India or bust
Joanne Gordon, 04.01.02
When tech consulting went bust, Sapient cut costs by shipping work to India. Not everything translated.
The Great Divide
Tech workers in India typically make only a fourth of the pay of their counterparts in Boston, Massachusetts, near Sapientճ headquarters, including benefits, bonuses and perks. Sapient didnմ disclose its salaries.
Salaries
($thousands)
BOSTON INDIA
PROGRAMMER
$67 $17
Three years' experience writing code
PROGRAM ANALYST
100 22
Seven years' experience writing and developing code
WEB DESIGNER
81 20
Five years' experience
ARCHITECT
160 38
Twenty years' experience designing software systems
TECHNOLOGY RECRUITER
77 18
Five years' experience
BUSINESS CONSULTANT
116 26
Ten years' experience
SECRETARY
39 12
Two years' experience
Source: Aon Consulting.
Austin Cooke, a hiring director for Sapient, a technology consulting company, knew that something was awry when the Indian woman he was interviewing for a job in New Delhi scolded him for acting like a typical American. "You are all business," she told him, meaning he was asking too many job-related questions. "In India it is more important to start talking first about family."
Cooke learned fast that asking personal questions of the sort that can get you sued in the U.S. is considered polite in India. That gaffe, coupled with other recruiting problems, is no small issue for the future of the 11-year-old company. Jerry A. Greenberg, Sapient's co-CEO, is betting the revival of the company on its New Delhi office. Sapient, based in Cambridge, Massachusetts, saw its revenue collapse 34% last year, to $330 million, on which it lost $190 million. The stock has skidded from a high of $73 in August 2000 to less than $4.50.
Like apparel and electronics manufacturers before him, Greenberg can cut costs by moving operations abroad. He wants to transfer half the workload to India, where salaries for programmers are typically a fourth what they are in the U.S., (see the story that follows). Not all the savings are hitting the bottom line; he is cutting bids by 20% to 50% to win new clients. Opened in early 2000, the New Delhi office is now Sapient's largest, housing 32% of its 1,900 employees (1,100 jobs were cut last year; another 545 in February). More than a third of its revenue of $63 million in the fourth quarter of 2001 came from 30 projects worked on in India. Greenberg has spent $10 million setting up that office.
The normally serene Greenberg is quick to insist that lower wages do not equal shoddy work. "You can't just take cheap labor and apply it to strategic projects like ours," he says.
Indeed, U.S. companies have long employed Indian programmers and developers for such mundane tech chores as computer support and maintenance. But Sapient is using Indian workers to develop complex software, building systems that, for example, sell products, enable customer self-service and link vendors over the internet. A typical project involves a joint effort by programmers in the U.S. and in India, ten time zones apart.
Cisco picked Sapient to build a $4 million education network that will administer 35,000 online technology exams a day to students in 138 countries. The job might have cost another $1.5 million if Sapient hadn't shipped half the work to India. William M. Mercer, a consulting firm, says that it's paying $600,000 less by having Sapient's India office help build a $4 million website that clients can use to gain access to research documents on 24 topics and in six languages. Computer languages used: ten. A program analyst with seven years of experience, who might cost $100,000 a year (including benefits) in the U.S., costs an employer only $22,000 in India, (see table, above).
Setting up shop in India wasn't easy for Sapient. It wanted to buy a local company but couldn't find one with enough Indian workers who met Sapient's standards. So it decided to hire and train 600 full-time workers by the end of 2001. It was slow going. Getting résumés wasn't the problem; one newspaper ad generated thousands. But most applicants didn't have the attributes Sapient needed. Especially tough has been finding top-notch project managers, people who can direct the work of dozens of software engineers to meet budgets and deadlines. Another tough job to fill is that of information architect, which is someone who designs a system for a client and spells out the specifications to the programmers.
"We saw people who could code with their toes," says Cooke. But many were not comfortable working in groups, had never managed lots of people or had no experience dealing with clients. Virtually all the applicants spoke English, but there were the cultural differences. Job titles on résumés were often misleading. Someone called a "chief technology officer" in India might have been only an architect in the U.S., a lower-level position requiring different skills. Most job candidates refused to be interviewed while they were at work, so recruiters had to call them at home at night and interview on weekends.
To narrow the 30,000-résumé pool, Cooke used an outside company to give candidates technical tests and audiotaped them answering questions. The half who passed got invited to an open house. Sapient held eight open houses a weekend, resulting in four new hires each, on average.
Once hiring was complete, other challenges arose. Recruits were slow to follow Sapient's collaborative management style, which involves lots of sharing and scrutiny among colleagues and clients. Comfortable following orders, workers were reluctant to disagree with a boss. When colleagues critiqued their work, they got defensive or feared that they would be fired.
The Outsourcing Foundation
Monday, April 01, 2002
Big Five fired
Susan Kitchens, 04.01.02
No longer mere "body shops," Indian software outfits are grabbing lucrative business from Western companies.
In the past year, Accenture of the U.S. has laid off nearly a thousand consultants. CapGemini of France axed 2,000 workers and PricewaterhouseCoopers, a U.K. company, chopped nearly that many. Unremitting gloom in information technology? Not at all. India's Wipro hired 500, and Infosys, also of India, added almost a thousand new engineers.
One reason for the see-sawing fortunes is that Indian software companies, led by Wipro and Infosys, have been taking work away from the Big Five consulting firms (the other two are Deloitteand KPMG) and other players in a highly profitable area where software engineers help companies figure out how best to use technology and software programs for managing such things as billing systems and for tracking customer orders. Right now, operations consulting, as it's called, is dominated by such companies as Accenture and EDS.
Indian software houses got their big breaks by helping companies around the world to prepare their computers for 2000 (Y2K). But this move into higher-margin consulting marks the first time that any Indian company has competed directly with U.S. or European companies. "The big guys are getting worried," says Azim Premji, Wipro's CEO, who turned his father's cooking-oil plant into India's largest software company, worth $8.6 billion. Infosys' newly appointed CEO, Nandan Nilekani, says, "What we're shooting for is to become a major provider of technology consulting services in the U.S. and Europe."
Wipro and Infosys, plus three other Indian companies—Satyam, Tata Consultancy Services and HCL—are making the Big Five nervous. Prakash Parthasarathy, an analyst at Banc of America Securities in San Francisco, believes that 30% (worth $2.5 billion) of the Big Five's annual revenues may be taken by Indian IT companies over the next four years. He predicts that Indian revenues will rise by 30% annually over this period.
It's a remarkable feat for the Indian companies, most of which are no more than 20 years old. Until 2000 the top consulting companies barely gave India a second thought. Companies like Wipro spent their time performing such menial tasks as maintaining computer infrastructure systems. Their engineers worked for $25 an hour—a third of what American engineers charge.
Since then, Wipro and its compatriots have been honing their software skills, to the point where they can do more sophisticated tasks for less: from $25 to $30 an hour for an engineer in India compared with $120 to $140 for ones in America or Europe. And India's companies are highly disciplined, with a good reputation for on-time delivery.
The proof of the pudding is in the taste. Wipro and Infosys saw their net profits rise by 38%and 26%,respectively, from the year earlier in the quarter ending September 2001. By contrast, KPMG's net profit dropped 33% in the quarter ended September 2001; and CapGemini's net profit dropped 65% in 2001. Accenture's profit slipped 1% last year.
It's not just price and delivery times that are attractive. "We find that companies tend to go with trusted names in tough financial times," says George Price, an equity research analyst at Legg Mason in Baltimore, Maryland. Debashish Sinha, an analyst at Gartner, a research company, says that Indian companies already have "a foot in the door" when it comes to working with U.S. and European companies, from which they make 70% of their sales.
As a result, many of these companies are turning to Wipro and Infosys to complete sophisticated software projects. For example, S.A. Ibrahim, chairman of Green Point Mortgage, a company with $26 billion in 2001 mortgate lending originations in Novato, California, initially hired Infosys in 1998 for various one-time IT projects. Then when Green Point decided last year to overhaul its software systems to increase the number of loans it could process, it asked Infosys' engineers for advice on how to do it. Ibrahim says that they quickly gave answers and worked well with his IT staff. "I've saved a lot of money on the project," he says.
In other cases, the Indian companies are obtaining completely fresh business. When 186K, one of Britain's broadband infrastructure builders, needed a software consultancy to set up systems to handle customer orders and billing, Dale Register, its COO, took bids from Accenture, CapGemini, IBM, EDS and Wipro.
Register says that he was skeptical that Wipro could handle the $70 million job. "Weren't these the guys who wrote all the code before Y2K?" he asked in February 2001, at the start of the bidding process.
In July, Register signed a contract with Wipro—even though it wasn't the cheapest bidder, he says. He was impressed that Wipro agreed to stringent deadlines and worked ahead to propose an idea for 186K's billing system. "They were flexible with what we wanted," he says.
These more demanding projects for now contribute only a small percentage of revenue for the Indian companies; Wipro says they account for 13% of sales and Infosys' Nilekani says 12% to 14%. "We think this will grow quickly in the next few years," says Nilekani. If he's right, the Big Five will be well and truly cooked.
Susan Kitchens, 04.01.02
No longer mere "body shops," Indian software outfits are grabbing lucrative business from Western companies.
In the past year, Accenture of the U.S. has laid off nearly a thousand consultants. CapGemini of France axed 2,000 workers and PricewaterhouseCoopers, a U.K. company, chopped nearly that many. Unremitting gloom in information technology? Not at all. India's Wipro hired 500, and Infosys, also of India, added almost a thousand new engineers.
One reason for the see-sawing fortunes is that Indian software companies, led by Wipro and Infosys, have been taking work away from the Big Five consulting firms (the other two are Deloitteand KPMG) and other players in a highly profitable area where software engineers help companies figure out how best to use technology and software programs for managing such things as billing systems and for tracking customer orders. Right now, operations consulting, as it's called, is dominated by such companies as Accenture and EDS.
Indian software houses got their big breaks by helping companies around the world to prepare their computers for 2000 (Y2K). But this move into higher-margin consulting marks the first time that any Indian company has competed directly with U.S. or European companies. "The big guys are getting worried," says Azim Premji, Wipro's CEO, who turned his father's cooking-oil plant into India's largest software company, worth $8.6 billion. Infosys' newly appointed CEO, Nandan Nilekani, says, "What we're shooting for is to become a major provider of technology consulting services in the U.S. and Europe."
Wipro and Infosys, plus three other Indian companies—Satyam, Tata Consultancy Services and HCL—are making the Big Five nervous. Prakash Parthasarathy, an analyst at Banc of America Securities in San Francisco, believes that 30% (worth $2.5 billion) of the Big Five's annual revenues may be taken by Indian IT companies over the next four years. He predicts that Indian revenues will rise by 30% annually over this period.
It's a remarkable feat for the Indian companies, most of which are no more than 20 years old. Until 2000 the top consulting companies barely gave India a second thought. Companies like Wipro spent their time performing such menial tasks as maintaining computer infrastructure systems. Their engineers worked for $25 an hour—a third of what American engineers charge.
Since then, Wipro and its compatriots have been honing their software skills, to the point where they can do more sophisticated tasks for less: from $25 to $30 an hour for an engineer in India compared with $120 to $140 for ones in America or Europe. And India's companies are highly disciplined, with a good reputation for on-time delivery.
The proof of the pudding is in the taste. Wipro and Infosys saw their net profits rise by 38%and 26%,respectively, from the year earlier in the quarter ending September 2001. By contrast, KPMG's net profit dropped 33% in the quarter ended September 2001; and CapGemini's net profit dropped 65% in 2001. Accenture's profit slipped 1% last year.
It's not just price and delivery times that are attractive. "We find that companies tend to go with trusted names in tough financial times," says George Price, an equity research analyst at Legg Mason in Baltimore, Maryland. Debashish Sinha, an analyst at Gartner, a research company, says that Indian companies already have "a foot in the door" when it comes to working with U.S. and European companies, from which they make 70% of their sales.
As a result, many of these companies are turning to Wipro and Infosys to complete sophisticated software projects. For example, S.A. Ibrahim, chairman of Green Point Mortgage, a company with $26 billion in 2001 mortgate lending originations in Novato, California, initially hired Infosys in 1998 for various one-time IT projects. Then when Green Point decided last year to overhaul its software systems to increase the number of loans it could process, it asked Infosys' engineers for advice on how to do it. Ibrahim says that they quickly gave answers and worked well with his IT staff. "I've saved a lot of money on the project," he says.
In other cases, the Indian companies are obtaining completely fresh business. When 186K, one of Britain's broadband infrastructure builders, needed a software consultancy to set up systems to handle customer orders and billing, Dale Register, its COO, took bids from Accenture, CapGemini, IBM, EDS and Wipro.
Register says that he was skeptical that Wipro could handle the $70 million job. "Weren't these the guys who wrote all the code before Y2K?" he asked in February 2001, at the start of the bidding process.
In July, Register signed a contract with Wipro—even though it wasn't the cheapest bidder, he says. He was impressed that Wipro agreed to stringent deadlines and worked ahead to propose an idea for 186K's billing system. "They were flexible with what we wanted," he says.
These more demanding projects for now contribute only a small percentage of revenue for the Indian companies; Wipro says they account for 13% of sales and Infosys' Nilekani says 12% to 14%. "We think this will grow quickly in the next few years," says Nilekani. If he's right, the Big Five will be well and truly cooked.
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