This is the mother of all outsourcing
IT infrastructure. IT infrastructure offshoring
as it is called, involves the management and ownership
of clients IT assets and applications by technology
major – either entirely or in parts. Quite
a few high-profile deals in this segment over
the past year-and-a-half by frontline Indian companies
have stoked much interest. While the trend has
been popular in mature markets like the US, Europe
or Japan- it has been a 10-year old market overseas-this
outsourcing bug has now bitten Indian companies
too. Which spells moolah for Indian tech majors
since opportunity now exists both in the domestic
as well as in the global market. “The key
factors are the growth of telecom infrastructure
and quality of people available. These allied
to the strong processes adopted by Indian IT firms,
provide a compelling proposition,” says
Preeti Rao, VP & head, infrastructure Management
Services, Infosys.
The Potential
According to Nasscom, the opportunity for remote
infrastructure management stems from the fact
that global companies are offshoring support and
maintenance of their data centres. Industry analysts
say 40-60% of the overall infrastructure management
pie can be successfully delivered through a global
delivery model.
Technology research firm Forrester say the global
market for infrastructure outsourcing is expected
to be a healthy $1’11 billion and indicates
that it can become a $1-billion a year earner
for India, provided Indian outsourcers beef up
their cost, quality and security strengths. Gartner
pithily says it is the “next big wave.”
Infrastructure outsourcing can be spilt into
two parts: one is total outsourcing where the
entire IT infrastructure and application is managed
and owned by the vendor while the second is where
a part of the infrastructure is offshored. Functionally,
Gartner segments infrastructure management services
into three categories: monitoring global network
operations; providing helpdesk support and administering
databases.
Total outsourcing is what’s caught the
fancy of Indian companies over the last 12 to
18 months and is growing at a fast clip of 25%
annually. On the other hand, the global trend
is more towards selective outsourcing but even
within that, there is a trend to hand over your
entire network to one firm or your entire helpdesk
service to another. Going by this classification,
Anand Sankaran, head of total outsourcing, Wipro,
pegs the total outsourcing market globally at
$70 billion, while the Indian market at roughly
between Rs. 1,000 and Rs 1,500 crore.
Why Outsource?
A Forrester survey of 78 global firms that outsourced
gives two selection criteria of vendors for outsourcing:
price and knowledge of business. Ability (or the
lack of it) to take over assets was not a deterrent
for Indian service providers making a strong pitch
in this segment. In fact, some of the infrastructure
management contracts were services only –
sub-$2-3 million a year – and with this
idea of selective sourcing opening up, it actually
benefits Indian tech majors.
Dittos a senior executive of HCL Technologies,
“The move away from total outsourcing of
computer systems to the discrete of outsourcing
of parts of it, including those functions that
can be handled remotely, is where the opportunity
lies for Indian firms.”
The domestic market, as already reiterated, is
geared towards total outsourcing. The reasons
for such offshoring are, however, fairly similar:
better operation management cost reduction and
IT optimization.
“The success of application outsourcing
has convinced clients that Indian companies offer
strong capabilities and expertise. This has increased
the confidence level of clients. The domains of
infrastructure and applications are increasingly
converging due the rapidly changing technology
environment,” says Ms. Rao of Infosys.
Says another technology analyst: “Advantages
for clients go beyond mere cost savings offering
higher levels of service because problem solving
is remote and so is identification. A glitch can
be fixed before it is reported.”
The Players & Their Moves
Since offshore infrastructure management is an
extension of India’s off-shore based delivery
capability, it represents a big opportunity for
vendors. The market is dominated by global players
like IBM, Accenture, CSC and HP. What’s
made this turf exciting- and competitive for local
players- is that these companies have components
of their infrastructure services delivery process
in India.
But local IT majors are creating a buzz- may
not be a strong one. HCL Comnet, Infosys, TCS,
Patni and Wipro are already in fray. They typically
are entering into multi-year contracts (five to
six years) – targeting Fortune 500 and global
2000 companies – where the profit visibility
is high.
Wipro Technologies for example, is investing
heavily in the business besides setting up a centralised
global command centre in Bangalore. It is also
hiring people and developing new service lines.
Infosys investments have been focused on building
facilities like network operation centres, centre
of excellence, technology investments for managing
client infrastructure and process investment to
achieve BS-15000 maturity levels.
A senior analysts with Forrester points out that
Indian service providers have gained significant
traction in the smaller $2-3 million per-year
deals market. These service providers are focusing
on customers who are clearly not addressed by
the likes of IBM, Accenture or HP.
HCL Comnet, for example, boasts of a client list
that includes the top names in American business,
in fields ranging from investment banking to software
to sports good. Locally too, Indian players have
been bagging top deals against stiff competition.
Wipro Infotech, the domestic IT arm of Wipro,
has bagged three core offshoring deals –
Yes Bank, Optimix (the MF arm of ING Vysya) and
the Sanmar group – against competition from
IBM, HP and CSC over the last 12 months.
This is what Indian players active in infrastructure
outsourcing segment have to focus on to stay ahead
