Each month, Jag will answer a question submitted by one of our readers. Have a question for Jag’s bag? Submit it to info@meltingspot.com.
Q: I am an IT service provider in India. Competition for American offshoring contracts seems to be getting tougher. What capabilities should I highlight to make my services more attractive?
A: For years in this business, it seemed like the party would never end. India’s outsourcing industry, riding high on a wave of demand from overseas, exploded over the last two decades. The industry recorded 25% growth annually - and that was in the slower years.
Lately, however, the industry is coming back down to earth, at least a little bit. Setting aside the hype in the Indian news media, the IT and Business Process Outsourcing (BPO) industry in India still has a long way to go before it is truly mature. India accounts for less than 3% of the worldwide IT services market, according to Gartner; for most American firms, it’s hardly a “necessity” to outsource work there, at least not yet. All things being equal, American companies still tend to outsource domestically far more often than they choose to send their work overseas. To start tipping the scales toward offshoring, India’s service providers will have to sweeten the deal. They will need to pony up more than merely the cost savings that have primarily fueled the industry so far.
Providers, You Can’t Compete on Cost Alone If you’re winning clients merely by offering lower rates (working for cheaper) you won’t be able to hold onto their business over the long term. Annual inflation in India was almost 12% in July 2008. Wages are rising steadily in order to keep up with inflation. These spiking costs are quickly neutralizing some of the early cost savings for American firms.
As a provider, you can deliver big savings in the first year through labor arbitrage - but rising costs make those savings harder to lock in the next year. Add to this that your clients will expect costs to decline even further the second year, and you have a problem with only one solution: you need to generate other sources of value, besides cost savings, to satisfy your clients long term.
What Else is There, Besides Cost Savings?
There’s time. With the time difference, India is 10-13 hours ahead of the U.S.. Why not help clients extend their hours of business? American Express established its customer service centers on three continents so that its operations “followed the sun”, ensuring live representatives could be reached day or night. Adding more hours to the prime “day” shift can be important to those American firms who either don’t operate at night, or operate at a higher cost.
There’s skills. America’s need for a scarce coding skill to complete the “Y2K” system update launched the outsourcing industry in India. In American universities, enrollment in science and technology programs is dwindling, as the workforce is aging. For those who can provide the resources, there will be more and more opportunities to fill the ever widening “skills gap” in America. Focus on the specialty skills that are up and coming right now: Demand is hot at the moment for people who can create, test and implement software, simulation programs, graphics and firmware.
There’s quality. As costs rise, so must the quality of work. The offshore market grew so quickly, many offshore employees were able to “learn on the job” and get by. This was tolerated because the work was so cheap. No longer.
When it comes to quality, play to India’s cultural strengths. Culturally, Indians are apt to follow a process religiously and therefore, can excel when a process is well designed and implemented. That is why many India-based firms are thriving in the business of implementing standards, such as CMM, CMMi and 6 Sigma.
Here’s the bottom line: to succeed as an offshore service provider, you need to make sure your clients receive more than one benefit from your engagement: lower costs, 24-hour workday, access to skills, or quality work in a specific discipline. If you can do that, you can ride the wave of expansion.
Jagdish Dalal is a regular columnist for MeltingSpot. He is the Managing Director of Thought Leadership for IAOP (International Association of Outsourcing Professionals) as well as Founder and President of JDalal Associates, a consulting firm. As a thought leader in the field of outsourcing, Jagdish has more than three decades of experience in outsourcing (as a CIO of large multinationals such as Xerox, Carrier, Unisys as well as a Partner at PricewaterhouseCoopers). He came to United States from India more than four decades ago and is proud to be an American-East Indian (as Jane, his wife, says, he has a Western mind and an Eastern soul). He is passionate about outsourcing, offshoring and how it can and has changed the world. As an evangelist for outsourcing, he is proud to be an active leader through IAOP - a true global organization promoting outsourcing as a profession.
