My esteemed colleague at AMR Research, Dana Stiffler, who works with me in our Global Business and Outsourcing Services practice, has compiled some thoughts about the recent atrocities over in Mumbai, which we wanted to share with you, discussing the impact on the offshore sourcing industry… over to you Dana:
India's financial markets, including technology company stocks, bounced back admirably following last week's terror attacks in Mumbai.
Initial conversations with Western customers of India’s large and mid-sized IT companies indicated no plans to scale back operations. There will, however, be a marked decrease in the frequency of Western employees’ travel to India in the near-to-medium term, a trend that was already in evidence prior to the attacks due to financial pressures and travel bans.
We’ve already experienced this first-hand as AMR analyst Phil Fersht had to cancel his trips to Mumbai and Chennai this week. Looking ahead, the level of participation in the Indian IT industry’s premiere NASSCOM event, held in Mumbai every February, is also uncertain. It’s about dangers perceived and real: While the attacks had no impact on service levels delivered from Indian locations, nearly all Western visitors involved in the outsourcing industry out of Mumbai have at one time or another had lunch at the Taj, or snapped photos of the Gateway of India and Chhatrapati Shivaji Terminus (formerly Victoria Station).
While the situation in Mumbai creates a heightened sense of uncertainty and risk associated with doing business in India, as long as this proves to be an isolated incident, AMR Research believes the outlook for Indian technology and business services vendors is largely a healthy one. However, further coordinated attacks, especially any affecting other major business and IT hubs such as Bangalore, Hyderabad, Chennai, or Delhi, could alter this picture and cause a much more adverse impact to the Indian outsourcing industry.
Most large, global companies are so vested with captives and outsourced operations in the region, they would find it difficult to start pulling work back. Besides, there is no other single location where the combination of resource numbers, quality, and cost are as attractive. Some potential challenges? The negative perception of mid-sized or smaller prospective clients who have been thinking about offshoring is one. These companies will, understandably, be scared off, or at the very least, delay the decision-making process. Another potential issue: Reducing travel of U.S. or Europe-based executives and project resources could put a dent in relationships, slowing down knowledge transfer and extending transition maturity curves.
From a big-picture perspective, we were already seeing intense interest in global delivery strategies that incorporate locations in addition to India. The events of the past week put an added onus on Indian and other global ITO / BPO providers with large Indian operations to locate incremental resources in other locales, such as Latin America, lower cost US areas, and additional Asian locations. Overall, service providers with more distributed global delivery networks will have an advantage over those relying 100% on India-based delivery.
Dana Stiffler is a Research Director at AMR's Global Business and Outsourcing Services Practice
Posted in : Business Process Outsourcing (BPO), Captives and Shared Services Strategies, IT Outsourcing / IT Services, Sourcing Locations
In a perfect world, you will have a continuity of operations plan for your outsourced work as well as the stuff you keep in house. Since that’s a royal pain, you might decide it’s not worth it to outsource. I’m not gonna make a judgment on that. You know your business better than I want to.
A better strategy might be working an actual contingency plan. So, have two IT contractors and split the work. One is in the US, one is in Hyderabad. What do you win. You divide the labor. You have 24 hour support, without paying overtime. You can have them work different projects, but cross train them for continuity of operations. You are insured against a single disruption. You are not protected against a global calamity. You probably don’t need to be. If the world is falling apart, your IT support should be the last of your concerns.
I don’t know that it’s going to change things that much. But, more dispersion would probably be a good idea for reasons beyond terrorist risk mitigation.
Mumbai events would slow down decision making process as far as captive set-ups are concerned, however outsourcing / offshoring will go on as usual. I am not experiencing any changes with existing processes and new transitions.
As of now, most of the outsourcing players have defined business continuity process in place, and large support centers are diversified over multiple cities. The global delivery model is a common practice which has proved successful for quite some time now in the outsourcing market.
However, as an outsourcing professional, I’m concerned regarding the recent happenings, the economic meltdown and terror-risks.
Though there is no doubt that the event has cast dark clouds on Mumbai’s reputation as a BPO Delivery center, overall it is not going to have any significant effect on India’s image as an Outsourcing/Offshoring hub, though as mentioned, it may lead to some delayed decisions and raised anxiety levels.
For most of the BPOs operating in India(both captive as well as third party), Mumbai is no longer the preferred delivery center due to various factors like Infrastructure crunch, high rentals, resource crunch etc. Most of the Indian as well as Captive MNC BPOs have delivery centers in locations like Bangalore, Chennai, Gurgaon, Pune, Hyderabad etc. In some cases, the same client is services from more than one delivery location as a Risk management strategy.
Though there are terror threats to these locations as well, they have not been significant enough to cause anxiety. Additionally, some Indian BPOs have started operations in Tier II Cities as well, which provided significant cost reduction as well as optimal risk management ( Though mostly third party service providers have taken this route) and also are not a part of the terror threat list. Also, offshore Disaster Recovery Sites are nowadays primary offering as well as strategy of all major BPO ex: Infy’s DR location is Mauritius.
However, Indian BPOs have indeed started considering Global Delivery strategies, with major players starting their own delivery centers in China, Latin America etc. This gives them leverage when they respond to RFPs/RFIs etc as well as enable them to exploit resources and benefits offered by additional locations. One of the mid term effect of the happenings in Mumbai is that such players will get an edge in selling their services.
Overall, though in the Medium term there may be some apprehensions which may lead to the slowing of pace of offshoring to India, there may not be a significant effect in the long term ( unless the Indian government is callous enough to let such an act repeat), considering that India still offers various attractive benefits that are hard to ignore.
It is relatively too early to tell and these events can happen in any nation. My personal experience last week I received calls from U.S outsourcing firms that had operations in India and are looking at speedy entry into other outsourcing locations in Asia…but again these could just be early panic attacks.
I do think the events have shown how volatile the region is (Pakistan – India) but India has has a long history in outsourcing and I expect the situation to spark some early diversification but an overall effect would likely be very minimal as someone has already pointed out that many clients work with multiple vendors from different regions so it should balance out the effect. Just my 2 cents.
Mumbai is very important to India from the business perspective but for offshored services, whether IT or Business Process, it isn’t that relevant. Chennai, Hyderabdad and Bangalore are much more important for international customers and luckily no attacks happened there.
India isn’t North America or Western Europe. One of the reasons that services are cheap there is that the country is developing and their is still some potential instability there. Although this incident seems particulalry bad, it must be remembered that there are ongoing disputes, which flare up from time to time. It must be remembered that India is very big so trouble in one part may affect nothing in other parts (for example, the Kashmir situation).
Although some companies may be less likely to send staff to India to support outsourcing, the killer to ITO/BPO is simply that offshoring costs a lot of effort and in the current economic downturn, the business may well be in-sourced.
You have presented a very balanced outlook. In all fairness, with or without Mumbai attacks, all companies are anyway well-advised to diversify their risks. Post-Mumbai attacks, I think the process of diversification of risk portfolio will only speed up. This will also help India / Mumbai-based businesses to further improve their offerings in the wake of an increased (threat of) competition. However, for the same reason offshorers could not create a critical mass elsewhere, it will be equally, if not more, difficult to create a sustainable critical mass in those very regions. There will surely be headline-making stories in the coming time, and I won’t be surprised if some marquee names pull out of India / Mumbai – some might do anyway due to other economic reasons, and many might do to put increased pressure on Govt to address the security atmosphere (which is also good). It also brings a problem that everyone knows but no business wants to be the first to address: highly congested IT hubs. As a DR strategy within India, I hope businesses try to move out of the Mumbai/Bangalore/Hyderabad/NCR mindset and explore other mid-tier cities, which also brings the benefit of lower operating costs, among other things.
Over the period of time the outsourcing work in India has become quite mature. Natural calamities like earth quakes and floods (a terrorist attack is no different) were always a part of risk management. The mitigation includes running projects from different physical locations and having round the clock support teams operating from different locations (even outside India).
To manage such a disaster, large scale companies have even created global support centers outside India to cater to its onsite and offshore operations and they are also responsible for backing up the project data on a periodic basis. But the issue here is just not confined to the direct impacts and solutions of such a disaster. Such type of crisis also has an indirect effect on the confidence of the clients in the vendors. The physiological effect of such a terrorist attack may be more than what we think and is also not quantifiable. A possible solution is to act proactively and make the clients aware of the mitigations that are already in place and assure them that such situations will have no or minimal impact on their business.
However, I think the current economic situation will have a bigger impact on the outsourcing business than these calamities. Most of the vendor companies have already weakened their outlook. But having said that, the IT industry in India may not be able to sustain the past growth rate but it will definitely continue to grow.
– Gaurav Gupta
Dana, I must congratulate you on a great and balanced assessment of the current situation.
As I see it, after 9/11 (while it had nothing to do with the offshoring industry) the perspectives on Business continuity management changed. Similarly, the world will never be the same now, and most things will undergo more scrutiny, more robust planning / testing of the offshore solutions.
Terrorist attacks, which have happened in the past, have targeted common people, however, the Mumbai incident has left everyone shaken, as it impacted the high net worth individuals, tourists and places that normally seem to be ‘safe’. This might impact the confidence of people.
Just like the US, India needs to “react” to the attacks, rather than overcoming this attack also as a one off incident.
I would agree, that the work will keep trickling in, it might slow down, due to the economic downturn rather than the terror strikes.