Business In Vancouver, April 6, 2004
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.”