Persistence pays for outsourcer

Persistence pays for outsourcer Ben Woodhead SEPTEMBER 12, 2006

world according to | Rama Raju SATYAM makes no secret of its plans for Australia. The $US1 billion ($1.3 billion) Indian computer services company long ago identified this country as one of its most important targets in the region, and it has backed that up with hefty investments. Melbourne is now home to Satyam's biggest development centre outside India, and the Hyderabad outsourcer expects to boost Australian revenue by 30 per cent to $US71.5 million in the 12 months to March 31 next year. It is known to hold contracts with Coles Myer, Qantas and Telstra, but strict non-disclosure agreements mean that many of its local customers remain secret. Satyam has acknowledged that it works with big Australian banks in Melbourne and Sydney, but has refused to name names. The company was reportedly snubbed last year when Westpac group executive Michael Coomer visited India on a fact finding mission, leaving the Sydney-based Commonwealth Bank as a likely customer. Recently appointed Commonwealth Bank chief information officer Michael Harte has also shown enthusiasm for offshoring, and Satyam co-founder and chief executive Rama Raju says attitudes towards the practice in Australia are changing. He has also staked a claim in one of the country's most resistant markets, the Australian government. Satyam will have up to 20 employees in Canberra by the end of the year after opening an office there last month, but it does not expect an enthusiastic welcome to start with. Having built Satyam up to a $US1 billion company over the past 19 years, do you get frustrated that there is still considerable resistance to offshore outsourcing in sectors such as the Australian government? We've placed a lot of importance on the business in Australia and I should say that we definitely see a lot of change in the way things are being done. More and more Australian companies are looking outward, and some decisions that companies here are making show that they want to get things done on a global scale. We're quite happy with the progress we've made so far and are sure that things are going to look quite good. We have our biggest development centre outside India in Melbourne and that clearly shows from our side a commitment to make things happen here. Does the size of the Melbourne development centre reflect that companies in other countries, such as the US, are more willing to have work fulfilled offshore? Not necessarily. If you look at the US, we have six or seven development centres that are quite distributed. Here in Australia it is mainly between Sydney and Melbourne. It also depends on what sort of mix of offshore and onsite work the customers is looking at. Whatever the customer feels comfortable with is what we try to do. We're starting to see more debate on whether or not the cost benefits of outsourcing work to India still exist. What will be the deciding factors that tip people to offshoring, and how quickly do you have to capture customers in Australia before you lose the cost advantage? We're aware that globalisation is taking place. Even if you take Indian companies it is becoming more important to think globally. You cannot operate in a controlled environment, so we need to scale up, we need to face global competition, and that's a good thing. From that perspective it's important to have the best people and that's the reason why, as a company, we're recruiting people from around the world. There cannot be a compromise on the quality of people. Costs for companies such as Satyam are rising because of wage pressures. How are you dealing with that? The costs are definitely going up, but as the costs go up companies are also making investments in knowledge management and in making sure they become more productive. It's the only way one can manage the expectations of investors. Most of the concentration of our Indian workforce is in the tier-one cities in the country. Now we're moving into the tier-two and tier-three cities, so that is one way of at least trying to balance some of the costs. In the long run we're also exporting to countries such as China, the Philippines, Vietnam, Singapore and Malaysia: wherever talent is available. There is a widely acknowledged skills shortage in Canberra. We've seen agencies such as the Australian Tax Office openly discuss offshoring as a way to deal with that. Is this something you think will play into your hands? Asia-Pacific director and senior vice-president Virender Aggarwal: Attracting staff to work in Canberra is never an easy task. To attract people to work on government assignments won't be easy either, because the rates that you get are not the best. It's very difficult to attract contractors to work there. We'll start to see the government outsource more complete projects and assignments, but frankly, our experience of Canberra has really just started. I don't think we'll become a big player soon but we're very enthused by the fact that federal and state governments are talking to - I won't say welcoming - companies such as ours. It's acknowledged that, despite rising costs, Indian outsourcers are still cheap compared with companies such as Accenture and IBM. But you're more expensive than many Australian firms. How are you dealing with competition from lower cost suppliers? Raju: If you look at the big five companies - the likes of IBM, Accenture and EDS - their cost structures are high because almost 90 per cent of their resources are in developed countries. It's also becoming important for Indian companies to develop more multicultural workforces. We cannot be at 90 per cent of our workforce in India. That's the reason why we started centres in various countries and are aggressively going about increasing our multicultural workforce. When we try to increase the mix of people, naturally the cost of delivery starts to go up. Even Indian resources today are not as deep as they used to be. Almost 55 to 58 per cent of the cost is for human resources, which used to be 40 to 42 per cent a few years back. The only way we can manage this growing cost is to increase the productivity, move up the value chain and understand our customers' business. That requires investment. A smaller company may be able to do things at a much lower cost but they are not able to scale up. It takes time for somebody to provide those kinds of services because customers today are looking for integrated solutions. You're also building up your business process outsourcing business. How is that progressing? Satyam has a subsidiary Nipuna, which focuses on BPO. The BPO sector is growing very rapidly in India. Of the $US23 billion of exports in the service sector last year, close to $US6 billion came from BPO. We, as a company, see tremendous opportunities in this space. They are more towards transaction processing than call centres and we're also experimenting with providing services from low-cost destinations in India. Today in India we may not have good roads to all parts of the country, but we have excellent communication links. The state governments are very proactive and the costs have also come down quite dramatically in the telecoms sector. What are your plans to move further up the BPO value chain from transaction processing? The volumes may be in transaction processing when we do work for the financial services and insurance sectors, but there are also higher value-added services in our BPO customer base, including knowledge process outsourcing. What proportion of Satyam's revenue comes from BPO and how do you see that growing over the next 12 to 24 months? We're close to $US1 billion in revenue for software services. BPO is something we've just started. There are about 2000 people in our BPO organisation now, out of 32,000. In numbers it can grow much faster than the software services business. Are there different challenges in winning BPO customers versus applications contracts? If you look at companies such as Satyam and Infosys, when we started our BPO subsidiaries we wanted them to be separated because of the kinds of resources required in the software industry. That's how it has been done, but more and more customers are looking for a total solution. What sort of BPO activity are you seeing in Australia? Australia and New Zealand manager Deepak Nangia: A few organisations are exploring it, but they are not looking at BPO separately. They are combining it with apps. BPO obviously has more union pressures than pure applications because BPO affects a much larger base that is unionised. Is that consistent with other countries? In Britain there's more noise, but they are also doing a lot of BPO. India's publicly owned banks are looking to outsource transaction processing. What role do you want to play in that? Raju: Our strategy right from the beginning was to focus on the outside market. Now the Indian market is also growing rapidly and, in the past two to three years the focus has been getting into the Indian marketplace. The same goes for BPO. Right now the focus is outside India, but when more and more Indian companies start looking at it we may have a small portion of BPO coming from India. When you compete in India do you benefit from being a home-grown player and do multinationals face the same kind of caution from Indian companies as you might in Australia? It is the other way around, and not only in the services industry. It's also in areas such as infrastructure. Indian customers always want to look at the foreign name and some of the biggest deals have been with international companies.