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 Library of Congress Control Number: 2005921500 This work is subject to copyright. All rights are reserved, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illus- trations, recitation, broadcasting, reproduction on microfilm or in any other way, and storage in data banks. 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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.