IT Enabled Services White Paper # Outsourcing Destination India

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1 IT Enabled Services White Paper # Outsourcing Destination India Page 1 of 17

2 Index Executive Summary 03 Introducing IT Enabled Services.. 04 Advantage India 06 Trends 10 Aptech IT Enabled Services 15 References 17 Page 2 of 17

3 Executive Summary In the fast-paced business world of today, Focus on your core competencies and outsource the rest! Studies have shown that companies that outsource their support services are more efficient and profitable than those who try to do it all in-house. You save in terms of time and money thus leading to reduced costs and increased competitiveness. The same principles apply to IT as well. When you outsource IT or any functions there of you need to tread carefully as IT has become an essential part of any organization that needs to survive the new economy rush. The demands on IT by any organization have compounded to heights that technology obsolescence; quick turnaround time with accuracy is the factors for deciding your IT functions, solutions and processes. While not ignoring costs and returns on investment it becomes a tough choice for the managers to decide what solutions to deploy and when to deploy. Outsourcing these functions of IT is the answer to the problems. The outsourcing service providers located in Asian countries especially India provide a definitive advantage to companies in the US or UK as they have a virtual 12 hour time difference and cheap labor. With multiple clients the loss of investment due to technology obsolescence is low. IT Enabled Services is one function that can be easily outsourced to these service providers. Given India s vast pool of English speaking and technically proficient IT talent, cost advantage, adaptability, reliability, time zone advantage and communication skills, India continues to be the best internationally positioned country for crossborder IT services. Firms of all sizes are turning to offshore companies because of the IT skill shortage in the U.S., the rising cost of domestic labor and the proliferation of Internet technologies. As operations move to the Internet and standardized services, organizations will be able to grow virtually through their outsourcing partners. In the process also enhancing their traditional process by IT enabling them. Page 3 of 17

4 Introducing IT Enabled Services IT Enabled Service (ITES) implies any activity carried out based on the application of Information Technology. IT Enabled Services cover the entire gamut of services which exploit information technology for empowering an organization with enhanced operational efficiency or any other task that would have not been cost effective to render without IT. ITES could be internal to the organization or could be outsourced. Retaining the ITES internally is meant to increase the operational efficiency through work force residing within the organization The outsourced or cross-border IT enabled services is now receiving greater attention as this category of ITES has a great potential for growth and contribution towards specialized services. Animation Web Site Services Secretarial Services Medical Consultancy Remote Education elearning Finance and Accounting Services Engineering and Design Services Network Consulting and Management Data Search, Integration and Analysis Customer Interaction Services - Call Centers Transcription & Localization - Medical Transcription Human Resources Services - Payroll, Resume Management Marketing Services such as bureaus for marketing products IT Enabled services are today permeating every element of the value chain, providing tremendous opportunities for Indian players to provides remote services of many kinds. In recent years, most of the Fortune 500 companies have started the trend of concentrating more on their core competency areas and outsourcing non related areas to other specialist organizations. Undoubtedly, I.T. Enabled Services is an essential infrastructure for larger organizations. However, its very nature is particularly suited to service organizations which experience large turnover of data, have a frequent and extensive customer interface and in which, tolerance for mistakes or customer dissatisfaction is low. Page 4 of 17

5 Some of the industries that outsource are: Airlines Utilities Banking Insurance Hospitality Large Hospitals Financial Institutions Consortiums of Legal Firms Large Manufacturing companies IT Enabled Services Amongst others, the spectrum of I.T. Enabled Services applications already evident in India include Payroll, Call Centers, Legal databases, Medical Transcription, Logistics Management, Insurance Claims Processing, Content Development/Animation, Back Office Operations, Revenue Accounting and other ancillary operation. Page 5 of 17

6 Advantage India India adopted the English language under the colonial rule of the British. By the time India gained independence, English was a well-established language. Thereafter, India concentrated on developing skilled scientific manpower by opening governmentfunded centers of excellence and public sector industries. The urge for self-sufficiency and the encouragement for research fuelled the scientific temper of this nation. Many Indian operators have college degrees and earn $3,000-5,000 a year. While their counterparts in U.S. are usually less educated but command wages of $18,000-20,000 a year the former CEO of GE Capital Offshore development is methodology adopted by Indian software companies for providing a competitive advantage to their clients. This concept, where outsourcing companies replicate client's offices in an Indian based development center, has proven to be very successful. Setting up an exclusive facility of a client As spending shifts to the new Internet and package-based services, organizations will be able to extend their use of offshore models. Given India s vast pool of English speaking and technically proficient IT talent, cost advantage, adaptability, reliability, time zone advantage and communication skills, India continues to be the best internationally positioned country for crossborder IT services. Indian Advantage Time Zone 12 hrs with North America, 5-8 hrs other countries 24X7 support facility by running appropriate shifts. Human Resources 14 Million English speaking graduates. Largest English literate manpower out side US Cost of carrying out the processing work in UK or US is about 3.6 times more than that in India. The best on Most counts Labor quality, labor cost, labor availability, labor turn over among other countries like Singapore, Malaysia, South Korea, Thailand, Taiwan, Japan, Indonesia, China and Vietnam. Page 6 of 17

7 Outsourcing IT Enabled services to India offers many advantages like. A virtual 12-hour time zone difference with USA and 6 hour with UK. A huge pool of English speaking and computer literate graduate manpower. Cost of qualified personnel is amongst the lowest in the world Stable legislative and economic framework Support of Government bodies of India for all IT led industries. India enjoys very strong brand equity in major markets, thanks to its growing and globally competitive software industry The following Pare Analysis depicts India's relative positioning over other competing countries Western companies, such as Bechtel, GE Capital, British Airways and many others are already benefiting from ITenabled services provided from India. Bechtel has set up its own engineering design subsidiary in New Delhi. Over 500 employees in this subsidiary provide engineering design services to Bechtel customers over telecom and data networks. The benefits for Bechtel are twofold: the company s transaction and salary costs are greatly reduced; and it can now cover customers in different time zones. In India all latest Software's are available at the same time as in US with fully operational offices of companies like Microsoft and IBM that can provide any help in case there is any problem with the Software provided by them. Page 7 of 17

8 With lower operational costs due to low wages and US$ / Pound Sterling being better placed vis-à-vis Indian Rupee (currently One US$ = Rs. 46, One Pound Sterling ( ) = Rs. 71, One Australian $= Rs. 29) outsourcing to India clearly defines cost advantages. Indian companies have an excellent Communication Network, which provides for Leased Lines, Electronic Data Interchange (EDI), Gateway Packet Switching System, Transponder Lease Services, Managed Data Networks, Inmarsat Mobile Services, Internet Leased line Services, ISDN, Intelsat Business Services, Normal TCP/IP Internet Dial-Up Access, besides normal internet TCP/IP Dial - Up Access and Video Conferencing. Human Resource Services Customer Interaction Services Finance and Accounting Remote Education Total Amount 125 Billion $ Data search, Integration and Analysis The above graph shows the break up in the amount of business outsourced to India. A World Bankfunded study in the United States confirmed that vendors rated India as their number one choice for outsourcing. What is behind India s success in providing efficient software solutions? Some say that it is the mathematical ability of Indians, noting that India invented the numeral zero. Others point to the cost advantages and timely execution and delivery of software. In truth, these and other factors are involved. Notable among them is the growth rate of the Indian software industry. The compounded annual growth rate over the last five years is nearly 55 percent. Organizations that have outsourced to India have discovered that Indian software companies have substantially helped to cut costs in software development projects or MIS environments while maintaining high quality. In , more than 131 of the Fortune 500 companies outsourced their software requirements in India. Page 8 of 17

9 The 61 Indian software companies that have acquired ISO 9000 certification indicate the quality of software produced by the Indian software industry about 52 more such companies are in the pipeline. The Indian software industry will soon have more ISO 9000-certified companies in software sector than any other country. This high quality is one of the main reasons that companies are choosing to outsource to India. While the expansion to India conjures up images of an increasingly diverse and multi-cultural corporation, those who benefit from this partnership are ultimately the investors and corporate executives of the company. International Rating on Outsourcing Destinations Business India May 15-28/ 2000 Country Labor quality Labor Cost Labor Availability Labor Turn-over Average Grade India Vietnam China Indonesia Japan Taiwan Thailand S. Korea Singapore Malaysia Hong Kong Note: 0=Best; 10= Worst. / 2000 Page 9 of 17

10 Trends The upswing in outsourcing coincides with a period in which evolving information technology is stretching the abilities and resources of IT departments. IT must struggle to cope with the ongoing operation of legacy systems while at the same time implementing new architectures. The new architectures support the move to flexibility in a global market place and involve networks that integrate computers internal to the company and connect the company's computers with computer systems of customers and suppliers. Outsourcing provides a means of sharing the combined burden of the past and the future Top 10 reasons for outsourcing 1. Improve company focus 2. Reduce and Control Operating costs 3. Improve quality 4. Reduce time to market 5. Foster Innovation 6. Make capital funds available 7. Access to world class capabilities 8. Free resources for other purposes 9. Resources not available internally 10. Accelerate reengineering benefits Page 10 of 17

11 10% 25% 47% 16% Typical Day a of a Financial Manager Financial managers are still spending the bulk of their days on non-strategic tasks. U.S companies are increasingly using offshore outsourcing firms for software development projects, according to a recent report from International Data Corp. (IDC). Firms of all sizes are turning to offshore companies because of the IT skill shortage in the U.S., the rising cost of domestic labor and the proliferation of Internet technologies. According to IDC, the gap between the number of IT workers needed in the U.S and the number actually employed will reach 328,660 in 2002, from 72,003 in That scarcity of skilled resources will drive an increasing number of companies to use some offshore IT services. Manpower estimates: Control and Risk Management Decision Support Transaction Planning Other IT ENABLED SERVICES Workforce Employed (estimated) Back Office Operations / Revenue Accounting / Data Entry / Data Conversion Remote Maintenance and Support Medical Transcription /Claims Processing Call Centres Database Services Content Development / Animation Total Source: NASSCOM Page 11 of 17

12 Outsourcing Shifts to BPO BPO or process management outsourcing is starting to take hold, as companies recognize the need to enhance competitiveness by focusing on core competencies. This is evident from the growth in companies that are currently outsourcing, or considering outsourcing process areas such as Customer Service, Human Resources, Finance and Administration. These services are more successfully achieved when IT Enabled. Outsourcing growth rates in administrative support together with marketing and sales support are each projected at 30 percent over the next 12 months. As in years past, information technology continues as the mostmentioned area to be outsourced, with 34 percent of the c o m p a n i e s s t a t i n g The Outsourcing Index 2000 shows expenditures for IT represents more than 20 percent of all outsourcing expenditures. One of the fastest growing areas for outsourcing for the third consecutive year, with an expected 18 percent growth rate. t h a t t he most significant project would be in IT. Outsourcing has clearly arrived in the finance and accounting function and is increasingly being applied to one of the most sensitive parts of a company s operations marketing and sales. Page 12 of 17

13 Organization Trends IT Enabled Services Overall companies tend to outsource to alleviate administrative burdens and focus on strategic areas. See the figure below. The GE Way The world's most revered chief executive Jack Welch has introduced a new rule, it is called the 70:70:70 rule. Apparently, it has also been ed to GE employees across the world. Welch has decided that 70% of GE's work will be outsourced. Out of this, 70% will be done from offshore development centers. And out of this, about 70% will have to be done here in India. This ultimately boils down to about 30% of GE's work being outsourced to India Amazing Amazon While Amazon customer service employees already earn lower wages than unionized customer service employees across the United States, a full-time customer service rep based in Seattle may still earn $11 an hour. At 40 hours a week, the monthly cost of this employee, in wages alone, might be more than $1,900. While by researching prevailing wages for service jobs in India's IT industry, WashTech found that highly skilled, fulltime customer service positions in India offer between 5,000-8,000 rupees a month. At the current exchange rate of about 45.6 rupees to the U.S. dollar, this salary is equivalent to only $ US dollars a month. Page 13 of 17

14 Outsourcing Strategic Benefits: PWC Report [Australia, Canada, Europe, Japan, SA, USA] General Survey OSC Achieve Cost Reduction 79 % 81 Focus on Company Core Business 75 % 90 Improve Service Quality 70 % 84 Maintain Competitive Edge 67 % 92 Increase Shareholder Value 67 % 75 Obtain expertise from outside organization 61 % 68 Have access to advanced technology 60 % 62 Achieve world class standards / benchmarks 60 % 62 Make continuous improvement in process 60 % 61 Page 14 of 17

15 Aptech IT Enabled Services Corporate Profile Aptech is a premier Information Technology Company with worldwide businesses in high-end Software Services, Consulting and IT Training. Aptech employs approximately 2000 professionals in its offices and development centers across the world. Generating a turnover of USD 124 million. Established in 1986 in India, Aptech is present in over 40 countries through its training arm, and across 10 countries through its software solutions arm. Aptech has leapfrogged the legacy layer to move up the software value chain. Its expertise is helping clients all over the world web-enable their legacy systems, digitize workflows and processes and extend their enterprise. Today Aptech is helping international clients define new areas of IT applications that leverage their core competencies to create new value, revenues and profits. Aptech's business and technology professionals are driving this with a strong consulting approach backed by a wide repertoire of world-class solutions in e-commerce, embedded systems, Knowledge management, business intelligence, groupware, and data acquisition systems. Today, Aptech has full-fledged software operations in USA, Europe and Asia. The focus is on a two-pronged expansion plan organic growth coupled with acquisitions of software companies in US and UK that bring in complementary technology expertise and a strong local client-base. Aptech's customer-focused solutions are backed by a seamless infrastructure of on-site development teams, proximity development centers, dedicated offshore factories and comprehensive offshore development centers. Aptech is expanding its human resources base and doubling its offshore capacities through a 100,000 sq ft. center in India's largest High-Tech IT Park in New Bombay. With growth as the millennium mantra, Aptech is poised to play a frontline role in the high-end global software solutions arena. Page 15 of 17

16 Aptech ITES Aptech's IT Enabled Services Division delivers comprehensive outsourcing solutions that enable clients to centralize and streamline operations and focus on their core competencies. To achieve significant, sustainable improvements in the quality and speed of business, our sophisticated infrastructure, cuttingedge technologies and a skilled, English-speaking team are committed to deliver on a hrs turnaround time. Aptech ITES has invested in 100,000+ sq ft of Operation area with 2MB + 2MB dedicated Bandwidth & state of the art infrastructure. Our major offering involves cross-border outsourcing services to clients across the world, delivered over state-of-the-art telecommunication and data networks. Business Process Outsourcing We manage a client's business processes remotely. Anywhere anytime. The processes are outsourced through our BPO suite, comprising all functional areas that have significant back offices. We offer services in the following areas. Finance & Accounts Mgmt Supply Chain Mgmt Human Resource Mgmt Online Information Management Services (OIMS) We convert a host of physical information and communication functions into fast and responsive digital formats. We offer services in the following areas. E Cataloging Document Mgmt Forms Processing (Medical, Insurance, Coupons etc.) Transaction Processing (Checks, Remittance etc.) Information Search and Research Services (isearch) This is a unique service created to provide Information search, Content Aggregation from the Web and Commercial Databases and Research services to corporations and institutions around the world. Our dedicated teams of Internet Researchers focus on searching and refining the data decision-makers need. And deliver it at the time and place the client wants it. We offer services in the following areas. Query Based Services Directories & Databases Research & Analysis Page 16 of 17

17 References Aptech Limited NASSCOM National Association of Software and Services Companies Washtech Cadence IDG News Service\Boston Bureau The Outsourcing Institute Page 17 of 17