Indian technology companies now turn to offshoring

TRENDS: Rising labour costs and declining margins prompt the larger firms to open overseas centres.

Faced with attrition rates as high as 40-50 per cent and rising labour costs that are squeezing profit margins, some of the larger Indian IT companies are acquiring businesses or setting up development centres in such countries as Mexico, Philippines and Thailand, where English-speaking skilled manpower is available at half the wage rate prevailing in India.

"It is a case of companies going where talent exists," says Pravin Chand Tatavarti, managing director, Allegis India, the Indian subsidiary of the $5 billion Allegis Group, a leading provider of technology, recruitment and human capital management solutions to business.

"I would not refer to this trend as outsourcing by Indian companies but would rather call it a multi-centre strategy to attract talent." He says that more than cost reasons, this provides Indian companies with a competitive advantage-high-end skills blended with low-cost resources.

The trend is evident in both IT and BPO firms such as call centres; banking, financial services and insurance (BFSI); and payroll and benefits administration.

Jobs that are being outsourced include R&D specialists, business analysts, programmers, customer service representatives and process specialists in finance and HR.

Offshoring is also happening due to a lack of skills in areas such as high-end product design, architecture or industry- or company-specific expertise that India lacks.

Allegis India, for example, having acquired EASi Technologies, a tier one supplier of high-end engineering design and analysis services to automobile OEMs across the globe, outsources some of its automotive designing requirements.

Bangladesh, Sri Lanka and China are some of the locations where companies have set up back-offices. Eastern and Northern European countries such as Hungary, Czech Republic, Slovakia, Northern Ireland, Latin America, and Asian countries such as the Philippines and Thailand, among others, are the biggest beneficiaries of this development.

Says Veena Gundavelli, CEO of SITI Corp, a Hyderabad-based provider of offshore recruitment process outsourcing services: "A major factor that has contributed to this trend of increasing the presence in certain parts of the world is to capture more business- for example, having a European outsourcing centre can increase the probabilities of attracting more business from Europe."

Certain parts of Europe, she says, combine cost-effective operations along with the availability of highly-skilled labour in engineering, technical research and business consulting.

"Jobs that are being outsourced are mainly those of R&D specialists, customer representatives and payroll administrators," says Chaitanya Nadkarny, director, operations and HR, at ThoughtWorks Technologies, a global IT consultancy that focusses on end-to-end global software development and delivery.