Monday, February 24, 2003		Feature

A fresh wave of foreign business is rolling in for India’s software industry, where low salary costs and a skilled, English-speaking workforce have made the country a world leader. But it’s the big companies that stand to gain most.

India, the world’s second most preferred destination for software outsourcing after Ireland, has nearly 3,000 companies, but only five have revenue of over $ 200 million and another 50 or so have revenue between $50 and 200 million.

"Today we’re hearing that $1.2 billion of the top 25 deals worth $10 billion are moving to India," Noshir Kaka, principal with McKinsey & Co, told an industry seminar in Mumbai.

"Flight to scale for large deals continues. The top five names are reputed and by nature customers will go for larger companies with scale," he said.

Mahesh Vaze, analyst with Refco Sify Securities, concurred. "Size has become important while bidding for strategic outsourcing," he said. "And only a few companies have that."

India’s top five exporters, already working with Fortune 500 companies, are the unlisted Tata Consultancy Services, Infosys Technologies, Wipro, Satyam Computer Services and HCL Technologies.

Cost pressures and the need to get more from every buck spent on technology are making outsourcing to cheaper locations a strategic necessity.

"In the US, a bell seems to have gone off. Offshore is in every single conversation about outsourcing and most of the time that means India," Rita Terdiman, vice-president of technology consultant U.S. Gartner Inc, says

Besides IT services, India is also emerging as a destination of choice for outsourcing IT-enabled services like call centres and business processes like payroll processing and accounting.

Apart from Ireland and India, other preferred places for software outsourcing are Israel, Canada, the Philippines and South Africa. Data from India’s National Association of Software and Services Companies shows the country has the lowest average IT employee cost of just $5,880 per year.

The Philippines with $6,800 per employee per year is closing in while most others are four to five times more expensive.

China, Eastern Europe, Russia, Asia-Pacific and South America are emerging offshore destinations.

As the Indian business matures, clients are getting choosier about whom they use, and for most that means the big companies.

Top Indian firms are looking for $50-100 million a year deals in areas like systems integration and total software outsourcing, where the whole IT division is given to a third party to manage.

Clients also want service providers to have excess capacities at different places globally to ensure business continuity.

After last year’s military stand-off between India and Pakistan, which brought the nuclear-armed rivals to the brink of war, the big companies are rushing to reassure clients that they have a back-up location.

Infosys for instance, is investing $25 million to set up a disaster recovery centre in Mauritius, which will serve as an alternative location if work at other units gets disrupted.