When the Indian outsourcing phenomenon first burst onto the U.S. corporate stage just a few years ago, the outsourcing companies maintained some personnel in the United States to stay in touch with customers. But the vast majority of their engineers, software designers, and programmers were in Indian cities such as Bangalore, Hyderabad, and Chennai (formerly Madras). The work, whether supporting information technology systems or performing business process outsourcing, was labor-intensive and could essentially be uploaded to the Internet in the United States and downloaded in India to be completed. The business model was relatively simple and India-centric.
But something happened on the way to the future for the Indian players, the top six of which — Satyam, Wipro, Infosys, Tata Consulting Services, Cognizant Technology Solutions, and HCL Technologies — are known by the acronym SWITCH.
The increasing complexity of contracts with big U.S. customers; growing wage pressure at home; the rising value of the rupee; and a fierce counterassault by IBM, Accenture, and Electronic Data Systems (EDS) (recently purchased by Hewlett-Packard Company) have obliged the Indian companies to go global and create new multinationals that are much less India-focused. “The Indians are reshaping their business model and are trying to move up the value spectrum,” says Tarun Khanna, professor at Harvard Business School and author of Billions of Entrepreneurs: How China and India Are Reshaping Their Futures and Yours (Harvard Business School Press, 2007). “They’re trying to reinvent themselves in much the same way that Japanese car makers did after they started making basic cars. When other people started offering simple cars, they moved up and began to make more complicated cars.”
Today Indian firms are expanding rapidly in the United States and elsewhere. They are also moving into traditional business consulting and striking new kinds of partnerships with clients — all of which mimic more closely the structure and business mix of the major U.S. outsourcing consultancies. Thus the battle between the fast-growing Indian outsourcers and the big U.S. firms shapes up as an intriguing test of the ability of companies from emerging countries to go toe-to-toe with the best that the West has to offer.
Consider the case of Cognizant, which has maintained a headquarters in Teaneck, N.J., mirroring its other headquarters in Chennai. The company has about 12,000 employees in the United States and 40,000 in India. Altogether, it operates in 25 countries. Cognizant’s largest U.S. customers include J.P. Morgan Chase & Company and Kimberly-Clark. Chandra Sekaran, president and managing director of Cognizant’s global delivery division, based in Chennai, explains that the firm has adopted a three-tiered model for performing its services. First, it has global delivery centers in India and China that work for customers around the world. These already have, or will soon have, tens of thousands of employees.
Then, for the North American market, it has regional, or near-shore, delivery centers in Buenos Aires and Toronto, where it bases thousands of workers. The goal is to maintain more employees in the same time zones as U.S. customers (so that customers who get on the telephone in the evening to give instructions to India don’t have to wait until the next day for results) but not to incur the costs of having U.S.-based employees.
Last, Cognizant has local, or onshore, development centers in Phoenix, Ariz., and Bridgewater, N.J. In the parlance of the trade, Cognizant is striving to achieve strong “front-end” relationship management with customers, much as an IBM or an Accenture would have, and at the same time maintain a strong “back end” to offer high-quality, low-cost services. “We’re now gearing up for a global delivery model,” says Sekaran. “It’s not enough to have people just at the customer location. You also must have people near the customer location as well as offshore, not just in India but also in places like China.” To be sure, it’s a much more complex model, because now Cognizant is attempting to divvy up the work for a single customer and perform it at multiple locations concurrently, depending on the skills sets and costs at each of its facilities. The management challenges inherent in doing this loom large, and IBM and Accenture have a big head start. But the model has been working for Cognizant so far: Its 2007 revenues were US$2.1 billion, and the company says it is expected to grow by 38 percent this year, to $2.95 billion. Cognizant professes to be the fastest-growing among the top-tier IT companies globally, although each of the Indian firms makes similar claims.