Outsourcing by western companies, of which India is a key beneficiary, is a rage and a controversy around the world.
However, in a simultaneous reverse process, some of the best and biggest Indian companies are outsourcing not just any old jobs but strategic IT functions to some of the best in class global companies.
Strategic outsourcing is in fact the fastest growing segment in the Indian IT market, say industry experts.
From the series of deals announced in the last few days, it is clear that global vendors have established their expertise and experience in handling long term, complex outsourcing needs of Indian companies to enable business transformation.
On the other hand, Indian companies are showing a new sense of maturity and thinking global in fulfilling their key requirements.
Among the notable deals struck in the recent past is that between Bank of India and Hewlett-Packard. Bank of India has named Hewlett-Packard its preferred supplier of information technology infrastructure and applications in a 10-year outsourcing contract valued over $150 million (Rs 680 crore -- Rs 6.80 billion).
This contract was the first of its kind encompassing IT enabled transformation in a fully outsourced model. Under the terms of this contract, HP will implement and manage a core banking solution across 750 branches of Bank of India.
Just in case some saw the BoI-HP relationship as a one-off engagement, in came Dabur India Limited, one of the largest Indian FMCG companies, which announced a 10-year agreement with Accenture to outsource its IT infrastructure and application management functions.
Under the terms of this innovative agreement, Accenture has agreed to manage Dabur's IT functions, including applications management, and provide consulting assistance on the company's business plans. Accenture will also design, build and run IT systems for the supply chain and secondary sales functions.
Most recently, in a smaller but strategically important deal to the client, Manipal Academy of Higher Education has signed a memorandum of understanding with Hewlett-Packard India Sales to enhance the campus computing experience of students.
The MoU also covers HP's support for the creation of a centre of excellence in pharmacogenomics at Manipal's campus. The total value of both these projects is about Rs 5 crore (Rs 50 million) spread over 5-7 years.
Business Standard spoke to several industry specialists to gauge the significance of strategic outsourcing for Indian businesses.
Steve O' Donoghue, managing director, Oneyma Consulting, serving organisations considering offshore outsourcing, feels that Indian companies are mirroring Western markets.
"It is a sheer co-incidence that strategic outsourcing is being opted by Indian companies at a time when the BPO phenomenon is at its peak. Offshoring is still a small component of the business of many US-based companies. Strategic outsourcing to local players constitutes a majority of such businesses."
"Indian companies are adopting this practice because they want the 'best man to do the best job'. Besides, this also reveals a sign of maturity on the part of these Indian companies. In the long-term, all non-core activities will continue to be the outsourced to the best service provider."
Today, it is clear that customers want more than just consulting or outsourcing; they need a partner who can work with them to deliver transformational change.
MNCs are providing integrated consulting, physical IT infrastructure as well as integration and application solutions that clients are demanding.
A collaborative approach to meeting business objectives and a commitment to developing sustainable value has enabled these vendors to secure such engagements.
Vendors are taking up responsibility for quality, performance and delivery of clients' IT services. This includes handling of IT infrastructure, managing and operating data centres, providing end user support, overall network management, disaster recovery services and technical support of business applications.
In addition, the vendors with their resources are providing clients with the flexibility to adjust rapidly to changing business needs, protection against technological obsolescence and development of world class processes.
Dr Sridhar Mitta, managing director, e4e Labs Pvt Ltd, is clear that MNCs like HP and Accenture are competing with the rates offered by Indian IT firms like of Infosys or Wipro.
"Several Indian IT companies provide offshoring services purely for wage arbitrage. Indian non-IT companies are taking to outsourcing as they are on the lookout for vendors with the best domain knowledge. In simple terms, this is just a manifestation of globalisation."
Dr Mitta uses a McKinsey study to explain the concept of strategic outsourcing. "A company like Toyota outsources every part of its cars to ensure a best-in-class product, Firstly, companies outline their needs, based on each and every component. Then they go to the best guy who can provide them with each component. This is followed by optimising these resources and finally integrating them in the best possible way. This way, you create the best product."
Says Avinash Vashistha, chairman of neoIT, an offshore advisory firm: "Corporations nowadays are competing globally, be it in manufacturing or services, and want to be identified as front runners in globalising their operations. The need to outsource basically starts from cost but quality services have to be sourced from the best of locations."
The virtual corporation, which outsources most of its functions, is coming to India, says Vashistha, adding, "Global players have just started knocking at the doors in India. In the future we should be seeing this industry mature with large IT applications and solution enhancements being routinely handled by the vendors."
As for pricing, "MNCs are looking at volume play and matching rates with Indian companies."
C N Ram, head of information technology at HDFC Bank which has an annual Rs 70 crore (Rs 700 million) IT budget, has a slightly different view on pricing.
"It would not be correct to generalize that working in the Indian environment means lower margins. A lot depends on the technology capability of the customer and what he has done with his infrastructure. Cost is not a consideration for clients who are 'starting out' as they are confronted with a massive job of linking offices in a dispersed geography while automating at the same time."
N M Sundaram, country manager, marketing and strategy, HP India, adds, "It is not that we are competing with the rates of Infosys or Wipro. When we are given the prime contractual responsibility of handling a function, we are open to collaborations."
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