Indian Firms Set Up Shop in Europe, Mexico
September 2, 2004

The next back-office job that goes to an Indian outsourcing company may not be moving as far as you think.

In a bid to tap new markets and satisfy customers keen to outsource to more than one location, India's back-office service providers are setting up shop in other countries.

Bangalore-based Infosys Technologies has a back-office subsidiary, Progeon, that has opened a center in the Czech Republic, while Mphasis BFL's arm, MSource, has a contact center in Mexico.

WNS Global Services, India's largest independent back-office services company, is opening a center in neighboring Sri Lanka.

"It is more from a customer perspective," said Raju Bhatnagar, president of ICICI OneSource, an outsourcing company that is majority-owned by India's ICICI Bank and one of its subsidiaries.

"If the vendor, however reliable, has a single delivery center, it forces the customer to look for a second vendor outside India, rather than put all his eggs in one basket," said Bhatnagar, whose company announced the purchase of a Chicago-based business on Wednesday. "If I can bridge that gap, I can keep business from going to another vendor."

Sujay Chohan, research director of consultancy Gartner India, said geographical diversity is also important for backing up data for disaster recovery purposes and for offering different language skills.

"Today, Indian companies are guilty of servicing mainly English-speaking countries," Chohan said. "If you are going to support customers in Europe, you have to have something in Central Europe. It does not have the same cost levels (as India), but it has comfort levels, language skills."

A push for non-English speaking clients is what led Infosys to the Czech Republic and Mphasis to Mexico. The expansion overseas is also part of a wider global push by Indian companies, some of which are making foreign acquisitions.

Revenue from India's outsourcing industry has grown to $3.6 billion, mushrooming in and around key cities such as Bangalore, Bombay and New Delhi. It employs 245,000 people, six times as many as five years ago.

While India has 80 percent of the offshore outsourcing business today, Gartner estimates the country will see its market share halved by 2007.

"There are today 28 countries that have emerged on the screen in the past year," Chohan said.

"Who is going to take business away from India?" he said, pointing to countries such as Malaysia, the Philippines, South Africa and Vietnam. "It is these countries chipping away. It does not matter that some of these are high-cost...If cost was the only driver for BPO (business process outsourcing), then India would have been doing $10 billion today."

The Philippines, which already has a strong industry offering back-office services, is high on the list of overseas locations for Indian companies. Daksh eServices, recently acquired by IBM, and Hinduja TMT have operations there.

The need to find skilled workers is another attraction of overseas locations. Nearly half the workers in some Indian outsourcing companies change their jobs or leave the industry every year. Quality suffers as companies focus more on recruitment than on training.

Talented youngsters often leave the industry in frustration. Companies who hired aspiring, English-speaking 20-something workers have found these staff are hard to keep.

With such challenges at home, Indian companies would do well to look for talent in other countries, Gartner's Chohan said.

That is exactly what WNS did by going offshore.

"Sri Lanka is a boutique business process outsourcing destination that offers highly qualified English-speaking staff with specific expertise in professional services such as finance and accounting and commercial law," said Neeraj Bhargava, group chief executive officer of WNS.

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