.S. The Atlanta office was established in 1993 to cover the southeastern states. This region contributes close to 25% of the company's North American market share.

The chief clients of this office are primarily financial companies (insurance and regular banking services) to whom TCS provides a traditional IT sourcing environment including dedicated off-shore development centers, application development, architectural consulting, performance engineering, and network management.

Regional Manager R. Siddharthan indicated that their clients are now considering BPO possibilities, and that the office is also getting into manufacturing and telecom services clients. Siddharthan is of the opinion that the BPO market is very nascent even though there has been a flurry of activity in it.

Modus Operandi: Tata, the parent company is one of India's largest privately held companies. TCS- America contracts directly with its clients. It serves a dual purpose of satisfying the client that they are dealing with an American entity, as well as of allowing the company to invest back into the local communities in each region. For example, in North America, TCS spends over $30 million in sponsoring research scholarships and research projects with Universities like Carnegie Mellon, University of Waterloo, UCLA, University of Wisconsin and currently in dialogue with Georgia Tech. It is also heavily involved in community development at city of Columbus, IN."

Apart from the 48 offices, the company also has 8 development centers. If the customer simply wants to test the waters and move an application out of their environment into a TCS environment, the center provides the facility for the same. Once satisfied, the application can be migrated to India.

Compelling growth: It has often been remarked that every software professional in India is either working for TCS, or wants to! According to Siddharthan, such allure and respect comes because the company values its intellectual capital in the form of its employees. The company invests close to 8% of its revenues on training programs for them. "Our attrition rate has always been below the industry standard. We have strong people friendly HR policies. Even during the peak of the IT industry in the late nineties, when the industry attrition rate was over 20%, we were below 15%."

Tata, which is a household name in India, began forays into the IT field three decades ago in 1968. During those early days all that TCS was doing was taking large volume of data and processing it. In early 1970's, the then Deputy Chairman saw that India and TCS in particular, had a great potential in IT development as the country had shown a natural affinity towards it. Upon his insistence TCS began taking outsourcing projects and over time the projects kept getting larger.

"In the late 1980's through Airline Financial Services, TCS did its first BPO project - the complete backend ticketing operations for Swissair. TCS is one of the very few profitable BPO organizations in India. It is also the first company in India to have a dedicated ODC (Offshore Development Center) for a large U.S. corporation."

Today TCS has global centers for companies such as GE, Verizon, AT&T and others. TCS has so far maintained company size growth over the market rate growth. Even in a downturn economy it grew from $880M to $1.04B. TCS is the first Indian company to grow to $1 billion and still remain debt free.

MEDICAL TRANSCRIPTION: Supna Healthcare Solutions

Simply put, medical transcription involves converting to text, the verbal recordings of physicians and health care providers who dictate patient diagnosis and other details that go into the patient's medical file. Such dictations are recorded by them on specialized digital audio recorders. This voice data is then uploaded via the internet and transferred to the destination (usually, a back office in India) where they are converted into electronic text.

Supna, a small-cap company established in1994, began as a technology company that provided hardware and software solutions for the healthcare industry. Due to the outsourcing advantage, it has now metamorphosed to the business of medical transcriptions. The company began these operations three years back, through exclusive partnerships in India. The main center is in Bangalore and redundancy centers in Chennai and Delhi.

In the case of Supna, the process described above involves uploading the recordings to a server bin in New Jersey, from where the data is FTP'd (File Transfer Protocol) via the internet during the night - when it is workday in India.

Processing agents in India who are trained, not only in the technical aspects of the process, but also in American medical terms, then decipher these recordings and convert them to text, which is then returned to a quality control unit in the U.S. Once checked by the quality control process, the work is transferred to the computer server of the clinic to which it belongs. The whole process usually takes 24 hours.

The needs and benefits of such an outsourcing process are quite compelling in this field. Foremost of course, is the huge cost savings of having such administrative work done in Indian wages compared to the hefty wages of medical administrative assistants here. It's not just the hourly wages, but also the costs of carrying employees here, such as payroll taxes, health insurance, and others that are saved.

As strong an advantage the cost savings is, it is by no means the only driving force for the exponential growth in outsourcing of medical transcription. The quick turnaround time, is also quite desirable. Without outsourcing, at most physician's offices, such transcription of patient's records are usually backlogged, often taking several weeks.

?Through our process the doctor and other staff spends less time taking notes and more time working with patients - which has a direct and cumulative effect on the bottom line of the clinic," says Ash Momin, a principal of Supna Healthcare System.

Overcoming initial hurdles: In its infancy, medical transcription outsourcing had many detractors. To begin with, there was skepticism about the ability of Indian workers to understand the accents of American physicians. Momin says this is no longer an issue for Supna. They now have certified references on this matter from many of their over 200 clients, most of whom are American physicians with all kinds of accents from Southern to Midwestern to Yankee, and everything in between!

"In Georgia, we had initially felt a lot of resistance, as doctors were not sure of two things: transference of liability in transcribing their records by overseas agents, and the gains from outsourcing. Such hurdles are easier overcome in technology savvy states such as Texas, California and New York," says Momin.

The concern of the industry on the issue of liability is not misplaced. Medical malpractice liability is an issue of mammoth proportions which threatens the industry as never before. That's why, says Momin, "Quality is everything in this business. We have a solid quality control process in place where trained employees thoroughly spot-check files before they are returned to clinics to go in patient's files.

Growth projections: According to Momin, "We have just scratched the surface ? outsourcing from India is going to go through the roof. Work gets done efficiently in India and at reasonable costs. We are looking to double in 24 months. We are presently investigating call center partners in India for the outsourcing of patient billing and inquiries."

FINANCE & ACCOUTING BPO: Aquarian Group of Companies

The Aquarian Group conducts Finance and Accounting Business Process Outsourcing through a wholly owned subsidiary, Aquarian Group India Pvt. Ltd, in Bangalore, India. The subsidiary serves as the back-office.

As with other outsourcing, source documents are fed from here but are processed in India. Though, considering the sensitivity of the financial data, the transference occurs besides electrical FTP, also by courier.

"Process efficiencies and process reengineering, enhanced by cost savings," is according to Vinod Keni of Aquarian Group, the ?Unique Selling Proposition' of this kind of outsourcing. "We differentiate from the IT services as we have domain expertise: we are all accountants here and back in India. Even though the presentation is slightly different between Indian financial statements and the U.S., the prima facie debits and credits processes don't change. Besides, our accountants in India go through a detailed training program based on U.S. GAAP (Generally Accepted Accounting Principles). Furthermore, our experts from here frequently visit India once every six to eight months to do updates and refresher courses. Education is constant."

"We target mid to large size companies. Insurance industry was one of the early adopters of our services, but now a lot of financial companies do business with us. Indirect work is sought from other CPA firms and auditing or law firms that have a need for forensic accounting. We have branch offices in New York and Florida. In comparison to Georgia, the New York office sales are fast and easy. Atlanta companies still seem to consider outsourcing as a fad," elaborates Keni.

Good money in a bad economy: Aquarian revenues have doubled from last year. The economic downturn has actually helped as cost savings - the dominant reason that drives outsourcing to India - has become even more critical. In a fledging economy like this, the pressure from Wall Street is constant for companies to show cost reductions.

"Even within financial outsourcing, there are so many nuances, such as Asset Management Accounting and Mutual Fund Accounting - but they all require a high level of domain expertise. That is one of the reasons you do not find too many Indian accounting companies in this type of outsourcing."

"We have good competition from companies in New York, California and now even North Carolina. Industry projections from Gartner and IDC with respect to the Financial Accounting, are that they feel accounting will become like payroll, a function that is increasingly outsourced whether in the country or overseas."

According to Keni, the recent SEC scandals and the increased federal oversight, actually helps outsourcing of sensitive financial accounting. This is because the third party vendor to whom the work is outsourced is viewed as a neutral party. "Most of the fraud perpetuated, was by the management being in cahoots with the accounting firm. Aquarian Group, and other such outsource providers are independent, and hence would not assume the risks of manipulating books."

PROFILE OF AN UPSTART

Paalam Software Services

Bridging the Gap in Software Outsourcing

If a fair measure of an industry's standing in the marketplace can be judged by the kind of people it attracts, then it can certainly be said that software outsourcing is in! Dr. L. Narsi Narasimhan, widely recognized in Atlanta not only as the founder of Indian Professionals Network, but also as an one who serves on the board of quite a few influential community associations and companies, is one of the principals in the newly launched Paalam Software Services, an upstart that promises to offer "American quality at Indian prices."

Paalam means ?bridge' in the South Indian languages of Tamil and Malayalam. As an Atlanta based offshore outsourcing company, it intends to bridge the needs of their clients in the areas of IT enabled services with its partner-locations in India.

Narasimhan, a proficient networker who traverses effectively between the various facets of the Indian as well as mainstream community, could well serve as the poster child of this industry. After all, the key to success is not only technological know-how, but also ability to bridge the national and cultural divides between American clients and Indian providers.

Indeed, in many ways, Paalam provides a good snapshot of the industry that it represents. Its tag-line, "American quality at Indian prices" may well be the foundation that has created this industry, and what continues to propel it.

Another criterion that is often cited for India's success as an outsourcing partner is its rich talent pool of highly educated and business savvy executives. This too is reflected in Paalam. Narasimhan is but only one of the principals of a company which comprises of technical and managerial executives (who are also the co-founders), such as Manoj Mehta who serves as the VP of Business Development. Mehta has a solid technological background in both hardware design and system software development, and consulting experience with Big-5 companies.

Leonard F. O'Neill, Jr., has 20+ years of experience in product design and development, manufacturing processes, marketing, business development and strategic planning. He is a former global product and market manager that included winning project proposals in Thailand, Saudi Arabia, Egypt, Guatemala and the USA. Len is also an experienced strategic planner for joint venture partners.

Krishna G. Kushwaha, Ph.D., has over twenty years experience in software engineering, technology, R&D management, including strengthening and setting up Offshore Development centers for three well known companies: NCS Pearson, CyberCash and Nortel.

So why launch as an upstart in a market that is full of heavy weights? Paalam's answers to this question also provide a glimpse of the promise of this industry. Mehta cited a few specific reasons that attract companies such as Paalam to this niche of software outsourcing:

a) The projected growth in the Indian IT sector: According to a NASSCOM-McKinsey Report, the Indian IT exports will grow seven fold in the next seven years. This seems like a reasonable projection since the current Indian IT sector is less then one percent of the global market.

b) Outsourcing will be favored over immigration: Post September 11, the U.S. is experiencing reluctance towards immigration in general. Under the circumstances, U.S. companies will not have the benefit of H1-B tech workers as before; and as such, to stay competitive, American industries will consider outsourcing as a natural alternative.

c) Sales in the U.S. is the weakest link for Indian IT firms: There are only few large Indian IT firms that have a strong sales organization in USA. Most Indian IT firms do not have the market familiarity to build a sales team in the USA. They either send their existing staff or quickly pull the plug on their sales team before they have a chance to advance the sales process. Thus, sales and marketing are the weakest link. The success of the project depends on a good U.S. based project management and implementation team. India-only outfits have not known to do well.

The advantage that companies such as Paalam offer is that their clients do not bear the risks associated with direct outsourcing and, yet, they enjoy the rewards of utilizing the low cost and other benefits of outsourcing. Moreover, as a closely held private concern, it has much more flexibility and adaptability than industry behemoths. These leaders such as Tata, Infosys, Satyam, and Wipro are engaged with corporate America leaving companies like Paalam to go after mid-tier clients.

For startups such as Paalam, it's a fiercely competitive arena, but Mehta says they are up to the challenge, citing their aggressive sales approach as what energizes them.


Enjoyed reading Khabar magazine? Subscribe to Khabar and get a full digital copy of this Indian-American community magazine.


  • Add to Twitter
  • Add to Facebook
  • Add to Technorati
  • Add to Slashdot
  • Add to Stumbleupon
  • Add to Furl
  • Add to Blinklist
  • Add to Delicious
  • Add to Newsvine
  • Add to Reddit
  • Add to Digg
  • Add to Fark
blog comments powered by Disqus

Back to articles

 

DIGITAL ISSUE 

03_24-Cover-NMACC-W.jpg

 

eKhabar

Sign up for our weekly newsletter
eKhabar

        

Potomac_wavesmedia Banner ad.png 

TrophyPoint-Webads-200x200-4.jpg

  NRSPAY_Khabar-Website_2x2_Ad.gif

Krishnan Co WebBanner.jpg

Raj&Patel-CPA-Web-Banner.jpg

Embassy Bank_gif.gif 

MedRates-Banner-11-23.jpg

DineshMehta-CPA-Banner-0813.jpg