Outsourcing to India: The Offshore Advantage

325 Pages·2005·17.49 MB·English

by  Mark Kobayashi-Hillary

Outsourcing to India
Second Edition
Mark Kobayashi-Hillary
Outsourcing
to India
The Offshore Advantage
Second Edition
4y Springer
Mark Kobayashi- Hillary
Director, Global Research
Commonwealth Business Council Technologies
18 Pall Mall
London SW1Y 5LU
United Kingdom
[email protected]
www.outsourcingtoindia.net
Supported by the NOA and IBF
www.noa.co.uk
www.indiabusinessforum.org
ISBN 3-540-23943-X Springer-Verlag Berlin Heidelberg New York
ISBN 3-540-20855-0 1st. ed. Springer-Verlag Berlin Heidelberg New York
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For my family Nobumi and Matilda,
Everything would be impossible without you both.
To the memory of my grandmother Mary "May" Jenkinson, 1928-2003
and the thousands of people across India and South Asia who perished in the hor-
rifying tsunami of December 26 2004.
Foreword from India to the First Edition
If you're reading this book it is probably for one of three reasons. Either, you have
been affected by outsourcing, are thinking of outsourcing a part of your business,
or just want to find out the facts about a subject that has generated many column
inches, but can yet do with more informed and open discussion.
As President of NASSCOM, I have been fortunate to be at the heart of the In-
dian outsourcing community and its rise to the top of the economic and business
agenda. NASSCOM is the apex body of the IT software and services industry in
India. NASSCOM members constitute approximately 95 per cent of the $12.5bn
software and services market in India, and it has therefore emerged as the authori-
tative voice of the industry.
In response to a series of high profile outsourcing agreements to destinations
such as India, comparative cost advantage has been singled out as the primary rea-
son why many businesses are allocating a proportion of their operations to this re-
gion. However, whilst the potential cost advantages is a factor that many busi-
nesses consider, it is not the only one. Understandably, this has become an
emotive public issue, because most people wrongly equate outsourcing with job-
loss.
Independent agencies continue to rank India significantly ahead of its competi-
tors for IT investment in many key areas. India scores highly on several key pa-
rameters that are relevant to IT including the level of governmental support, the
quality of the work force and their proficiency in English. Businesses may initially
come to India to save costs, but they invariably stay and grow because of the qual-
ity. The success of India as an outsourcing location demonstrates that in a global
competitive environment, quality has become increasingly important as consumers
demand a service that is timely and of a high standard.
Counter to public perception, this is not a situation in which several hundred
million people are now competing for western jobs. Rather, it is an opportunity for
all countries to benefit from the injection of new ideas, economic gains and stabil-
ity that globalisation offers. A recent study by McKinsey supported this very ar-
gument, when they found that for every $ 1 previously spent in America and now
off-shored to India, $1.47 of global value was created. Outsourcing, therefore, is
by no means a one way street. Just as the Indian economy benefits from the in-
VIII Foreword from India to the First Edition
ward investment that outsourcing brings, so too can domestic firms benefit from
the demand that these workers generate.
In Outsourcing to India: The Offshore Advantage, Mark Kobayashi-Hillary has
offered a balanced view on the trend to outsource to India. He makes a compelling
economic case for outsourcing to this region whilst acknowledging and discussing
the emotive aspects of such a decision. I hope that you learn from and enjoy this
book as much as I did.
Kiran Karnik
President of NASSCOM
New Delhi, December 2003
www.nasscom.org
Foreword from Europe to the First Edition
It is a great pleasure to, on behalf of the NOA, write this foreword commending
the thorough study of Outsourcing to India: the Offshore Advantage.
Outsourcing in Europe is becoming the new way of strategically effecting busi-
ness, which if not obsolescing the "joint stock" company will nevertheless radi-
cally transform it. While over 70 per cent of UK companies have outsourced at
least one business process, as few as 5 per cent have outsourced as many as five.
Yet it is amongst that 5 per cent cluster of pioneers, that the impact and benefits
have proved greatest. There is every sign that the UK and the wider European
business marketplace will further embrace the outsourcing model, and that this
trend will continue to stoke the burgeoning Indian offshore supply market.
Mark clearly demonstrates how India is taking up a key role in providing IT
and Business Process Outsourcing using a remote delivery model. He shows that
this can be very economically advantageous to European companies, but that such
offshore outsourcing raises many challenges which - should you follow his advice
- may nevertheless be pragmatically managed.
We are reminded that there is much in culture, tradition, and history that unite
Europe and India, making them ideal business partners. In this context it is likely
that in a few years time, when the rash of offshore newspaper headlines fades
away, we will wonder how business was ever pursued without such cooperative
global sourcing.
Nigel Roxburgh,
Co-Founder of the European Outsourcing Association and Principal Consultant to
international services organisation Xansa
London, December 2003
www.e-oa.net
Foreword to the Second Edition
I first read this book early in 2004, soon after the initial publication. I found it
quite different from many of the other books on the subject and more useful than
most. Mark approaches the subject in a way of his own which compels hidden se-
crets to surface up. He is endowed with vision and insights. He synthesises useful
data on outsourcing persuasively. Mark my words; this book speaks with authority
backed by immense research and practical experience.
Offshore outsourcing to India has undergone a revolution in 2004. The confer-
ence hall gossip in the sourcing industry throughout the early part of the year was
focused on the US presidential election. Fortunately, with the election out of the
way, we can now focus on the true economic benefit without bothering about the
realpolitik.
Other governments, such as the UK, have been very supportive of offshoring as
a means to helping their own companies become more competitive. Companies
are dropping the idea of global sourcing being solely about an onsite-offshore
business model and realising that they can seek the best resources and skills from
around the world. What we are witnessing in this early part of the twenty-first cen-
tury is the creation of a corporate structure where a global delivery model is com-
pletely normal. Nations and regions will even become hubs for specialised ser-
vices - true global centres of excellence. Who could deny that India now leads the
world in providing high quality software services? Offshore outsourcing will soon
be business as usual for competitive organisations in all nations.
Mark has observed some of the more recent trends in this updated edition. The
convergence between the more mature IT service market and the Business Process
Outsourcing players is one of the key changes to this industry and has the potential
to change the entire global service industry. Delivering services from an offshore
location now enables a company to benefit from a lower-cost environment, better
resources, the opportunity to reengineer and improve processes and an overhaul of
the IT supporting those processes. This is a world of multi-layered change, with
benefits at each layer, driven by the possibilities that IT creates.
The global sourcing industry is maturing in India, though it continues to grow
at a rapid pace. One clear sign of maturity is how some of the organisations are
focusing on value enhancement rather than cost reduction. Everyone knows that
business strategy is not always driven by a desire to reduce costs. An organisation
XII Foreword to the Second Edition
that wants to improve how it delivers a service or product can utilise resources in
India with palpable advantage without ignoring cost reduction. Suppliers are tap-
ping into this desire by offering "value-minus" pricing and open-book quotations
where they take on the risk of delivering a service and share in the benefit that is
produced. This is a world away from the basic "time and materials" charging
model used by many service suppliers. An era of true partnership is dawning.
The range and complexity of services being offered from India is becoming
ever more complex. As companies realise that India can offer a lower-cost pool of
well-educated people utilising the Internet and ever-cheaper global communica-
tions, they stop asking what is possible and start asking what cannot move to In-
dia? With complex processes such as financial advice, equity research, and patent
filing and management all being performed from India today there clearly is no
limit to what can be done and this book outlines how you can commence on your
own journey to India.
In short, this book is an enlightening primer for those who have questions about
the value of offshore outsourcing and India. It addresses the reasons for utilising
outsourcing as a business model, but the author has also examined the risks and
practical pitfalls that trip unwary executives along the way. It is an excellent intro-
duction to the subject and I hope that it helps you establish a long-lasting relation-
ship with India.
Mahesh Ramachandran
Chair 2005, India Business Forum
London, January 2005
[email protected]
www.indiabusinessforum.org