India remains the destination of choice

Analysts Forrester convinced that India will remain first choice for outsourcing deals

According to Forrester, Indian providers having transformed the IT service playing field, remain a strong competitor in IT service delivery because their ability to adapt well to new market dynamics has allowed them to.

In a keynote on next-generation outsourcing at Forrester’s Services and Sourcing Forum 2007, Forrester vice president and principal analyst Stephanie Moore discussed the new IT services paradigm that formed after the Y2K problem in 2000.

“This is where the Indian vendors stepped into the equation, offering low cost but high quality service delivery that changed the rules. Now everyone has to play by the rules, whether you are IBM, Accenture or Indian vendors,” Moore said.

Service providers who provide transparency are the ones thriving today because people want to know exactly what they are paying for, said Moore. Indian vendors increased service sophistication by decoupling services from assets, which also made it difficult for providers to swindle customers, she added.

The Indian vendors improved consistent delivery by delivering high quality processes, and created an expectation among those who outsource that it is standard for system optimisation to be part of the outsourcing deal, “simply because it is more efficient and less expensive for them to deal with,” added Moore.

The delivery of lower costs is an expected outcome of all outsourcing contracts, said Moore, adding “the contracts of offshoring and outsourcing are combining and it is certainly reaching a tipping point.”

“India today is the destination of choice—in terms of the market, maturity of vendors in the market, the cost, the quality and the experience—you can’t beat India,” Moore concluded.

Although India has its challenges, it is adapting to these well, Moore explained. India is facing escalating costs and a finite pool of available senior skilled technicians. Also, anyone today working with an Indian vendor suffers up to 30 percent attrition experience, Moore said. The rupee is appreciating, even against the Euro, “so their margins are being compressed which is causing them to want to raise prices for you,” Moore added.

However, the Indian vendors are stepping up to deliver on this new IT service paradigm through introducing more automation, Moore said. “In the old days, service providers did not want automated tools because they wanted to charge for more bodies, but today they don’t have the bodies or if they do, they are getting too expensive, so they are creating their own tools and even buying them from third party vendors,” Moore said.

Indian providers are further adapting to challenges though adopting even more efficient processes, said Moore, who added that this is especially true of the global multi-nationals that need consistent processes in all countries.

Providers are also allocating large budgets for training. “Vendors like Infosys spend ten per cent of their revenue on training,” pointed out Moore.

“Tier two Indian cities are now on the maps,” added More, explaining how providers are moving from places such as Delhi, Mumbai, Bangalore to lower cost areas in India where there is cheaper labour.

Indian providers are also remaining competitive though involving customers in more advanced outsourcing partnerships, Moore explained. “Partners will not just use them for staff augmentation but to improve known processes,” said Moore. “This is one of the ways customers are getting lower overall costs and vendors are getting higher overall margins,” she added.

Finally, the providers are acting as solution accelerators, Moore said. Vendors focus on creating reusable components so they jump start future projects,” she added.