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Outsourcing to India 

The latest in remote control

Sep 9th 2004 | BANGALORE AND NOIDA 
>From The Economist print edition


Reuters 
 
 

 

After the call-centre, now the IT department is off to
India

IN A shiny new building in the drab construction site
that is Noida, a Delhi suburb, teams of young Indian
engineers are, in a manner of speaking, managing the
world. A number of America's best-known companies have
entrusted the remote running of part of their global
computing networks to HCL Comnet. This
information-technology services firm is at the crest
of what Gartner, a consultancy, has called �the next
big wave� of Indian outsourcing deals, covering remote
�infrastructure-management services�.

India's outsourcing boom started with software
development and has expanded into a whole range of
business services that can be handled a continent
away, of which the country's hundreds of call-centres
are just the most prominent examples. This takes that
trend one stage further, and shifts offshore much of
the administration and maintenance of a firm's IT
systems. Gartner's Partha Iyengar divides remote IMS
work into three categories: monitoring global network
operations; providing helpdesk support and
maintenance; and administering databases.

It is as yet a small part of India's IT business.
According to NASSCOM, the Indian industry's lobby, the
country's exports from the software, other IT services
and business-process-outsourcing industries grew by
more than 25% to $12 billion last year, of which
infrastructure services accounted for just over $300m.

But the potential is huge. A report by Deutsche Bank
puts the entire size of the global
infrastructure-management market at $86 billion. Firms
have been outsourcing infrastructure management for
years. Arno Franz, of TPI, an outsourcing consultancy,
describes it as an industry created in the 1970s and
1980s by EDS, an American giant that came out of
efforts by General Motors to automate its car plants.
Along with IBM, EDS still dominates the business.
Often these firms would actually buy their clients'
computer systems. Or they would have annual
maintenance contracts. Either way, their customer had
fixed their information-technology costs and were free
to concentrate on their �core competencies�. 

Vineet Nayar, HCL Comnet's chief executive, says this
model was disrupted by three trends that converged in
2001. The recession in the information-technology
industry left many customers locked into fixed-price
contracts and unable to take advantage of falling
costs. Second, information-technology departments,
having invested fortunes over the previous few years,
suddenly found their budgets frozen. And third, the
growth of e-business accustomed firms to dealing with
distant server �farms�. 



India's chance
So there was a move away from the �total outsourcing�
of computer systems, to the �discrete� outsourcing of
parts of it, including those functions that can be
handled remotely. That is where the opportunity lies
for Indian firms, with the telecommunications links
built for their software businesses and the
outsourcing of other business processes. Gartner
estimates that between 60% and 70% of the services
surrounding a data centre can be executed at a
distance. Mr Nayar sees the outsourcing of that work
to India as a �megatrend�. As evidence, he cites his
firm's client list, which includes some of the biggest
names in American business, in fields ranging from
investment banking to software to engines to sporting
goods.

 
 
 

 
The big American firms also offer services out of
India, and other local firms are competing for a share
of the market, notably Wipro. G.K. Prasanna, who runs
Wipro's �technology-infrastructure services� division,
says he has been preaching for the past five years
that this is the next big thing. A recent survey by
the firm of 145 executives in a range of industries
found that about a third had plans to manage some of
their computerinfrastructure offshore. Like Mr Nayar,
Mr Prasanna argues that the advantages for the client
go beyond mere cost savings, offering higher levels of
service�because problem solving is remote, so is
identification. A glitch can be fixed before it is
reported. This is a business, unlike call-centres,
where time differences with America and Europe work in
India's favour.

Cost, however, remains the big factor. One HCL Comnet
client is Extreme Networks, a California-based
switching-technology firm. Paul Hooper, one of its
vice-presidents, estimates that outsourcing the
management of part of his computer infrastructure has
cut the �total cost of ownership� of it by an average
of 40%. That is incentive enough to live with the
risks and drawbacks that come with any type of
outsourcing to India: the country's high rates of
staff attrition and poor civil infrastructure being
the most obvious.

Some analysts remain sceptical about whether Indian
firms are big enough to make much of a dent in this
market. The largest of them make annual revenues of
not much more than $1 billion compared with about 20
times as much at, for example, EDS. TPI's Mr Franz
says that the Indian firms cannot hope to match the
huge computer-processing capacity of the American
giants, and that any share they win of this market
will be �marginal�.

The Indian firms counter that the remote business they
are chasing is not infrastructure-intensive. They are
confident India will gain market share. Gartner and
Deutsche Bank predict a trebling in exports related to
managing computer infrastructure to $1 billion in
three years; NASSCOM goes for $1.5 billion-2 billion
in five years. But NASSCOM has also forecast that
India's total information technology and related
exports will exceed $50 billion in 2008. So even the
bullish-sounding projections about
�infrastructure-management services� hardly suggest a
revolution either in the global outsourcing market or
in the structure of India's information-technology
industry: not so much one big wave; more a rising
tide.



 
 
Copyright � 2004 The Economist Newspaper and The
Economist Group. All rights reserved.
 
 
 




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