It used to be said that "Nobody ever got fired for
buying IBM." Nowadays that might be rephrased as "Nobody ever got
fired for outsourcing to India." Certainly the huge chunk of
theIT outsourcing pie still being gobbled up by
sub-continental Asiashows that the twin
attractions of low-cost expertise and cultural compatibility -
especially in terms of spoken English - are still exerting a strong
pulling power.
The value of the Indian software and services sector is
projected at more than £15bn for the 2006-07 financial year. And a
survey by the National Outsourcing Association shows that the
perception of sub-continental Asia as an easy place to do business
with is also holding up well, with 45% of respondents rating it as
the easiest region.
However, the same survey shows nearshoring centres in Central
and
Eastern Europe treading on the Asian coat-tails, with 41% of
respondents rating it as the easiest region to do business
with.
The aim of nearshorers is to show users that they have something
very different to offer by focusing not merely on cost, but on very
high levels of technical expertise and creativity, combined with
low staff turnover.
Not surprisingly, many European nearshorers focus on high-end
technical business from companies in complex areas such as
engineering and financial services.
"The outsourcing of complex IT functions in the finance sector
is increasingly done for transformational reasons," said Martyn
Hart, chairman of the
National Outsourcing
Association.
"The finance company does not want the supplier to conduct the
process as it was conducted in-house. They want to harness the
domain expertise of the suppliers to build systems that supersede
anything that they could build themselves."
Nearshore operations such as Russia's Luxoft have founded their
ambitions on this added-value approach.
Partnership is a much overused phrase in the business world to
describe what is often a straightforward client-supplier
relationship, but Dmitri Loschinin, CEO of Luxoft, claims that this
is what can give nearshorers the edge.
To come up with innovative solutions rather than simply a
cheaper offering of routine processing requirements depends on a
high level of technical expertise - still at a considerable
discount to Western rates.
This expertise is generated largely by a pool of talent educated
to the highest technical standards - in Russia's case a legacy of
the old Soviet system which still offers clout in today's highly
capitalistic environment.
This means that clients can specify the problem or new business
approach and then collaborate with the outsourcing supplier to come
up with the solution, rather than specifying the technical issues
and looking to an outsourcing supplier to implement the plan.
This relationship approach has borne fruit for Deutsche Bank,
which hired Luxoft to work on the development of ClientFirst, a new
client relationship management system used to provide real-time
management of each client relationship by aggregating and
centralising data from many internal and external sources.
Now the two companies are joining forces to market the system to
other commercial organisations.
Daniel Marovitz, chief operating officer of technology for
Deutsche Bank's global banking division, said that cost savings
were only one reason for the success of the venture, and that this
had been effectively combined with a pragmatic and creative
approach. "Luxoft is prepared to lead rather than simply follow,"
Marovitz said.
Loschinin emphasised that "working with Deutsche Bank has been a
truly collaborative partnership". He also said that "We are taking
an almost unprecedented step by working with Deutsche to sell a
product that was specifically developed for just one client."
But can Russian outsourcing suppliers really lay claim to a true
cultural affinity with Western clients, especially given the bad
publicity in Western media on president Putin's tightening of
political and media control within Russia? And is language not
another barrier?
Dmitri Milovantsev, Russia's deputy IT minister, believes that
recent migrations to and from Russia provide the basis for an
effective understanding of Western business processes. "The
migration process has had a major effect on the culture of business
in Russia," says Milovantsev.
"A lot of bright people left Russia in the 1990s and found work
in the US and the UK. Now there is a trend for these people to
return, and they bring with them valuable experience of working for
Western companies."
For the CIO in the UK contemplating the increasing range of
outsourcing possibilities - whether in terms of geography, cost,
expertise or cultural and linguistic fit - the easy option remains
India, with its huge and mature outsourcing operations. But it is
worth taking the trouble to investigate whether looking closer to
home can offer advantages.
In Marovitz's words: "It is horses for courses. The Indians have
become brilliant at marketing their outsourcing services, but
delivery is the key.
"A hybrid approach to insourcing and outsourcing is usually the
best answer, but to be successful you need to be very clear about
what are your core and non-core operations, and develop contracts
and arrangements to match."
30% unhappy offshoring outside of Europe >>
Luxoft website >>
Outsourcing: why Russia >>
Outsourcing: why
India >>
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