Aparita

The Toronto Star, [06/02/2003]

 

It’s the latest twist on tech outsourcing. Satyam sets up Canadian operation.

 

Special to the Star

For someone who’s been in Canada for a little over two months, Sanjay Tugnait has settled in rather well. He’s still getting used to the little things, like Toronto’s temperamental weather, and the coffee.

“It’s too strong for me,” he smiles, easing back in his company digs at First Canadian Place. “I have to run down and get myself a mochaccino.”

Tugnait is the country manager for Satyam Computer Services Ltd. (satyam.com), a global consulting and IT services based company based in India. Satyam is India’s fourth largest technology-based services company, whose competitors include the likes of Infosys Technologies Ltd., Wipro Ltd. and Tata Consultancy Services. Satyam’s roster of clients includes more than 270 global firms - among them, four Fortune 10 and 76 Fortune 500 companies.

Satyam was started up more than a decade ago by current chairman Ramalinga Raju, 46, whose family owned a small textile and construction business in the Indian province of Andhra Pradesh. But the tech company soon left the family business behind in terms of growth. For the quarter ending March 31, 2002, Satyam’s revenue grew 12 per cent from the previous quarter to $343.4 million (U.S.).

Tugnait is heading Satyam’s newly created global development centre in Toronto, the latest in a series of global development centres in India, the U.S., the U.K., the Middle East, Japan, Singapore and Australia. In doing so, Satyam has joined companies such as Infosys Technologies Ltd. and Wipro Ltd. in increasing India’s IT presence in Canada.

While the Infosys global development centre opened in Toronto in 2000, Wipro opened its global development centre in Windsor in 2002.

Satyam’s Toronto operations were underway early this year and Tugnait’s schedule is already chock-a-block full of appointments.

“Canada is an extremely important market for us,” says Tugnait. “We are very excited about expanding our market to North America. There is a definite attraction in that.

“Also in terms of building an alternate disaster recovery site and providing business continuity to our clients, especially for our U.S. clients, Canada offers great incentive,” he adds.

Currently, U.S. clients constitute 67 per cent of Satyam’s international clients. Canada, in comparison, makes for a much smaller percentage. But Canadian companies, especially in the manufacturing and financial services sector, are a great potential for Satyam.

Traditionally, technology service companies such as Satyam have operated out of India. The modus operandi has been to negotiate offshore and outsourcing projects - usually long term contracting out of non-core and core business processes to an outside provider - and ship the work to India. Or allow access to experts sitting in India into the mainframe of a company, say, in Europe.

Several factors help weigh the scales in favour of offshoring and outsourcing, says Tugnait.

“Labour arbitrage and cutting down your infrastructure costs makes a difference of almost 20 to 40 per cent, sometimes more,” explains Tugnait. “Because we are a very stable company in managing offshore projects, the cost of failure also comes down.”

So why the expansion outside of India?

“Indian (IT) companies are expanding globally in terms of sales and marketing and customer acquisition,” says Tugnait. “At the same time, because of the political situation and some of the uncertainties present in the current world economic environment, we are building alternate sites and development centres.

“In terms of sales and marketing, it’s quite simple. You need to expand and hedge your bets. You can’t be America-centric. Moreover, existing clients of the company are expanding into other territories. So, you need to follow the dollar. Many of our (U.S.) clients have bases in Canada and were asking us to set up a centre here.”

The Toronto centre is also mindful of Satyam’s Canadian clients, says Tugnait.

“Often times you’ll have a client who wants a percentage of the work off-shored, but the rest to be done in their backyard.”

Canada also provides an excellent opportunity for companies such as Satyam to set up “near-shore” operations.

“Because of the cost arbitrage with the U.S., cost of living, same time zones, and the proximity to the (auto-industry) in Detroit, we can operate a near-shore centre for doing work such as application development and maintenance for our U.S.-based clients,” explains Tugnait. “The near-shore development centre is actually a big priority for us.”

Also Indian IT companies have started to scale up their offshore and outsourcing niches by adding high-end consulting and support systems.

The hitherto soaring Indian IT sector has recently been jolted out of complacency. There’s been a stall in the boom to offshore/outsource services to India and an increase in competition on the application development front from China, Eastern Europe and the Philippines.

In April this yea r, Infosys announced a lower-than-expected 11.8 per cent growth forecast for the next year. In the same month, Wipro announced weaker than expected earnings of $170 million (U.S.) and projected a 4 per cent revenue increase for the current quarter. The announcements threw the shares for a tumble.

Although Satyam posted flat quarterly earnings, its stock traded up 6 per cent, also raising rival shares.

The Indian IT industry, then, is adding to its advantages by providing end-to-end services and global development centres. Besides resources such as code-gurus who can solve tech problems with a snap of the fingers, companies such as Satyam are now offering high-end consulting systems architecting and even business-process support.

Satyam, with a 1,000 strong team focusing on SAP alone, is an early entrant into this developing trend of packaged implementation.

Nevertheless, there has been a growing momentum in the backlash against offshoring and outsourcing.

For example, a new customer service centre scheduled to open in New Jersey would repatriate an overseas customer services operation based out of India, after the department of Human Services negotiated a deal with eFunds Corp. of Arizona.

The monthly cost for running the centre, which answers questions posed by New Jersey welfare and food stamp recipients, will increase $74,000 (U.S.) over the current arrangement, officials said.
Similarly unions in Australia attacked their nation’s telecom company Telstra for outsourcing arrangements with Indian companies Infosys and Satyam.

Despite the backlash, however, experts say that offshoring and outsourcing is here to stay.

The American accounting industry has recently begun using India’s outsourcing and technology services to process American clients’ tax returns, in some cases replacing work traditionally done by U.S. accountants. Although in its initial stages, experts predict the project might soon become the norm for accounting firms to deal with individuals’ taxes.

Tugnait emphasizes that Satyam will also be adding to the Canadian economy.

“We’re setting up a centre here,” he says. “We’ll be recruiting local talent, from administration, to IT consultants to management positions. We’re not here to divert funds from Canada, we’ll be contributing to Canada.”

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