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Outsourcing Capital of the World

June 2003
Outsourcing Capital of the World

The emergence of India as the world's undisputed back-office is not only the most resounding testament to the concept of the ?global village', but also a modern day Shakespearean odyssey that is redefining international business.

Considering the wide geographic and cultural chasm between them, who would have ever guessed that when a Midwesterner from Missouri calls his 24-hour roadside assistance line, these days it is often a Brahmin sitting in Bangalore helping him out of his snowy situation!

Yet, this is a daily occurrence thanks to the remarkable emergence of a growing phenomenon called outsourcing? and its chief global beneficiary is India, which is riding this boom even as the rest of the world is tiptoeing towards recession.

How India has managed to script a phenomenal success story in outsourcing to become the world's undisputed back-office could be the stuff of fiction, even fairytales. How middleclass Indians with their native accents and Hindu Gods in their first names manage to sport accents, and transform into a Richard or a Rachel in the dead of an Indian night, is a gripping story.

But for those who would rather go by facts than fiction, the numbers are astounding. According to an estimate by the NASSCOM (The National Association of Software and Service Companies) - a reputed technology lobbying body in India - about 250 Fortune 1000 companies outsourced their software development from India last year. According to Gartner Inc., a research firm based in Stanford, Connecticut, at this rate, Indian software exports will reach $50 billion in the next five years.

The business newspapers in the nation are enamored about the success story of India's outsourcing fable. The headlines shout almost daily: "GE Capital to open its fifth call center in India in the next three months;" "Dell plans 2,000-strong call center in Hyderabad;" "Bangalore and Hyderabad neck to neck in outsourcing;" and on and on.

It's not just the Indian dailies that are all gaga about this. "Growing trend toward IT outsourcing is a boon for India," said the subheading of a May 4th, 2003 article in the Atlanta Journal-Constitution. "More ?Can I Help You?' Jobs Migrate From U.S. to India," announced a title of a May 11 article in the New York Times. "India becoming the world's back-office," is the title of a May 13 article in the News Interactive, the CNN equivalent of Australia.

But what exactly is this phenomenon of outsourcing that is creating such a buzz and boon for India? Simply put, outsourcing, as referred to in this article, is when companies around the world choose to fulfill many of their services overseas. It just happens that India has emerged as this overseas destination of choice. While outsourcing to India has occurred in many areas such as medical transcription to film animation, clearly the explosive growth has been in those services which are Information Technology-enabled.

For decades, services ? as opposed to products ? have enjoyed natural protection against external competition. Shirts or shoes or toys could be made in China or India and exported to the West, but sales-support could not. This meant that while the Western consumer could benefit from manufactured goods made cheaply in poor countries, he had no such luck with services.

But the development of high-speed telecommunications has changed that; specifically so for India, which has taken to Information Technology and Software Development like bees to honey.

How it started

Ten years ago, Ramalinga Raju successfully convinced John Deere, a leading U.S. farm equipment manufacturer, to outsource its IT services to his company, Satyam Computer Services. The project set a precedent for what has come to be known as ?offshore software development,' a trend now firmly established, with dozens of companies moving services to locations in India.

Having seen the potential of such a trend from those early days, Satyam lobbied hard with government agencies to facilitate this business opportunity. "We had to coordinate with 10 to 15 government departments to make it happen. Finally, Satyam became the first Indian company to have a 64 Kb satellite link with the outside world," claims Raju.

Today, the company is working with 250 international corporations, among which 40 are U.S. Fortune 500 companies. Yet, Satyam is just one of the many key players that have been swept by the promise of this phenomenon which has continued to mushroom. Companies like Tata, Infosys and Wipro are some of the other key players.

"The entire Rs 100 billion software industry (in India) is dependent on the software work that is outsourced by MNCs (Multi National Corporations)," reveals Vinay Apte, a member of NASSCOM. Barely two months ago in London, Chairman Arun Kumar said at a summit, that NASSCOM would now want to move to higher planes and replicate the Indian success story in other service sectors such as financial surveys and research and telemarketing.

Undisputed contender for the global outsourcing business

The true measure of how strongly India has arrived in this enterprise comes from the about-turn validation of it by none other than Microsoft's Bill Gates. Observe the contrast in the following excerpts of his public statements on the topic.

In a 1997 interview, Gates had said, "Microsoft has done very little outsourcing. We may have 3% of our development outside the U.S. We want to (execute) the product as best we can. Even if there was a way to do it at half the cost, but if it were to take longer, or would be of a lower quality, then it wouldn't make sense for us. We sell in such high volume that we can afford to get the very best developers, and (shift) them on our campus. So the kind of development that you are most likely to see in India in big numbers is the software development that is not quite as demanding."

When the same Bill Gates went on record last November, it was a different tune: "Even three years ago, the best of American corporations would have considered it risky to outsource critical work to India, but it is now becoming a common sense proposition. India, with its vast resource of qualified, English-speaking work force, is one of the world's largest clusters of engineers and programmers," said Gates while visiting the Southern Indian state of Hyderabad. More importantly, More importantly, Gates put his money where his mouth was - the software giant will spend $400 million over the next three years to boost its presence in India.

Last year alone, the software back-office services outsourcing accounted for nearly 3 % of India's gross domestic product. Economists expect it to reach 7 % in 2008. It has also contributed substantially to the country's healthy state of foreign exchange reserves in recent years. A NASSCOM-McKinsey report states that the number of outsourcing professionals shot up from 10,000 in 2000 to 30,000 in 2001. The numbers are only growing at a rapid pace. By industry estimates, India's share in call-center services could be $9 billion in exactly a year.

Almost as an endorsement of Gates' words, a handful of Indian software concerns have snagged prestigious back-office projects from US companies. Wipro, for instance, India's third-largest software and services exporter, will soon be handling global reservation services for Delta Air Lines. While this will be certainly profitable for Wipro, Delta too gets to save $12 million every year. Nobody's complaining!

Azim Premji, chief of Wipro says a number of large British corporations, including HSBC and SunAlliance, are in the process to open call-centers in India. Britain's largest fixed-line telecoms provider, British Telecom has decided to set up two call centers in India. Similarly, Britain's largest insurance group Aviva plans to set up a call and claims processing centre in India, employing about 1,000 people by the end of 2003.

Premji calls this an "irreversible trend. It's not a question of if it happens, but how fast, and how quickly the countries that are most exposed to the trend react to it. Those that don't adapt to reflect a competitive global cost model will suffer."

Advantage India

Why this global exodus to India for outsourcing? The reasons are partly inherent and partly cultivated. From the very onset of the PC age, India has assumed a leading role in software development. Moreover, unlike general commerce in India, the corporate sector, and more particularly, the IT sector is intensely competitive and professionally driven even by the toughest of global standards.

A more glowing tribute attesting to this could not be found than in a recent episode of the popular CBS news show, 60 Minutes. The piece by Leslie Stahl, titled, "Imported from India" went on at length singing the praise of the vaunted IIT (Indian Institute of Technology). Stahl described it as "Harvard, Princeton, and MIT, all rolled into one," even as he cited the stupendous achievements of IIT graduates in Silicon Valley. While the 60 Minutes feature was focused on IIT, the same could be said of the very exacting IIM, its Management equivalent.

D. Sesha Sai, the Managing Director of Weal Infotech, a modest 60 seat call center in Hyderabad, attributes the success of Indian outsourcing industry to the professionalism with which it trains employees and executes projects. Customer Care Executives- CCEs at Weal Infotech are put through an intensive training covering communication skills, customer service and software tools.

"The training contain modules that focus on US geography, history, culture, etc. Those CCEs who would be working on projects involving voice-based support would also go through a special module on voice and accent training", says the company's spokesperson.

"Transformation," is another buzzword that pertains to the intense awareness and attunement to customer needs. It is this that makes it possible for the culturally disparate Indian work force at home in serving an American or Western clientele. Thus Ganesh in Hyderabad seamlessly morphs into a Gary who is helping a Susie in Seattle with her purchase order.

Candidates applying for jobs in companies that are the outsourcing partners for US multinationals go through a written test that consists of sections on English language proficiency, critical reasoning and familiarity with American slang and followed by Psycho profiling. Successful candidates then go through multiple rounds of interviews that focus on spoken English, voice quality, diction and articulation. In addition, each candidate is closely evaluated for key soft skills - teamwork, customer empathy and the willingness to learn.

Team leaders, supervisors and quality control staff are also recruited with the same diligence. The success of the transformation of an Indian call operator into an American is often attributed to voice training institutes. These institutes, some of which operate independently from the call center or outsourcing company, promise instant results too.

In Hyderabad alone, there are close to 25 institutes that give students Americanized English, help them drop their vernacular accents and pick up U.S. slang. "FOR ACCENTED AMERICAN ENGLISH JOIN MEGA ENGLISH INSTITUTE' screams a hoarding on the Airport Road in Hyderabad.

With the quality of the services thus assuredly at par with its U.S. counterparts, the main advantage of significant cost savings come into play. The built-in mutual advantage of a substantial currency disparity between the U.S. dollar and the Indian rupee goes a long ways in satisfying both ends of the business spectrum. Even while affording close to 50% savings to U.S. companies, the Indian provider can engage a well educated and trained staff.

Although cost is the main reason why companies head east, Wipro's Premji says it is not what locks them in. One of his favorite mantras is "people come to India for cost, and they stay in India for quality." The 4,000 employees of Wipro's outsourcing division are graduates with commerce degrees. "Go to an American call centre and you'll find that many of the people there have never even finished high school."

The flipside:

converting qualified grads to glorified phone operators?

Amidst this euphoria about India's emergence as the global back-office, there are also some discordant voices in the software industry itself ? that India is underselling itself; that the pace at which India is working could soon affect its quality; and that India is turning its qualified graduates into glorified telephone operators for some quick bucks. Not to mention the servile manner in which Indians assume American names to ?serve' their client, complete with a American accent.

But these voices of dissent are hushed by the onslaught of the green bucks. Says G.V. Giridhar, General Manager Human Resources of AssureConsulting.com, "There is nothing demeaning about working in a call center. The growth and compensation exceeds other sectors. Most of the outsourcing professionals are well paid and lead decent lives."

Assuming fake names, he thinks, only makes the whole scene hassle free. Most mangers say that the names are only for making things easier for both parties. The names make the callers identify with the executive, and the accent will make communication easier. They quote psychology theories that people often find it easier to deal with somebody from their own nativity, language and accent rather than those from alien cultures.

Incidentally, none of the employees complain about their working hours or the job profiles. Says Suhasini Tara (name changed) from GE Capital in Hyderabad, "Today I can afford a mobile phone, eat out in a hip restaurant and still send some money home. My workplace offers me the freedom to dress the way I want, I get to eat great food at our office cafeteria and we have amazing parties. At 24, I can't ask for anything more," she says.

Like Suhasini, there are so many youngsters who look at call centers as a fast track career that will demand nothing but a few hours of sleep from their nights and their accents.

But apart from these projected grievances, there are several other issues that can pose a threat to this surging business. The call centre industry in the country is in its nascent stages and the presence of too many players is a stumbling block for quality standards to emerge in the industry.

Availability of reliable telecom bandwidth is also another concern voiced by detractors. Currently VSNL is the sole provider of bandwith, and this eliminates the possibility of two independent routes for connecting overseas. The other major challenge is to groom the middle-level manager, as this is a new industry," says Vijay Chalisgaonkar, MD of Msource. Issues of security, downtime, cultural differences, high STD rates and quality are feared the most by MNCs seeking to outsource call centre services to India."

According to Wipro's Premji, "Possible areas for outsourcing are theoretically unlimited with Wipro already managing call centers, human resources, financial administration, accounting, credit card renewal and marketing." The outsourcing began with credit card, insurance and finance-related work and now has gone up to on-the-spot online help for stranded automobile drivers to software troubleshooting.

However, software pundits believe the honeymoon won't last longer. With countries like Malaysia and China pulling up their socks and reentering the fray, only the quality conscious will survive. India, says a U.S. report, still has some three to five years before other countries catch up. Till then, there's a lot of dollar counting to do.

[NEXT MONTH: The Georgia connection to outsourcing in India. Companies or individuals seeking to participate in this article may email us at editor@khabar.com]

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