The recent developments at Satyam has customers of all sizes worried about known and unknown risks involved and the resulting impact that it would have on services delivery, according to a note from management consulting company Zinnov Consulting.
Vendor issues cause multiple risks like delivery discontinuities, team attrition, quality of service, insolvency of the vendor, loss of domain expertise, and insufficient time for transition. Customers should analyse these problems and take proactive steps to derisk themselves from potential threat to their own businesses.
Zinnov said that some scenarios that customers can explore to emerge unscathed from the situation are exercise a Build-Operate-Transfer (BOT) model to augment or set up their captive center; exercise a “right to hire” policy where the customers can talk to other service providers to rebadge employees and function as usual with minimal business risk; grow other vendor partnerships.
Customers with multi-sourcing strategies can increase the scale of their work with other vendors to perform similar services and simultaneously also evaluate new vendor partnerships that can provide best in class service, Zinnov said.
“We now expect clients to closely evaluate options of setting up their own captive centers or alternatively also opt for new vendor evaluation techniques. In fact, for those who have operations for many years now, we feel that it’s the right time to consider options of having a direct presence or local program management offices for better control”, said Vamsee Tirukkala, co-founder and managing principal, Zinnov LLC.
Setting up own captive surely emerges as among the most viable options. The size of the available talent pool in India has grown tremendously in the past seven years. More than 2 million professionals currently work in the Indian IT/ ITeS industry. In terms of a fresh talent pool, there are about 650,000 science and engineering graduates passing out of colleges and universities in India. This will enable companies to hire the required talent with relative ease, Tirukkala said.
Besides, most offshoring destinations continue to offer huge cost advantages and in this case, countries such as India offer 50-70 per cent of direct cost savings compared to onsite locations. Also, salary inflation and infrastructure costs which were growing rapidly till early 2008 have stabilised in the past few quarters. Overall, cost of operations has reduced to less than 5-6 per cent per year for most companies owing to the global economic meltdown and maturity of the offshoring industry.
Another advantage of the economic slowdown has been the reduction in attrition levels because of uncertainties plaguing the job market. “Based on our estimates, the attrition levels have come down to less than 9 per cent in the past year which is significantly lower compared to previous few years. Lower attrition levels have hence improved the level of domain expertise in companies as well as reduced cost of operations,” Tirukkala said. “And, many large and midsized companies have had operations in India for over seven years through multiple engagement models.
As their offshore operations have grown over this period, management teams in these companies have acquired immense capabilities to manage remote teams efficiently.”
India is currently host to more than 720 MNCs spread across five key locations and has evolved from being a low cost destination to an innovation sandbox over the last decade or so.
“More and more organisations are maturing and using India as not only a cost centre but also for its market access and innovation capabilities,” Tirukkala said.
He noted that the India growth story is still strong. “The fundamentals are still very attractive despite what has happened. We have an ambitious educated workforce, and most importantly, there is a lot of innovation taking place. The Indian offshoring story surely remains intact in the long run.”
