Flexible Outsourcing Model Keeps India on Tap

3 Questions:
Flexible Outsourcing Model Keeps India on Tap
Outsourcing for Strategic Advantage, July 13, 2005

With Gurvendra Suri, CEO of Optimal Solutions Integration Inc., a Dallas-based enterprise-technology consulting firm. Optimal Solutions offers a flexible delivery model that includes onsite, domestic rural and offshore options.

Question: Recently, the press has reported that India's IT wages are starting to climb. How do you see these rising wages affecting the offshoring industry in India?Suri: There has already been a great deal of debate regarding India vs. the rest of the world. While emerging entrants such as Eastern Europe and countries such as China will certainly gather some interest based on low pricing, we remind our clients that it is not a simple question of the lowest hourly price dictating the best value. While low price is certainly a consideration, it is only one part of the equation that determines total costs. For example, the expense in terms of managing offshore IT relationships — which some put in the range of 8 percent to 10 percent of the contract's value per year — must be considered. Newly emerging offshore suppliers can often exceed this threshold simply because their processes and methodologies are not as well established as those of Indian vendors. They can require more handholding and supervision, and the cost for this should not be overlooked. On the topic of execution, it is well known that the transition phase is the most problematic and costly period in offshore outsourcing. Again, Indian suppliers excel in this area given their experience and the maturity of their processes. While it might take approximately three months for a competent Indian supplier to work through this aspect of an engagement, a firm with limited experience who must learn the transition process in general, while concurrently struggling with the actual transitioning of the client's knowledge, can easily burn twice this amount of time. Adding this extra time and expense to an engagement clearly demonstrates the Indian advantage, even with a higher hourly cost. Legal fees and the costs of arranging contracts also must be considered. The Indian legal system is very similar to the British system and very easy for U.S. companies and their legal counsel to understand and negotiate. This is not always the case with other geographical regions where the legal systems and processes are either unknown at best, or unenforceable in the worst-case scenario. It is our experience that when one considers the overall costs (many elements of which are largely ignored) the decision to tap India is clear and justified.
Question: Will these higher rates affect your clients and your flexible delivery model?Suri: We are not heavily involved in those commoditized areas of pure-play offshoring where profit margins are sustained solely by low hourly wages. The bulk of our work is in developing, implementing and customizing global enterprise systems for large organizations. In this context, the cost savings provided by our offsite development resources are still compelling. We do not anticipate that rising rates in India will significantly impact our ability to deliver secure reliable, competitively priced services.