India may be most preferred offshoring destination
Belt-tightening by global technology giants, a fallout of US economic slowdown, is likely to reinforce India as the most preferred offshoring destination.
Top technology firms are actively moving part of their workforce from the US, UK and European markets to lower-cost destinations. They cite availability of local talent, better delivery and conducive environment as key offshoring reasons. While they may not admit it, firms would be looking at stepping the gas on offshoring to curb bloating costs and to lift margins.
Networking and telecom software major Nortel, for one, has recently decided to move almost 1,000 jobs from the US and the UK to low-cost, high-growth destinations like India, China and Mexico. The move is aimed at both restructuring business and reducing costs, Nortel Networks global services president Dietmar Wendt told ET. The company plans to double its $2.1-billion global services business over the next three to five years with a significant portion coming from multimedia and contact centre services. “India is critical to grow the business and the largest percentage of the job shift will be to India,“ says Wendt.
Nortel, which has posted a steeper Q1 loss ($138 million against $103 million a year earlier) as a series of charges weighed on results, had in February pointed out that it will knock off almost 2,100 jobs from the developed markets. For Andy Green, who took over as Logica CEO in January, two of the main drivers to revitalize the firm has been to double offshore and nearshore headcount to 8,000 by end-2009 ; and a significant drop in costs resulting from a reduction of 3% of overall headcount. And, the lynchpin of this strategy, which is expected to drive Logica’s growth to above-market levels from end of 2008, will be the 1,500-seater second site at Chennai.
The plan to deliver above-market growth is funded by a £110 million restructuring that will lead to cost savings reaching an annualized £80 million from 2010. To boot, software services major CSC had announced sometime back that it was shifting more UK jobs offshore in an effort to control costs. The redundancies were in its Global infrastructure Services department and, according to sources, the job cuts were aggressive, almost 30% of the staff within GIS. “Moving positions to India will give software companies higher leverage on costs but there are other key business drivers, such as focus on revenue creation, increasing productivity and efficiency that will be a major determinant of the shift,“ says Ajay Kela, managing director and COO, Symphony Services.
A Gartner’s recent report too corroborates that the current US economic slowdown will lead buyers of IT services to consider increasing their offshoring to lower-cost locations. European information technology vendors like Atos Origin and Groupe Steria are also planning to strengthen their service delivery capabilities by leveraging their presence in India.
Last year, Steria bought UK-based Xansa for £472 million acquiring 5,000 employees in India. Steria has now a fourth of its workforce in India. “We plan to move more work offshore leveraging our presence in India,” said a senior official adding that European clients now want services delivered from offshore destinations that are priced competitively and boast of better skills. Says Serena Software’s India MD Munindra Kumar Bharatee: “Offshoring is a business decision and it will be carried out in locations, which provides business benefits including cost benefits. They are not coming here because they like you.” Just over a month back, BT had opened its global operations centre at Gurgaon that will employ up to 300 highly skilled professionals, who will run systems and processes for the various BT lines of business in addition to providing functional support to group functions such as procurement, legal, finance & HR.
While cost-cutting was not the obvious reason , the company said increasing presence in Gurgaon is designed to meet its current and future resourcing needs alongside centers in other emerging market destinations like Hungary, Brazil and China. BT accounts for 2% of India’s $50 billion IT and BPO exports and is planning to source more over the years. (The Economic Times)
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