India may not always be the perfect fit for outsourcing deals

When it comes to outsourcing, India is usually the destination of choice, but depending on the circumstances it may not always be the best decision for a business, explained Forrester at its annual Services and Sourcing Forum.

Indian pure-play providers have many benefits in providing global support, said Stephanie Moore, Forrester vice president and principal analyst. For example, the Indian providers have a lot of experience in supporting customers remotely, whereas the global multinationals are used to supporting customers locally in locations around the world.

However, India does have its drawbacks as an area, said Moore in her keynote. India is more expensive than many locations, travel can be difficult and the India’s infrastructure has difficulty supporting its growth, Moore added.

“One of the most important issues companies struggle with is time zones,” Moore said, adding “you don’t want critical systems supported by someone on the night shift, who probably isn’t the brightest in the company.”

Also businesses need companies with similar language and cultural efficiencies because “with translation very poor, there is even more risk on the communication capability of the relationship,” said Moore. It is difficult for many European companies to offshore to India because Indians generally only have knowledge of Hindi and English.

Also, now businesses are starting to outsource infrastructure, it means mainframe operation skills are more in demand, and India lacks these skills. If you want cheap mainframe skills, you are better off in Brazil, which has a larger number of banks, than in India, Moore added.

Moore said that some of her clients just want to outsource to cut costs, in which case alternate geographies might be the best choice. “I have a French client where we did a big study of where the best place for their global sourcing needs was and it was Vietnam that has good French language skills and cheap labour costs of six euros per hour, which blew India right out of the water,” Moore said.

“Although China is often assumed to be the answer to the problems occurring in India, because of its large amount of resources and strong education systems, China is not that appropriate for Western companies”, Moore said, adding “China will be an answer at some point but not for the next three or four years or so.”

China has language issues and intellectual property issues, such as companies are hyper sensitive about privacy related customers data, More said. “Also, there is not a mature market there yet, with the largest indigenous service provider having just under 2000 people…If you want to go to China, you have to work with: IBM, EBS, Accenture, Tata, Infosys, Cognizant—folks that have the more mature capabilities there,” she added.

Moore also pointed out that “China is booming and has the largest growing middle class in the world, so they have a strong need for IT professionals internally and do not necessarily have a large amount of IT people for export yet.”

However Moore did point to Cognizant as a provider trying to make an in-print in the Chinese outsourcing market. “Today Cognizant has only 500 people there but in some cases it is discounting services or Chinese labour to get Americans and Europeans to use the Chinese market,” Moore explained.

In terms of Eastern Europe for outsourcing, it is a great option for European companies but the issue again is scale, Moore said, adding “there are not that many IT professionals and everyone is trying to suck them up.”