Offshore invasion

With its huge development centres, India has established itself as the offshore market leader. However, other countries are now trying to challenge it, both globally and within the region.

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By  Neil Denslow Published  September 23, 2002

I|~||~||~|When the Kuwaiti Danish Dairy Company (KDDC) decided to deploy Oracle Manufacturing, it needed an implementation partner. Khaled Daher, IT manager, KDDC, scoured the market for one, but found that there were few companies in the Middle East with the experience it required.

“Only a few people locally have implemented Oracle Manufacturing, so there isn’t much expertise here in Kuwait. Even in the whole region, there aren’t many big manufacturing companies, so there aren’t many people who have implemented it,” he says.

After an extensive search, Daher turned to an Indian company, Satyam Computers, which was able to supply the expertise needed by flying consultants in from India. During the nine-month implementation, up to 20 consultants worked on the project in Kuwait, implementing the solution, developing reports and integrating Maximo, a preventative maintenance package, with the Oracle suite.

KDDC is not alone in looking to the subcontinent, as a growing number of Middle Eastern companies are turning to offshore companies for both implementation and development. Traditionally, Indian companies have had a stranglehold on the offshoring market, both globally and regionally, but now other countries are seeking to loosen India’s grip. Pakistani and Sri Lankan companies are already active in the Middle East, while China is starting to eye up the region as well.

Globally, the growth of the offshore market is fuelled by US spending. Recently, this growth has slowed as companies cut back on IT investments, but offshoring is still racking up figures that are the envy of other market segments. Gartner Group, for instance, says that while only 5% of US companies currently use or plan to use offshore resources in the next 12 months, 26% of these plan to double their offshore budget in 2003, while another 69% expect to increase their spending by more than 150%.

Within the Middle East, vendors from the subcontinent also report a growing interest in the offshore model, as companies here begin to realise the benefits it offers. “Offshoring has great market potential in the next two to three years as the market matures,” says Mohantha Anthonis, business development manager, CharterSoft.

Unlike other regions around the world, the main focus of this growth will be on product implementation rather than development, as the region has few companies with sophisticated enough IT requirements to justify large scale developments of any kind.
Ajith Menon, director of operations, MEA, Satyam Computer Services, says that globally, the oil & gas sector, governments and banks spend the most on offshore development, but most Middle Eastern banks “are really too small to afford large custom developments.”

The development focus is therefore on the oil & gas sector and governments, with some large-scale projects already being undertaken. Tata Consultancy Services, for instance, is currently engaged in a development project for Saudi Arabia’s General Office for Social Insurance (GOFSI), which will take 120 man-years to complete. An estimated 80% of the work is being done offshore in India.

Generally though, implementation projects are much more common as companies deploy large scale off the shelf products, such as ERP solutions. The vendors contend that there are a number of reasons for using an offshore partner, including the ready availability of skills. The large Indian IT companies, for instance, have over 10,000 permanent consultants with wide-ranging skills and they can be quickly deployed anywhere in the world.

“We have a tremendous advantage in being able to augment resources very rapidly,” says Hari Padmanabhan, president & CEO, Insyst Technologies (MEA). “If we get a project that needs to start in two or three weeks, we can get experienced people on board very quickly,” he adds.

Deep Singhania, director, business development, Middle East & Far East Asia, Tata Infotech, adds that the time difference between India and the Middle East also speeds up implementations.

“When the offshore team has a query in the evening, we send it to the Middle East, which is a couple of hours behind. When we come back to work the next morning, we have the answer,” he explains.

||**||II|~||~||~|While speed and resources are attractive, for many companies the main reason for offshoring is the price. “The one constant throughout the entire evolution of offshore development has been cost. It’s very much an issue of labour rates, there’s no getting around that,” says Stephan Lane, research director of IT services, Aberdeen Group.

This cost saving is potentially huge for US companies, and even though labour is cheaper in the Middle East, Syed Mansoor Ahmad, regional business head, Middle East, Wipro, estimates that an offshore company can undercut the local market by up to 30%. On a large project, Indian companies can charge as little as US$20 for an hour’s coding.

Lane says this cost saving can make a significant difference to an organisation’s IT team, as the tasks that are commonly sent offshore are “the kinds of activity that can eat into IT budget and always keep the internal team from being able to focus on new issues.”

Examples that fit this model are application migration, integration or creating a web interface for a legacy application — essentially tasks where the requirements are relatively stable and well known. The Millennium Bug also fitted this model, as companies needed someone to go through several million lines of code to check that the date fields would work.

“[Y2K] was a big boost for the Indian IT industry, as companies there gained experience with a wide range of applications as well as creating relationships with new clients,” says Lane.

When a company offshores a project, the work is usually divided up between an onsite and an off||**||

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