The Hindu Business Line : Queuing up for India

This is the question eWorld posed to industry players, with so much being written about the negative impact of the Satyam developments on India Inc, and the tech sector, in particular.

The response from industry players is reassuring: Overall, tech companies and analysts feel the Satyam episode is a one-off occurrence and India will retain its edge in offshoring, for the next five to ten years, at least. What makes them so optimistic? Read on:

“It happened in the US in the form of Enron, and it is Satyam here. Because of one company, the entire country cannot be categorised as a rogue state. There may be slight hesitation among people abroad to look at India, but this will be only in the short term. India has a solid edge over other countries in outsourcing,” says Dan Warmenhoven, Chairman and CEO of the $3.3-billion NetApp, a US-based software company.

“We (the media specially) are making too much of this Satyam fiasco. If one were to speak to analysts [financial] abroad, their investment decision does not seem to have been affected by this problem,” says Diptarup Chakraborti, Principal Analyst, Gartner. “It will be facetious to say that China or any other country will be able to take advantage of this one problem and make India lose the credibility gained over the last 20 odd years,” he adds.

While India remains and will remain one of the top destinations for IT offshoring, other countries will also compete for the offshoring pie and gain market share. But India losing its pre-eminence is unlikely to happen, as the country is no longer just a low-cost service provider.

The Satyam episode has raised quite a few questions on the actual performance of Indian IT companies. But if Indian companies can open themselves up to greater scrutiny, more transparency and address most of these questions, the damage is most likely to remain short-term and act like a wake-up call, says Chakraborti.

The value advantage

Regardless of the state of the economy, there always are other destinations vying for a piece of business. However, India enjoys an edge, thanks to the scalability, maturity and flexibility it offers. It is important to build upon this lead by focusing more on value than cost, says R. Chandrasekaran, President and Managing Director, Cognizant.

Clients always have their location preferences. However, these locations are mostly in addition to, and not in substitution of, India. These preferences result from various considerations around issues such as risk mitigation, 24x7 support, global coverage and talent availability.

The Indian financial market is advanced and mature, and there is a good regulatory framework. The Satyam episode further reinforces the value and importance of strong corporate governance and the many additional controls imposed on US companies that are subject to the Sarbanes-Oxley Act, he adds.

It is not just location, customers also look at tapping into the right talent wherever it is available. The services value chain has gone global along the lines of the manufacturing supply chain. This has led to a three-tier structure for global sourcing: global development centres, regional (near-shore) development centres, and local (proximity) development centres.

For instance, Cognizant is aligned with India and China as its global centres; Argentina, Canada and Hungary as regional centres, and Arizona, New Jersey, Boston and Bentonville (in the US), and CanaryWharf (in London, UK) as the local centres.

While the global development centres provide value to clients in terms of cost, quality and time-to-market, the regional centres help in providing enhanced value in the same time zone and leverage multi-lingual capabilities, he says.

‘Appeal unchanged’

While it is true that other offshore destinations would want a larger pie, the fundamental attractiveness of India has not changed. There are a number of tier II and tier III cities in India and also other parts of the world that are very attractive, says Viral Thakker, Partner-in-Charge, Sourcing Advisory, KPMG India.

India can sustain its advantage if the employability of the current stock improves, and also if infrastructure and connectivity in the tier II and tier III cities improve. However, it is important to understand that other locations will also continue to develop further and there might a case where several locations co-exist. These locations may specialise in various processes or languages or also between higher-end work requiring specific skillsets, he says.

Most companies know that the governance structure of companies in India is much better than China’s, says Girish Trivedi, Deputy Director, Information and Communication Technologies Practice, Frost & Sullivan, South Asia & Middle East.

“I do not think they (customers) will panic with one such incidence. However, this will definitely make companies more demanding in terms of compliance,” he adds.

There is already a momentum with positive developments for both large and medium companies with better third quarter results. Also, large companies are reiterating their confidence in the Indian market. While there will always be smaller centres that will continue to compete for their share of pie, “the India story is intact,” he adds.

The choice of destination is a combination of a lot of factors such as regulatory conditions, law and order, availability of skill sets, demand, infrastructure, language, IP protection, overall governance, macroeconomic climate, cost pressures, tax structure and so on.

“We advise clients to look at variables, prioritise and then make informed decisions. I believe most organisations will look at most of these options and more, before deciding the destination. We have not got any inquiries from any of our clients, due to the current turn of events, expressing a desire to look at alternative destinations or changing their plans,” says Trivedi.

“While the Satyam case is a wake-up call on the need for robust corporate governance, I believe that this one aberration will not taint the Indian IT industry’s illustrious past and robust governance standards,” says Surjeet Singh, Chief Financial Officer and Chief of Operations, Patni. India has offered a unique value advantage and this business model is strong enough to sustain itself. “We are confident that the Indian IT industry will be able to emerge stronger,” he adds.

Indian IT and BPO companies have been partnering with clients globally for many years, and over time, they have proved their value with a high quality of process, talent and strong business fundamentals. “India’s service offering and talent mix is something that has stood the test of time and I think this advantage will certainly remain. The industry is not only about cost arbitrage but also about the value we bring to the table, through process/service expertise, high quality workforce, and global experience. Our business model is more robust than ever and it is here to stay,” says Singh.

raja@thehindu.co.in

Related Stories:
‘India, China remain undisputed leaders for offshore services this year’
‘European software cos look at offshoring’
Advantage offshoring

More Stories on : Off-shore Development | Insight

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Campus buzz

Bringing them into the loop

ePen for teachers

Queuing up for India

‘The battle’s in your inbox’

Missing the message?

Quiz

If you’re closed to feedback, don’t blog

Cartoon