Indian Exec on Offshoring: Mistakes, Politics and Money

Wednesday Apr 21st 2004 by Sharon Gaudin
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The vice president of a major IT services company in India talks one-on-one with Datamation about offshoring -- from a different perspective. How can U.S. companies ensure their outsourced projects succeed? How much competition is China? And will American political pressure affect their business?

Offshoring high-tech jobs has created a political and industry-wide stir here in the U.S., but what is happening in India where many of these American jobs are headed?

While the labor market there isn't suffering the IT job losses that it is here, Indian high-tech workers have to deal with American customers who aren't yet savvy about outsourcing's demands, says Sunil Chitale, vice president of Patni Computer Systems Ltd., the sixth-largest IT services company in India.

And there's a lot to learn -- for both sides -- since more and more work is going nearly half-way around the world to India's borders. Just last month, industry analyst firm Gartner, Inc. released a study showing that one quarter of traditional U.S. IT jobs will be done offshore, in countries like India and China. That's compared to an estimated 5 percent or fewer jobs that are offshored now.

At Patni alone, the company has shown a consistent growth of 41 percent every year since 1999. Ten years ago, Patni had about 20 customers -- all of them from the United States. Today, the company, which has a revenue of $251 million and has 7,000 employees, has about 150 active customers, and about 85 percent of them are from the U.S. That other 15 percent comes from companies in Australia, Europe and Japan.

In a one-on-one interview with Datamation, Chitale talks about the mistakes companies make when they're offshoring IT work, concerns that American companies will move their offshored work to China, and how the U.S. political climate affects their bottom line.

Q:How do you feel about the public outcry here in the United States about offshoring American jobs?
Certainly there is value people see in outsourcing and getting bottom line results, so most customers we talk to have assured us they want to continue working with us. They want to continue to build the relationship. As far as the jobs being outsourced, I feel that India is doing work that would be similar to manufacturing work but in a software context. Taking a business idea and transferring it to an IT idea continues to remain in the home business space. But someone needs to write the code and someone needs to test it. That work is what is being outsourced to companies like ours.

Q: So far, you've been getting more of the low-end work, but are you seeing an increase in higher-level work being sent your way, as well?
As for the idea or creation part of the business, companies with a mature relationship with us -- say seven or eight years with us -- are looking to us for that. We are participating in both spaces with them. It's less than 10 percent, though. Our mature customers want us to participate at that level because they believe that is where the value is... But we still feel that most customers want to keep the 'secret sauce' or the critical IT in-house and we understand why. It's a very enticing area to enter, but really that is not where our mission lies. That requires significant presence in the U.S. and much better understanding of the business processes and practices. We do want to understand our customers' businesses. But for us to play into that domain, we are a few years away.

Q: Following the public backlash against offshoring in the U.S., there has been some political backlash, as well. Has that affected your business?
Certainly. As you may have guessed, we need our team to visit the U.S. and understand that domain. So there is the need for Visas and work permits. If there is any government support or the lack of there, it affects that part of our business. In the dot-com era, there was a huge demand for programmers and most U.S. companies wanted to increase the number of Visas for people to travel to the U.S. and do that work. That Visa limit has been brought way down in the past year. Because of that if we need to do onsite work, we cannot rely on sending India people to the U.S. We have to hire U.S. people to do that.

Continue on for Chitale's take on outsourcing's high failure rate, advice for U.S. companies and how much competition China is becoming.

Q: Recently, Secretary of State Colin Powell was in India when he assured an audience there that the Bush administration supports the outsourcing of IT jobs. Did that give you more confidence in continued business?
The language of politics is the same everywhere in the world. Assurances from political establishments, especially during an election, does that really impact customer business? I do not know. Does it give us satisfaction and comfort? Certainly it does. Yes, I think so. This administration has supported this initiative. At the same time, there are some state regulations that have been passed that do not support this relationship.

Q: Some industry analyst firms say that up to 50 percent of all outsourcing jobs fail. Do you agree with that number?
People who work with established players will see very little or a very low rate of failures. Maybe less than 1 percent. The failures are very low compared to what the press reports. What is happening is there are a lot of small outsourcing initiatives that are being run with smaller companies that are not mature. And U.S. companies don't understand outsourcing needs. They throw something over the wall and expect great looking software to be thrown back to them. If they think, 'I've told them what to do and they should get it done for me', that's not right. That's not how it works.

Q: What should American companies be doing to make their offshoring projects work?
Companies forget that ultimately this is a relationship-oriented model. You are several thousands of miles away. It has to be based on a common understanding of what is expected out of this. People expect that the way they have been working to keep working. They may be used to walking up to the programmer's desk and saying, 'Hey, can you make these changes and give it to me tomorrow?' The programmer lives on Twinkies and Coke, and works all night. If that's what they're used to, they won't have a good experience outsourcing. And I'm not just talking offshoring but outsourcing to any other company.

Q: What advice would you give to companies considering or actively offshoring?
They need to look at it as a process. They need to realize that writing good software means having an understanding of upper life cycle. You're several thousands of miles away. You're not in the same time zone. That means you need to work with a formal documentation... There are many things to think about. Is the offshoring team available when I need them? Do they have the right availability of people in terms of contacting them? You should be able to see what progress has been made on the work you assigned yesterday. What do you expect? Do you expect that the code will come back to you and you will test it? Do you expect that the code will come back to you and you can deploy it? Do they speak my language? Do they know how my business works? Do you have a formal process that can be measured? Know how often you will review and what you will review.

Q: A lot of business people and analysts are saying that China is emerging as the next big offshoring center. Are you concerned that will affect you?
If China offers a better value in money, I know that companies will go there. We have explored both China and Eastern Europe, and we find that in Eastern Europe the cost advantage just isn't there. As for China, we continue to find that they do not have the English speaking capability required to interact with our customer base. So clearly, for the U.S., I don't think China is there yet. Maybe two to five years down the line, but not yet.

To discuss offshoring with other IT professionals, go to our IT Forum.

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