Indian IT firms expand abroad as global delivery dynamics change

Leading Indian IT services firms are in the process of significantly changing their business model to combat the downside of rupee appreciation and meet the increasingly complex demands that their growing businesses are making on them.

The global delivery model, which largely meant offshoring work to India, is partially, at the margins, giving way to a model which lays greater stress on improving near-shore presence, that is locating more staff and development centres within the developed economies where most of their customers are based.

The companies are setting up development centres closer to their customers to be able to work in the same time zone. This helps the vendors to penetrate deeper into the local markets with a strong local delivery network.

T V Mohandas Pai, director for human resources, Infosys, sees this trend as a change in the way Indian software firms do business. "The global delivery model has entered the third phase. Earlier, companies were operating in their own countries. The second phase was offshore centres like those set up in India. The third phase is near-shore centres to work closely with customers, probably in the same geography. All Indian companies are adopting the model," he said.

According to him, there are several advantages from working close to the customer. First, customers are happy to have their projects running close to them and in the same time zone. Second, with dollar getting cheaper, Indian companies can reduce their operating costs by locating to a dollar area. Third, there is greater scope for market penetration as a 'local'.

"IT companies, which have presence in various countries, can actively consider more projects within those geographies. This will enable Indian companies seek projects from companies which are not keen on offshoring work to locations thousands of miles away," he pointed out.

He noted that Infosys now has centres all over the world. "We have a presence in the US, Mexico, Canada, the UK, Germany, Mauritius, Philippines, Australia, Thailand and China. All these centres are catering to the respective clients in those countries," he added. A few years ago, Infosys had a presence at only one location outside India "" Toronto in Canada.

Similarly, Wipro has 48 centres worldwide compared to handful a few years ago. In Europe alone, Wipro has eight centres, including one in Romania and two in Portugal. Recently, it opened two centres each in China and Brazil and one each in Canada and Mexico.

During the Q2 results announcement, Wipro Chairman Azim Premji had said, "We believe that while operating overseas, we have to localise. We have done that extremely successfully in Japan and Europe and got dividends for it. We are systematically doing that for the US and North America now. Our global delivery model requires about between 25 per cent and 30 per cent of our people to work with our customers overseas."

Recently, Wipro opened a centre in Atlanta in the US which will displace people Wipro sent from India on H1B visas with people who will be hired locally.

"So net-net it will not mean an extra cost to us. In fact, the people we hire locally will be significantly from campuses like we do in India. We will bring them to India for induction training for 10-12 weeks, train them here and send them back in terms of building a cadre or professionals who will serve us going forward," he added.

Premji also pointed out that Wipro would realise the same high degree of utilisation from the local recruits as was achieved when staff were sent from India.

"Depending upon the results of this initiative, we would like to duplicate it in a few more centres in the US. Also, because we are locating these centres in states like Georgia, which are very competitive for encouraging employment, we have also got some amount of fiscal subsidies from the state government, which acts as a nice cash flow," he said.

He said Wipro could also bid for local projects in the process. "It means that with the local presence and local employment, we stand a much better chance in state government contracts. So there are multiple advantages."

The country's largest software exporter TCS, which was the first to localise, has in excess of 46 development centres worldwide.

The top BPO firm Genpact has a global network of 25 delivery centres in nine countries "" India, China, Hungary, Mexico, the Philippines, the Netherlands, Romania, Spain and the US.

According to company officials, the presence provides multi-lingual capabilities, access to a larger talent pool and near-shoring capabilities to take advantage of time zones.

Hyderabad-based Infotech Enterprises has over 10 per cent of its staff (6,300 people) located onsite. Of the 12 global delivery centres the company has, six are in India (Hyderabad, Bangalore and Noida) with the rest in North America and Europe, where most of its global clients are located.

According to Infotech Enterprises CMD B V R Mohan Reddy, a good onsite presence is needed for the company as over 94 per cent of its annual revenue comes from exports. Infotech Enterprises, which provides engineering design outsourcing services, has clientele like Airbus, Bombardier, Alstom, P&W, Tele Atlas and Philips.

Industry sources say access to certain specific IT skills in many onsite and nearshore locations is also one of the reasons for Indian IT firms to expand their global delivery capacity.

"Indian techies are more comfortable with newer technologies than the legacy skills needed to work on platforms like mainframe. Many of the North American and European countries offer certain skillsets, which are not sufficiently available in India," said a source.

Market analysts feel it is also the sign of the maturity of the industry as it is seriously looking to go beyond labour arbitrage.

"Depending upon the areas they operate in, Indian IT firms are now realising that there are certain services which need to be delivered nearshore and in an onsite environment. Besides, having a centre closer to the customers locations also help them gain access to certain language skills," said Gaurav Gupta, country head (India), Everest Group.