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Outsourcing
technology work to India seems to be exploding. But it’s really awareness of
the practice that’s suddenly more visible.
“British Columbia
has consistently been in the lead with this,” said Pankaj Agarwall, founder
and CEO of Momentum Technologies, Inc. “This region was one of the early
adopters.”
His company handles
every kind of technology and software work for North American clients:
design, coding, testing, support, upgrades and maintenance through the
product’s lifecycle. All that work is done in its own facilities in Noida, a
suburb of New Delhi. Momentum has earned CMM Level V assessment from
consulting and accounting firm KPMG — the highest Capability Maturity Model
mark possible. Momentum was started in 1999 in India, opening its Vancouver
office for a North American presence in 2000. The Vancouver office employs
nine people. There’s a similar set-up in Calgary, one just opening in Ottawa
and plans for a Toronto office, too. All of those — like the Vancouver
operation — concentrate on expanding business and taking care of North
American clients.
As an outsourcing
leader, Agarwall was among the participants in a February 26 British
Columbia Technology Industry Association outsourcing roundtable held at
Vancouver’s Hyatt Regency hotel. The others include Class Software Solutions
of Burnaby CEO Ralph Turfus, Jim Brosseau of the BC’s Clarrus Consulting
Group and Edmonton’s BigBandwidth CEO Daniel Gatti.
“It’s only been in
the last year or so that people have noticed this outsourcing to India as a
trend in the industry,” said Andy Efstathiou, program manager in the
technology management strategies department of Boston-based consulting and
analysis firm The Yankee Group.
Outsourcing began
building in 1997, the first year North American companies began looking for
a way to keep parts of their software development costs under control. In
India, they found a highly skilled and educated workforce, low costs and
English as the first language. The Indian government had made significant
investments in technology education, engineering skills education and
training, and in the infrastructure needed for major technological work.
From 1997 on, the
practice of outsourcing technology work to India accelerated, growing at a
compound annual rate of 56 per cent through 2003, according to NASCOM,
India’s software industry association. The dot-com bust and subsequent
economic downturn kept India’s outsourcing business running hot.
“It’s definitely
growing,” said Blast Radius CEO Gurval Caer. “One of the biggest India
technology firms, Infosys, has been going for 20 years. In the past six
years, they’ve suddenly become an $800 million company. Something’s
definitely going on.”
There’s no official
tally on which companies — or how many — are sending work to India.
Everything’s anecdotal. The best guess from Agarwal and other technology
CEOs is that 20 to 30 BC companies are sending work west.
However, Caer said,
outsourcing won’t work as well for some kinds of work. “It’s fine for
back-office functions, for software development, that kind of thing, where
there’s no contact with the end consumer. But for the kind of work we do —
loyalty, CRM, brand management for Nike or Nintendo — it’s not as useful.
You really can’t outsource that kind of work because of the cultural
understanding and fluency it demands.”
“Technology
companies are pressured to find the best outsourcing deals they can because
of pressure from two directions,” Efstathiou said. “Shareholders and venture
capitalists want profit, and the finance department is telling companies
they need to keep costs down. Outsourcing is an answer to both those
concerns.”
There’s also the
time difference. A larger technology company, he points out, can spread its
work through different regions around the globe in order to ensure work on a
particular project continues around the clock, with India, say, handing its
work to Europe, which, in turn, moves the work to North America.
Software
development was initially the main driver for technology outsourcing to
India. Then, business operations such as accounting began migrating.
Recently, other kinds of work have been outsourced to India, too: technical
support, call centres and other aspects that have traditionally been done in
North America.
Again, says
Efstathiou, there’s the language advantage. “Because English is the primary
language, Indians can handle tech support or consumer questions. They speak
the same language as North Americans.
Several challenges
face India now on the outsourcing front. In the same way Indian companies
have been taking over responsibilities outside coding and testing software,
they need to expand into handling other business operations, such as
accounting. There’s also pressure from other regions eager for outsourcing
work, many of which offer benefits similar to India’s. Efstathiou says the
Philippines, in particular, is competing against Indian companies more
aggressively.
India
also needs to avoid becoming a victim of its own success. Mexico seemed like
an ideal destination for manufacturing and assembly jobs as NAFTA expanded;
Mexico was the place to outsource hardware assembly for technology whose
software is coded in India. But Mexico’s success strengthened its currency,
making it less attractive as a place to send work.
India
and Mexico are both feeling political heat from the United States. This is
an election year, and American technology workers have been protesting
software outsourcing at technology conferences. There’s also been some
anti-outsourcing rhetoric from candidates in the U.S. presidential race.
“Whether we’ll hear
about the issue after the election is another matter,” said Efstathiou.
“These things tend to generate a lot of noise for political reasons, without
much action or follow-through once people have been elected.”
At the Feb. 26
BCTIA roundtable, Ralph Turfus of Class Software Solutions said that
outsourcing’s fine, as long as nobody in your Canadian operation gets laid
off . All the participants in the roundtable agree the practice is
permanently part of the technology business.
But Clarrus
Consulting’s CEO Jim Brosseau said that Canada — particularly the Lower
Mainland — should look at India as competition for technology work more than
as a place to send some of its operations. “First, I don’t think outsourcing
is nearly as prevalent as the press would have us believe. And Canada is one
of the best places in the world to send this kind of work. With government
credits and the level of commitment to making it easy to do technology work
here, we’re competitive with India on cost, and we have the language
advantage and we’re in the same time zone.
In fact, BCTIA has
an initiative called Leading Edge, run by George Hunter, aimed at drawing
technology work to the Lower Mainland. British Columbia isn’t so much an
outsourcer as an insourcer.
Blast Radius’s Caer
cited a story in Britain’s Economist that identified Canada
as second only to India as the best place for technological development on
the planet. “We’ve been seeing that for the last seven years.”
Efstathiou said
that regardless of protests or politics, outsourcing is now a standard part
of running a technology business. “There’s no question, the change to
outsourcing this work is permanent. There’s too much momentum for it to
stop. The only real question is which functions fare best when they’re
outsourced, and whether India can retain its lead as the primary location
for this.” |
