Saturday, August 11, 2007

Where the Offshore Outsourcers Offshore Outsource


India has long been the offshore outsourcing hot spot for companies around the world to send parts of their business to cut costs. But where do India's outsourcers outsource?

In the first half of 2007, India outpaced Australia and Japan as the largest market for outsourcing contracts in the Asia Pacific region by awarding a total of $1.68 billion worth of contracts, according to Business Standard. This accounted for 30 percent of the total contracts awarded in the region.

And Indian information technology outsourcing companies are taking advantage of a stronger rupee to launch a record number of cross-border acquisitions this year, The Financial Times reports: “The industry has announced overseas deals worth a total of $1.43 billion in the year to date, nearly double the total for last year, according to figures from Dealogic, the data company.”

“We see this is a one-time phenomenon as this strong growth of India as an outsourcing market may not last long,” Siddharth Pai, partner and managing director at sourcing advisory firm TPI India, told Business Standard.

Yet working on Western contracts in India isn’t enough anymore for Indian outsourcers, Forbes noted not too long ago:

Now, after profiting for years from the outsourcing boom that brought riches to their doorstep from the developed world, they are sending work to locations across the globe in search of specialized skills and new markets.

So where do India’s outsourcers outsource?

China, the Philippines, Malaysia, Vietnam, Brazil, Romania and Morocco — you name it. And Indian information technology majors have already set up base there or bought controlling stakes in local companies.

India’s largest software services company, Tata Consultancy Services (TCS), announced earlier this year that it was adding 250 employees in Uruguay to service 40 clients in the U.S. and Caribbean markets. TCS recently reported a 55 percent increase in earnings to $291 million on a 42 percent increase in sales to $1.3 billion for its first fiscal quarter ended June 30 compared with the similar quarter one year ago.

India’s third-largest IT company is expanding in Curitiba, Brazil, and sites in Finland and China.

As with other Indian offshore firms, India’s second biggest outsourcer is diversifying its development locations by opening facilities worldwide, including offices in China, Vietnam, the Philippines, eastern Europe and Latin America. In January, the Indian outsourcing giant announced plans to expand its operations in the United Kingdom, creating 500 new jobs in the process. And in February, Wipro said it plans to set up a 250-seat call center in Bucharest, Romania.

Last month, reports came that Wipro was “in the advanced stages of finalizing a plan to build a software center in Atlanta, Georgia; the facility, the first of four centers planned for the U.S., is expected to accommodate up to 1,000 employees over the next three years, according to ComputerWorld.

This week it announced its plans to take over its U.S.-based peer Infocrossing for $600 million — the largest overseas acquisition by an IT firm from the subcontinent.

The acquisition is the latest in a wave of foreign merger-and-acquisition deals by Indian companies “aiming to penetrate new markets and access latest technology by buying foreign firms,” Reuters reports, pointing to Wipro’s larger rival, Infosys Technologies, which last month signed a $250 million outsourcing contract with Royal Philips Electronics and bought three of the Dutch firm’s back-office centers to extend its presence in Europe.