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Outsourcing fires Indian IT boom

By CNN's Andrew Carey

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MUMBAI, India (CNN) -- The Indian economy is booming and information technology is leading the way.

And with growing numbers of American and European companies looking to outsource their IT operations, it is Indian companies that are feeling the benefits.

One of those is Wipro Technologies, based on the outskirts of Bangalore in sourthern India. Five years ago Wipro's annual turnover was around a hundred million dollars. Now it's well over a billion, and most of that business is being generated in the U.S. and Europe.

"From a statistical point of view we want to be among the top 10 IT companies in the world," Wipro vice-president Soumitro Ghosh told CNN.

"Number two, we want to be among the top companies in the world where customers want to do business with us."

One of those customers is British insurance company Norwich Union, owned by financial services group Aviva, which opened an offshore development center at Wipro in April.

"We've had relationships with Indian IT companies for a period of time but it's really only this year that we've started to look at India a lot more seriously as a place that can provide skilled capability that can add to UK-based capability," Ian Butterworth, director of central services at Norwich Union, told CNN.

About 70 people work full time maintaining and developing parts of Norwich Union's software systems, one of several dozen such centers on site.

Ian Marriott, outsourcing expert with U.S.-based IT analysts Gartner Research, says the advantages for western companies are obvious.

Significant saving

"If you look at the cost savings that are available in places like India it could be 20, 30, 40 percent on a single deal," Marriott told CNN.

"Now, that's quite a significant saving. So, organizations are looking to contain or drive down their costs."

India offers other advantages as well, according to Bundeep Singh Rangar, founder and chief operating officer of global investment firm Ariadne Capital.

"What you're really going for is a combination of factors," Rangar told CNN.

"You're going for the ability to scale up and scale down, or ramp up and ramp down as its called in the industry. If you want to increase from 25 to 2,500 the ability to do that -- to increase head count -- is a lot more possible in a place like India where you have two million IT graduates each year.

"You also have much better skill sets. In 2003 companies like Tata and Wipro had one million job applicants each. When you ultimately get someone working in those companies, they are PhD graduates with a huge amount of skills that are almost not purchasable in the west anymore."

But any decision to moves jobs abroad risks negative headlines, as Dell discovered after opening a call center in India. Customers of the Texas-based computer manufacturers were so upset that Dell subsequently shut down the operation claiming the service was not up to scratch.

And even shareholders, who would stand to gain from cost savings, have protested against recent outsourcing by British banks.

Cultural issues

While IT operations might not be customer-facing, Rangar says there are still cultural issues to be addressed.

"A notion of having something delivered by a certain time, for many years was a problem because Indian programmers would not say no," said Rangar.

"They'd say, 'yeah, we'll get it done,' until the day before delivery and then they'd say, 'Sorry, we haven't done it.' Now you've already planned that you'll have this done by this date and there are 16 other things that are dependent on that delivery, that are now in jeopardy."

To make sure staff don't make these mistakes Wipro has introduced a learning center on campus where employees can develop presentation skills and learn about the different work cultures they may encounter.

It's all part of Indian companies' dedication to winning a larger and more profitable portion of their clients' IT budget. Just three percent of IT services work is currently done offshore but the growth potential is huge; estimated at up to 40% per annum over the next five years.

Certainly for Ian Butterworth of Norwich Union the case for outsourcing has been proven: "If you work with someone that is a good cultural fit, has the skills you want, and behaves the way that you want at the price that you want then, why wouldn't you do more business with them?"

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