Wal-Mart offshoring deal with Indian Vendors and what it means for you
DATE: Dec 4th, 2009
Looks like Bentonville, AK connects to India now via the IT outsourcing deal. A recent article in Business Standard talks about Wal-Mart doing a multi vendor offshoring deal with Infosys, Cognizant and UST global to the tune of $600 million. (LINK)
Wal Mart which has typically done development in house till last year and prides itself ( rightly so) in having one of the best supply chains in the world and technology to support that, continues to go deeper to identify cost savings. Given the hard bargain Wal mart drives with the suppliers, the IT providers will be in no different boat. For Wal-Mart it seems like a good game plan to build and tap into a model of global IT delivery given that they are now competing as aggressively with likes of Amazon in the digital space as they are with the likes of Target retail stores. Wal mart also continues to widen their net of products and as recently announced by them they are making a hard play for the video gaming markets (R.I.P Gamestop ?) . Having a cost effective supply chain and a cost effective technology development platform which can scale with the growth of the digital sales channel is critical. Looks like Wal Mart is setting up the footprint to build a global operating model to support their ambitions.
TCS which has a relationship with Target, seems to have lost out because of the relationship. A number of the largest retailers in the world also have their own captives in India including Target, Tesco and SuperValu.
Challenges and Opportunities for Indian Vendors
This we believe also present challenges and opportunities to Indian vendors who may be doing these retail deals at a scale they have not done before at a cost point which will remain always under pressure if your client is Wal-Mart. For larger Indian vendors building supply chain, digital channel delivery for retail are good value additions and will support their non -linear growth models.
For mid size vendors this should present a compelling opportunity also to go after deals which are too small for the large vendors. h
Vendor selection dilemma for mid size companies looking to offshore
If you are a Wal-Mart and have the ambition and scale offshore you can get the most effective pricing and management bandwidth from the larger vendors. Challenge is for firms whose ambitions and scale to leverage offshore is limited. Companies still want to do it for cost but if the scale is not there, you have to think about a different strategy for leveraging offshoring. The larger vendors like TCS, Infosys, Wipro might offer brand comfort but the delivery might suffer if you are not able to garner right management bandwidth or right resourcing. Have seen a number of instances where companies have gone through a detailed vendor selection process, selected based on what they hear as large vendors which present a compelling story. It may also be easier to convince your internal risk and audit folks that larger vendors offer a safer bet. What we have seen in a number of cases is that if their is a bad fit between the vendor delivery and your expectation it leads to costly , time wasting, stressful outcomes.
The reality of today’s market place is that as people are putting together models for globalization, cost is the driving factor for offshoring/outsourcing decisions. There are a number of other factors too including variable resourcing, productivity, efficiency but we have seen that cost still remains the key driver.
So it is important that as an organization if you are looking to offshore or outsource, you pick the right vendor and the right model to execute. It is going to be painful and have bumps but if your objective is to succeeed, having the right partner and model is critical.
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