Sitting pretty

When consumer goods giant Unilever was looking for help in 2005 to group its financial transactions under one overarching structure, it turned to the services arm of International Business Machines, or IBM.

The arm, IBM Global Services, developed tools to look into the payment patterns and come up with predictive capabilities to spot problems in a complex web of suppliers and contractors in the Unilever universe.

The solutions were not all developed by the feted development centres Big Blue - as IBM is nicknamed after its blue mainframe computers of the 1970s - runs in Cambridge, Massachusetts, or San Jos, California. They were put together in large chunks in far off Bangalore, until then seen as an outpost only for low-cost outsourcing. IBM, which also runs day-to-day support for the 'One Unilever' project from Bangalore, is well on target to help the maker of brands such as Dove, Knorr and Surf save e700 million (Rs 3,235 crore).

The MNC muscle Ccompany/ Businesses in India IBM, BPO, research, labs, No. 1 in domestic market HP Labs, research Dell BPO, analytics, R&D, acquired, IT services Accenture Management consulting, IT services and Cancadia, a body-shopping business Source: Company, industry

As the Indian outsourcing industry matures, multinational tech companies are doing a re-think. In the past, they built large armies of coders and BPO associates to do the grunt work; now, they are upgrading staff skills and dovetailing teams into a global chain of delivery centres. "We don't like to look at India as a standalone delivery location anymore," says Rajesh Nambiar, Vice President and General Manager for Global Delivery at IBM. "We want to have the same quality of delivery globally." In doing so, tech MNCs (see The MNC Muscle) are earning a sizeable chunk of revenue from India for their parents. A recent survey by industry body Nasscom and tech researcher Zinnov estimated that MNCs accounted for more than $11 billion or 22 per cent of export of IT and BPO services from India. This is a seven-fold increase from three years ago. The largest segment is accounted for by engineering and R&D businesses ($4.8 billion), followed by IT services units ($3.4 billion) and BPO with $3.4 billion, according to this report.

In India, large companies such as Hewlett-Packard (HP), IBM and Accenture lead 750-odd software and BPO MNCs that employ over 400,000 here - in effect about 20 per cent of the workforce. Many captive units of US and European corporations, which were set up for non-core IT services and BPO tasks, are increasingly selling or shifting these operations to the tech MNCs.

While IBM jumpstarted its offshoring in India with its Daksh acquisition in April 2004, its global rival HP made significant gains in the IT services market with its buy of EDS in May 2008 for $14 billion. EDS itself had acquired mid-tier firm MphasiS for added India leverage. The HP-EDS combine boasts a headcount of over 50,000, according to industry sources. HP executives see this as a key advantage in the outsourcing market.

"India's core value proposition of costquality-scale is a combination that organisations across the globe will find attractive for some time to come," says Prakash M.S., who directs offshore operations for HP in India. While HP and IBM have realised the potential of outsourcing early and bought and built a large India presence, key India rival Accenture has stepped on the gas in the last couple of years. Starting from a 35-person outfit back in 2003, it is set to cross a headcount of 50,000 by end-2010. Already, Accenture in India has more employees than in the US and, despite a slowdown in hiring in 2009, recruiters are back scouting for talent across the country.

Likewise with Capgemini, Europe's largest outsourcer, which has 25,000 employees in India. For Computer Sciences Corp., India is the second-largest location globally, with some 19,000 people, around 14,000 of whom it inherited when it acquired Covansys three years ago.

It is not only the giants who are making big plans in India. Smaller services outfits too are expanding here as growth stagnates in home markets. For example, Logica, a UK outsourcer, has made India its largest delivery location with 5,000 people. Its global head of innovation sits in Bangalore, and it is looking to deliver new services - from here. "The progress in remote infrastructure management is particularly important along with cloud and virtualisation technologies," says Abhay Gupte, its India head.

The rise of multinationals in India is also being influenced by broader trends of consolidation in the outsourcing industry. For example, computer maker Dell, which in 2010 doubled its headcount to 21,500 in India with its Perot Systems acquisition, is using its India base not just as a global support hub but also to hunt for custom in the Indian market, which is growing at 15-20 per cent.

Like its 10-year deal with Max Healthcare. "We focus on engagement models that put our customers in control of what they buy and how they consume our services," says Ganesh Lakshminarayanan, head for Dell International Services in India. Dell, like IBM and HP, has crossed $1 billion in India revenues. As the multinationals continue on their rapid growth, the contours of the tech services industry - in India and abroad - may never look the same again.