Outsourcing by local firms gaining currency

If you thought that IT outsourcing in the Indian market was restricted to big deals such as those between Bharti and IBM or Dabur and Accenture, think again.

The trend seems to be infectious enough for smaller corporates also to jump onto the outsourcing bandwagon.

Smaller corporates who have in the recent past tried out this include the likes of Oyzterbay, one of India's leading retail chains and Sterling Tools Ltd, an auto ancillaries manufacturer.

Both of these companies have outsourced their IT requirements to the Delhi-based Eastern Software Systems (ESS), an e-business solution provider focussed on the small and medium enterprises.

Says, Anil Bakht, the founder and chief executive officer of ESS, "Outsourcing being the buzzword these days caught on fast in IT domestically as well. The trend as such was started by the larger enterprises in India with very encouraging responses. Bharti's deal with IBM , the Dabur-Accenture deal and the Ministry of Finance-HP-Microsoft deal for setting up the income tax network added another chapter to the outsourcing industry in India and opened a huge potential market for vendors."

And the reasons are not far too seek. "With MNCs entering every market, we have reached a stage where every organisation faces stiff competition from around the world even in local markets. The focus on quality is high and each company has to now focus on what it does the best and leave the rest to specialists," Bakht points out.

And the shortage of trained and quality IT manpower greatly helps. "It is getting increasingly difficult for companies that use IT heavily to attract and retain IT talent. The talent would rather work with leading IT companies than with consumers of IT services," says a Bangalore based IT analyst.

And companies like ESS are clearly benefiting because of this. "We have started with two of our existing clients - Oyzterbay, one of India's leading retail chains and Sterling Tools Ltd, an auto ancillaries manufacturer. ESS has also snagged three more clients for similar services who have agreed to outsource their IT functions from Dec 2004 onwards," Bakht said.

So while profit margins in the domestic market may not be as high as in the dollar dominated Western markets, companies like ESS are clearly not letting go of this opportunity to expand their revenue base.

"Margins would be the lowest in the hardware space and the highest in the services space like networking and software. However like all new business the margins will take time to establish themselves. That's why in this space a long term contract is a must," Bakth said.

In the first year ESS should generate at least one crore in revenues. Next year ESS should generate 3 crore. However the point to note here is that customers who were generating revenues of Rs 50,000 a month will generate revenues of 3 to 5 lakh revenues per month.