Outsourcing in India Pays Off

Updated: News Analysis: Customers are beginning to look to Indian technology services firms to help cut costs and unify business processes.

MUMBAI, India—Outsourcing to India has delivered rich rewards for a number of companies, freeing up scarce funds to fuel strategic investments and, in some cases, corporate turnarounds. Next up: enlisting Indian partners to revamp business processes.

And those partners are willing. Indian providers are increasingly moving beyond a reliance on labor arbitrage to create intellectual property they can sell to customers. Several large customers told their experiences here at the Nasscom conference.

"Were aiming for 35 percent productivity improvement next year. Working with Indian suppliers will be a key part of that," said Paul Coby, CIO of British Airways, of Harmondsworth, England.

He said BA has already taken great strides, reducing IT costs by 40 percent and cutting $2 billion from the cost of running the airline. BA has 10 IT partners, two of which, Tata Consultancy Services and NIIT, are in India, said Coby.

/zimages/3/28571.gifClick here to read about how India could be home to the worlds dominant IT firms in 20 years.

With the goal of improving customer service, BA started by building a componentized IT architecture with the help of Indian partners. As a result of that work, BA has implemented eTicketing in 100 percent of sales and enables 50 percent of its customers to use self-service check-in.

Despite this success, Coby stressed that BA has not relinquished control of IT. "I believe wholesale outsourcing is ill-advised. If you depend on technology, why would you give it away to someone else," he said. As a result, BA retains control of IT strategy but outsources application development.

But even that level of outsourcing has generated savings that can be put to use elsewhere. "India does what it does best, low-cost, high-quality coding. IT architecture has become a business strategy. The IT revolution is in full swing at BA," he said.

Toyota Financial Services launched a similar customer service push in 2002. "We want to be the best captive financial services company in the world," said Shaun Coyne, vice president and CIO of TFS, of Torrance, Calif. Formerly a quiet unit of the automaker serving its dealers, TFS did not invest in technology and was not customer-focused, Coyne said.

"Four years ago, we moved a lot of work to India. We saved money and pumped it into the customer service strategy," said Coyne. "Were tying it back to business benefit, creating loyalty through customer services," he added, explaining that the unit launched an ambitious effort to broaden its financial services products as well.

Now, through a Web-enabled SOA (service-oriented architecture), TFS has a common platform for use at all dealers worldwide, said Coyne. Backboned by the Web services platform, TFS can use third-party outsourcers for credit cards, mortgages and auto loans through one customer interface, said Coyne.

"We needed to deliver, and the best way to do it was to go to India. I was empowered to make the decision and it has paid off for us," he said. Toyota is in a major push to double its size without increasing its workforce in the next five years. "Toyota is depending on technology, not people, to stay ahead," said Coyne.

/zimages/3/28571.gifRead here about how GM is shaking up the outsourcing industry.

Other customers were intent on cutting costs with the help of Indian partners.

"The U.K. market is very competitive. There is pressure on margins. Cost reduction is at the top of our agenda," said Carol Borghesi, managing director of British Telecom Retail, in London. BT is in the midst of a major technology buildout, spending 10 billion pounds on an entirely broadband network that will result in a switchover from its PSTN (Public Switched Telephone Network) by 2010, Borghesi said.

To free up funds for this push, BT has been using Indian providers HCL Technologies and the Progeon unit of Infosys since 2000 for its contact center needs. "Were having partners build according to our blueprints. We sent two BT people to Delhi and Bangalore each for a six-month orientation.

"Its labor arbitrage for now, but were moving toward innovation," Borghesi said. Tanuja Randery, managing director of business transformation at Colt Telecom Group, a London-based provider of telecom services in Europe, said cost savings have been crucial to her companys turnaround.

Colt sank billions of dollars into a fiber-optic network several years ago, which failed to pay a return. Seeking a turnaround, company leaders sought dramatic cost savings by calling on Indian providers. Colt saved 30,000 pounds but is now working with its Indian partners.

All customer orders are filled through a Colt captive operation in India, whose workers make up about 20 percent of Colts workforce. Although Colt is still losing money, savings are being invested in Pan-European VOIP (voice over IP) services, said Randery.

"India is the platform for re-engineering for us. Its enabling us to unify processes across all countries," she said.

Some observers note that Indian wage inflation could erode customer savings over time, but Randery said she is not worried about wage increases. "I tell people not to worry about that. By the time it catches up, well be in a completely different space."

She said that in the future, customers should call on India for more than justcost savings. "It shouldnt be just left-brain low-value work in India," she said. "We need to manage from India, not from Europe. Its not going to be about cost, but about business processes."

Editors Note: This story was updated to clarify Colts order fulfillment structure in India.

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