Indian tech vendors are fast expanding globally—from Hangzhou to Lima, Sydney to Prague—as they hunt for employees with specific skills and their clients begin to demand that they be serviced at multiple international locations that have a high concentration of their end customers.
Such ‘near-shore’ operations have resulted in significant business gains for the likes of Tata Consultancy Services Ltd (TCS), Infosys Technologies Ltd, Wipro Ltd, Satyam Computer Services Ltd and Cognizant Technology Solutions Ltd. Not only does their visibility on the world map increase, making clients more comfortable outsourcing work to them, such centres help them charge higher rates.
“Today, revenues for Indian companies from their global delivery centres is going up because clients are willing to pay 15-20% extra to have their work located near-shore,” says Navin Agrawal, executive director at consultant KPMG’s Mumbai offices. “This trend will continue. In the next three years, most leading software companies will see 30% of their revenues coming in from their global delivery centres.”
The move to European, South American and Canadian cities also helps the companies shore up information technology (IT) skills required in chip-level software, high-end engineering design and consulting. It also gives a leg-up to their back-office divisions to acquire the ability to service new customer groups such as the Hispanic millions in the US, the largest ethnic group in the world’s most prosperous nation.
“As Indian IT companies move up the value chain, in processes such as consulting, high-end system integration, and onsite infrastructure management, their global clients need more proximity to their work, as against simpler processes such as application development and maintenance work that can easily be moved out to low-cost regions,” said Sudin Apte, senior analyst and country head at the Indian unit of Forrester Research, a firm that tracks the industry.
Cognizant is a good example. “The drivers for our near-shore expansions are specific skill sets, time zones similar to where our clients are based, unique lingual capabilities and front-ending relationship management,” says R. Chandrasekaran, president and managing director of the company
For India’s largest software services firm, the Rs18,685 crore TCS, about 5% or Rs934 crore of its revenues came from such non-Indian delivery centres in fiscal 2007, and the company plans to ramp up that number. “Global development centres will continue to remain a core focus area for us and we will be increasing our revenue from these centres going forward,” says a TCS spokesman. Such business is growing 50% year-on-year for the company.
TCS, which set up its first global development centre in Uruguay in 2002, is present today in Brazil, Uruguay, Chile, Hungary, China, the UK, Australia and Japan, and plans to set up a centre in Morocco later this year.
Its global workforce stands at 89,400 employees, nearly a tenth of which are foreign nationals. Around 50% of its revenues comes from clients in North America, 28% from Europe, while Latin America contributes 6% and the Asia Pacific region 4%.
The biggest push at the company’s non-Indian workplaces is in China, where it plans to expand its Beijing, Shanghai and Hangzhou employees to 5,000 people in three years from the current 800. Employee costs in China, Eastern Europe and Latin America are 15-20% more than in India, but still cheaper than in the US. Tech staff costs in the US are four to six times comparable wages in India.
TCS is looking beyond India for skills to emerge as a global firm, Apte said. “Clearly bullish with successes such as ABN Amro in Europe and Latin America and Qantas in Australia, TCS wants to grow its businesses in global markets. Recent acquisitions in Ireland and Latin America demonstrate its ambition to create delivery centres of respectable size outside of India,” he said, quoting a Forrester report published in December 2006.
At Infosys, plans are afoot to set up a centre in Mexico this year, and the company is exploring the Eastern European market to set up a facility there to service its US and European clients.
“For us, these small front-end delivery centres are set up to provide comfort and support to our clients. Whatever we do, we leverage India's position,” says V. Balakrishnan, Infosys’ chief financial officer.
About a fifth of Infosys employees, most of them of Indian origin, are deployed outside India. “We are building a pool in China, Eastern Europe, Mexico, Australia, UK and Canada,”Infosys co-chairman designate Nandan Nilekani said earlier this month.
Wipro is exploring software centres in China, Latin America, Eastern Europe and Egypt, says Sudip Nandy, chief strategy officer of the company, besides planning two facilities in the US, which will add to the network of ‘near-shore’ centres in South America, UK, Germany, Sweden, Portugal, Austria, France, Finland, China, Japan and Romania.
Hyderabad’s Satyam Computer, which currently has around 20 global development centres spread over Australia, Japan, China, Egypt, UK and US, says it is enhancing its operations in South America, Canada, Eastern Europe and the Asia Pacific.
Though India will continue to be an important offshore delivery destination for the company, there will be several other low-cost countries competing for that slot, says B. Ramalinga Raju, its chairman and managing director.
“The focus, going forward, would be both on setting up centres in such new locations as well as strengthening operations in the existing attractive markets,” he said.
Yet, say experts, Indian tech service companies lag behind their global peers (see chart) in expanding to such emerging locations. A report released by KPMG and trade body National Association of Software and Service Companies on Monday says that Eastern Europe, Latin America, Asia Pacific and North America (primarily Canada) are emerging destinations for the global software industry, including Indian firms.
In Eastern Europe, countries such as the Czech Republic, Hungary, Poland, Romania and Slovakia in Eastern Europe are the preferred destinations for high-end enterprise software work. Besides, the region has a highly educated and low-cost workforce and enjoys cultural and linguistic similarities and proximity to big customers from Europe. “Clients in this region particularly want proximity to their work as they want their data to remain within the European Union due to security concerns,” said Forrester’s Apte.
Mexico, Brazil, Chile and Argentina are emerging destinations for Indian software firms in Central and South America thanks to language skills and being in the same time zone as the US. Latin America has a high number of Spanish, Portuguese, English and French-speaking people who can be trained to do back-office functions such as telemarketing and customer support, for instance.
“This allows these countries to be used as a base for servicing multi-lingual, non-English requirements for Western Europe, making it most suitable for voice and non-voice support in the world for both the US and Europe, regions to which it is closer culturally,'' KPMG’s global partner-in-charge for sourcing advisory services Pradeep Udhas wrote in the report.
Though potential employee numbers remains a challenge—Central and Eastern Europe graduates 18 lakh a year, of which 2.35 lakh are technical graduates, while Latin America produces almost 10 lakh graduates of which those with technical backgrounds are 1.7 lakh—Indian companies need to pursue a more aggressive strategy to be able to exploit emerging opportunities in the regions, KPMG advises.
SPREADING THEIR FOOTPRINTS (Graphic)