Over the years I’ve been involved in a number of major projects where U.S. or European companies have looked to transition work from their home countries to outsourced facilities in India. The drivers behind these projects have been many and varied, but I suppose that cost reduction is always a major component of any such decision. Personally I’ve always thought there are a number of advantages above and beyond cost arbitrage but for many clients that’s their starting point.
If your main motivation for going through the transition process is cost then it stands to reason that you have to make the transition work efficiently or any imagined cost savings can be quickly eroded through well-documented problems such as high attrition rates and client dissatisfaction. I wrote a post on these issues about a year ago which is still getting lots views on a daily basis – you might want to check out ‘5 Key Cultural Issues when Outsourcing to India’ to get my views on some day-to-day problems encountered when India outsourcing.
Another area which is fraught with difficulty is in the partner selection process. Lots of clients have got a year or two down the line only to question their original choice of partner but are then loath to jump ship and go through the pain of transition for a second time – better the devil you know etc.
Based on our experience at TGG here are five issues you need to consider when selecting an outsourced partner in India. The list is not exhaustive but it’s a good starting point:
- The Tender Process: A Western-led Tender process will only get you so far in India. I’ve seen situations where the responses to tender have led clients to the wrong supplier, in the wrong location, staffed by the wrong people. ‘Do you have experience of the banking/insurance/automotive/pharma sectors?’ The answer will be ‘yes’. People move company and position all the time in India and employees pick up experience across a wide range of sectors – but that knowledge can be quite superficial.
You need to effectively pre-qualify your tender short-list and the best way to do that is on the ground. Start with a long list and whittle this down until you have three or four really bona fide contenders and then, and only then, get on a plane and spend time with each of the candidates. It has to be as much about chemistry as it is commercials.
- Management Capability: I cannot stress how it is important to assess the management capabilities of an outsource partner. The India offshore business has grown exponentially over the past decade or so but management capability has not necessarily been able to keep pace with that growth. It is not a question of education or technical ability; it is more an issue of commercial experience and acumen. Many Western clients who transition work to India are looking for people who can operate with a knowledge of home country market conditions and – even more difficult – an understanding of home country cultural expectations.
This is a tall order and those two demands can be very difficult to meet. Don’t expect too much at the outset and be prepared to invest in training people to make up the skills and knowledge gap.
- Attrition rates: How does your potential partner manage its attrition rates? Attrition rates are notoriously high in the offshore industry in India and this can cause you serious difficulties on an ongoing basis. Attrition leads to knowledge and skills seepage, and massive recruitment and re-training costs (which can eat away at any cost arbitrage you were looking to harvest.)
Try to get some accurate figures on attrition from any potential partners and don’t just look at the numbers, look at the trends over a few years. Ask your partners how they manage this issue, what policies and processes they have in place to address the challenge. If they just brush it off as irrelevant, be very wary. When we talk to home teams, lack of continuity of contact in India is often cited as the biggest headache.
- Size: Should you team up with a large, well-established player in the market who has size, scalability and well-tested procedures, or with a smaller outfit who are growing and hungry? With a larger player you might end up being a small fish in a very large pond and feel you are of little importance whereas a smaller partner may see you as strategically vital but lack the sophistication you are looking for.
You need to balance these conflicting arguments and find a solution that you are comfortable with in the short and medium term. Again it has to be about chemistry as well as commercials.
- Price: If you are going through the whole process as a cost-reducing exercise then this obviously becomes a key factor in the final decision-making process.
But just a few words of caution, which come from experience. If you drive too hard a bargain, people will resent it. You are shedding people back home (this is resented at home) and you are squeezing the pips of your new partner (this is equally resented in India). The whole process can become pretty sour very quickly and you end up with massively resentful workers in two locations.
In addition, your India partner often becomes critical to the well-being of your global business. In fact the better your partner performs, the more critical they become as you invest even more heavily in them in terms of time and emotion. What are you going to do if they turn round and say ‘we can’t support this level of work anymore at the price we are charging?’ You may find they have you over a barrel.
The deal has to be fair from the outset – that’s what will bring the cost savings in the long run.
These are just a few quick thoughts which result from work TGG partners have undertaken in this space over a number of years.
If you would like any further advice on this issue please get in touch.