Analysts say Tesco's move could set a precedent

Tesco's move to establish its own IT support centre in India - one of the first non-technology companies to do so - is likely to...

Tesco's move to establish its own IT support centre in India - one of the first non-technology companies to do so - is likely to set a precedent for other corporates, analysts believe.

Last week, the supermarket giant announced it was planning to develop an IT centre in Bangalore, which will focus on IT and developing common business support processes.

Although many UK retailers, including Sainsbury's and Somerfield, have outsourced IT work to Indian outsourcing firms, none have created their own offshore support centre, and they will be watching Tesco closely, said Roger Cox, vice-president at analyst firm Gartner.

"If people see Tesco is doing this and getting measurable benefits, they will definitely investigate," he said. "Obviously, companies will need to have scale and internal management capability, but this will be another hot topic in years to come."

Tesco hopes the centre, which will open in mid 2004, will help it retain its number one position in the UK grocery market, said a company spokesman.

"We looked at our needs moving forward and worked out the areas we can move offshore in order to thrive in what is a very competitive industry," he said. "It is not a purely cost-driven move, although it would be naive to say costs were not an issue."

A number of high-profile technology companies have set up development centres in Bangalore, including Microsoft, Intel and SAP, making it a very attractive proposition for Tesco, the spokesman said.

"There is a great IT and telecoms infrastructure in Bangalore, partly because of the high-tech companies' involvement," he said. "We are now a global business and need to address global factors."

Martin Atherton, managing analyst at research firm Datamonitor, said the move reflects Tesco's position as an innovator and risk-taker.

"Tesco has taken an innovative and progressive decision to develop its own resources and skills, and at the same time, wants to do so in the most cost-effective manner," he said.

"One could argue that a third party might be able to develop business process support functionality faster because of past experience, but I think Tesco's approach is right for the company because it is still clearly deciding what its common business support functionality should actually be."

The primary challenge will be to ensure that the projects' costs and benefits to Tesco and its customers are as tightly controlled and managed as they would be by a third-party service provider, Atherton added.

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