MNCs new kings of outsourcing
SOURCE: Indiatimes
DATE: July 27th, 2008
Mohit Soapbox:
This debate continues and the reality is that the India based vendors are struggling hard to shed their image of low cost providers and move up to the C Suite. Some have gone the consulting route by hiring and building consulting practices but seem to have failed in integrating those in their overall offerings. Some have gone organic route of building consulting route but seem to be struggling to move up the chain. With a majority of the firms still India centric and decision making still seemingly centralized back in India the model has issues and will continue to create slow growth for India based vendors. In the mean time the global players like Accenture, IBM who operate in a global platform have been building robust offshore platform and extending this as a service offering to their existing clients. The battle for Indian vendors is not over but the road ahead is not an easy one.
ARTICLE
The $50-billion IT services industry is in for tough days. And this time, it’s not just a slowdown in spending that’s worrying, but increasing competition from multinational service providers who have ramped up significantly.
With a robust low-cost delivery model in place, MNC IT services companies like IBM, Accenture, HP-EDS and CSC have bagged quite a few new offshoring contracts in recent times. New IT deals offshored to India and other low-cost destinations from firms like United Healthcare, Universal Music Group, Hartford Insurance, Bristol Myers Smith, ICAP, BHP Billiton, Bombardier, P&G , Ericsson and Banco Fondo Comun (a Venezuela bank) have gone to MNCs. Incidentally, in many of these contracts—multi-year $50-500-million deals—Indian IT and BPO companies were already providing services for the clients. And in most cases, MNCs bagged the new offshored work beating Indian service providers.
When queried, Infosys CEO Kris Gopalakrishnan said, “I can’t talk about specific cases, but we are not losing out. There could be many reasons why clients choose multiple vendors. As for bidding for new business, we win some and we lose some.”
MNC offshore leverage surges
While clients typically select multiple vendors to derisk operations, what’s interesting is that multinationals have significantly increased their offshore leverage (percentage of work they can do from low-cost destinations), and hence are more attractive now. PricewaterhouseCoopers (PwC) global outsourcing advisory services executive director Hari Rajagopalachari said, “MNCs are today walking into contracts with an offshore component much more confidently. That’s thanks to their greater offshore leverage now.”
Companies like Accenture, IBM, HP-EDS and CSC, who boast of a large India head count, have ramped up presence in other low-cost delivery countries as well. Also, when all factors—delivery cost, destination, type of workforce, quality are equal, clients may lean towards MNC providers because of their better brand recall and experience.
Added Avinash Vashishta, CEO, Tholons (an advisory firm), “Another reason why MNCs are being preferred is because this is an election year in the US. Companies don’t want to be seen as offshoring jobs to non-American vendors. About 10-15 percent of the offshore contracts that have gone to MNCs could have gone to Indian companies as well. Companies are using a select supplier list and don’t want to go through an elaborate vendor selection process.’’
While the US presidential elections could be a concern for some companies, PwC’s Rajagopalachari insists that cost pressures far outweigh political pressures. Clearly, cost as a differentiator for offshoring to specific vendors is no longer a point where Indian companies may score, as MNCs now offer similar savings. Not surprisingly, often Indian companies also outsource their IT & ITES needs to MNCs, like makemytrip.com recently outsourced work to IBM Daksh.
But Quatrro BPO CMD Raman Roy disagrees. “Indian companies still have a significant edge. MNCs have tried to duplicate the strategy followed by companies here and may have been successful in some areas.” He was quick to add that “with the playing field getting levelled out, whoever has a superior proposition will score—be it a MNC or an Indian service provider.”
shelley.singh@timesgroup .com
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