Indian outsourcing business hits a bumpy road

Indian outsourcing business hits a bumpy road
International Herald Tribune


MUMBAI, India The $17 billion outsourcing industry in India has a new worry: Bad infrastructure in its crowded cities may curb its growth.

Inadequate roads and a shortage of hotel rooms in Bangalore; power shortages in Delhi; traffic jams in Mumbai; a general shortage in overseas flight connections and high telecommunications costs are causing deep concerns for an industry that is expected to expand by 25 percent to 30 percent annually over the next few years.

"Shortcomings in the environment are hurting company bottom lines by 1 to 2 percent annually," Kiran Karnik, president of the outsourcing industry trade group, the National Association of Software and Service Companies, said.

"You pay a price when you have to bus thousands of employees to work, run your own generators to make up for power shortages, and pay exorbitant rates because hotel rooms are scarce," Karnik said recently.

At the group's annual meeting this week, its chairman, Jaithirth Rao, said that "roads, airports, hotel rooms, power, transport, flight seats are a hindrance to the growth of the industry."



In recent years, Mphasis BFL, Rao's company, and larger Indian and multinational rivals, have persuaded large global corporations to move work to India to save money.

Such companies have moved tasks as diverse as designing software for aircraft systems and answering customer service questions for the world's largest insurance companies.

American corporations like American Express and Microsoft also have set up outsourcing units in India.

As outsourcing companies add thousands of skilled English speakers to meet the demand from global corporations, the pressure increases on the already creaky infrastructure in Indian cities.



Many speakers at the trade group meeting said they were concerned that the problems could limit outsourcing growth in India. At a session Wednesday, Stephen Green, chief executive of HSBC Holdings, said that there was an urgent need to enhance roads, airports and other transport systems.

The outsourcing trade group has been asking the government to make big investments for infrastructure, Karnik, its president, told a news conference.

Some large outsourcing companies have sought their own solutions. Infosys and Wipro, both based in Bangalore, which has a population of seven million, have built suburban campuses with landscaped gardens, swank office buildings, food courts, gyms, swimming pools, supermarkets and clothing stores. They also offer bus services to and from work and run power generators to meet their energy requirements. Infosys is building a 500-room hotel on its campus for visiting employees, customers and guests.

In the past two years, hotel room rates in cities like Bangalore have more than doubled. Karnik said it is becoming common for outsourcing industry executives and customers to stay in Mumbai or Madras and commute back and forth to Bangalore daily.

Mumbai, which is 1,050 kilometers, or 650 miles, from Bangalore, is a one-and-a-half-hour plane ride away, while Madras, 335 kilometers from Bangalore, takes 30 minutes by air.

Outsourcing companies that have built infrastructure for their own use have been accused of creating "islands of affluence" in a country with millions of poor people. Now, in cities like Bangalore and Mumbai, the companies are offering to help finance public transport infrastructure. Bangalore companies like Wipro, Infosys and others have proposed to finance a third of an elevated-road project running from the city to the "Electronics City" suburb, where most of them are located.

Leena Limaye, a 26-year-old software engineer with Wipro, lives with her parents in a Bangalore neighborhood called Nagarbhavi, which is 34 kilometers from the company's campus in Electronics City. Limaye said she spends an hour and a half in the mornings and two hours in the evenings commuting.

"Traffic jams are a hot topic of discussion when colleagues and friends sit down to talk," Limaye said.

The outsourcing of work to India from the United States and Europe, has swelled over the past few years. In the year ending in March 2005, revenue from exports of software and back-office services by outsourcing companies is projected to rise by 35 percent, from $17 billion a year earlier.

Last month, the top three outsourcing companies in India, including Wipro and Infosys, announced a more than 50 percent rise in profits and added thousands of employees in the quarter ending in December. Gecis, the back-office unit partly owned by General Electric, said it had added six big customers in the past six months.

Still, overseas businesses and customers have choices, said S. Ramadorai, vice chairman of the National Association of Software and Service Companies and chief executive of the largest outsourcing company in India, Tata Consultancy Services, with headquarters in Mumbai.

"The government is now sensitized that while there is a demand for Indian services and talent, unless the ecosystem is upgraded, we will lose out," he said.