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The Indian Offshore Phenomena

This week there was an announcement that Infosys has won a major outsourcing deal with Royal Philips Electronics, worth something like $250 million. As a part of the deal Infosys bought their existing infrastructure including 1,400 employees in India, Poland and Thailand. This positions Infosys as a global player in the BPO outsourcing market, gives them a base in Poland with which to target the European market and shows just how far the big Indian companies have come in the last decade or so.

It has been interesting to watch the progression of the large Indian IT companies. We first started to hear about India as a low cost offshore solution focused largely on help desk types of applications. Those companies were very successful in growing that business and positioning themselves for future opportunities. Following the success of the help desk they have moved "up market" and as we see from the above deal they now play with anyone.

Some interesting points about this transition:

The original value proposition of the Indian outsourcer was price. The cost of labour was so vastly different than Europe and North America that companies looked for significant savings from these companies. The intense competition in India has driven wage prices up significantly ... annual inflation of 18% plus currency rate fluctuations have had a big impact on pricing.

The low priced labour in India attracted most of the large established outsourcers to develop capability in India. For example IBM now boasts something like 53,000 employees in India. This allows these companies to offer more price competitive solutions to their clients.

Attrition rates in the call center business are suggested to be in the 40% range. This was based on numbers from the India Leadership Forum in 2007.

The intense demand for Indian resources has led Indian companies to look at other sources of people! Hence the attraction to Infosys in establishing a foothold in Poland and Thailand. Wipro has established a presence in Romania, Portugal and Brazil!

One of the strategies adopted by the large Indian companies has been acquisitions outside of India. Wipro has been quite active in acquiring mostly European companies in the last couple of years. Again, the Infosys deal provides that same affect.

So ... will we see one of these companies make a big acquisition in North America or Europe? It is entirely possible and rumours have swirled at different times. Whatever happens you can bet on these giant IT companies remaining a global force for many years to come! You can also bet that the traditional players will continue to expand their off shore capabilities in order to be able to compete. Longer term the offshore solution will not provide a huge price differential, however it might just provide the labour that will be needed as the Western world experiences labour shortages!