Nearshore Needs More Training, Greater Scale

The prospect of managing multiple locations in the US, India, Mexico and Japan can be daunting for many people. But Ravi Shanker, Sales Director for HCL America, Inc., …

Shanker: India has a better grasp of "the training concept."

The prospect of managing multiple locations in the US, India, Mexico and Japan can be daunting for many people. But Ravi Shanker, Sales Director for HCL America, Inc., has been doing it for years. His experience overseeing IT development projects began with Polaris Software in the early 2000s, then with HCL. As an insider, he has been directly involved in a market that has shifted from Indian-centric software development to new destinations like Brazil and Mexico. We asked Shanker about the current state of outsourcing, the trend toward onshoring, and what countries need to do to remain relevant or become more competitive.

NSAM: What is the main challenge of coordinating delivery centers in different countries?

Ravi Shanker: For customers, getting delivery from four different locations is a challenge. Things like time zone differences and communication are the main issues. There is a 12-hour difference between North America and India, and communication continues to be a challenge especially for Mexico and India. Language is secondary, what is primary is what they [the delivery center] mean when they say something – especially in India. They can have only a third of the work done, and the client will ask if they can deliver the next day and they will say yes.

NSAM: How do you manage this?

RS: The coordination is done by program managers within the organization that deal with the issues. They make the customer aware of the status; these people have been onsite for a number of years and have about ten years experience of dealing with customers.

NSAM: Where is the most IT activity happening now?

RS: There was an incentive for IT managers to go to Mexico for testing, including mobile testing and content management, which is being done from Mexico and India. There is a lot of BPO coming out of North Carolina.

NSAM: What regions or segments are providing the best advantages or seeing the most action right now?

RS: Middle-market companies with revenues of $250 million or less are not getting enough attention from the major players and they spend $3 to $5 million dollars annually on IT services. When comparing costs, in China I can probably get four or five FTEs, and two to three in India, for the cost of one FTE in New York City. The East European locations like Hungary and Poland are getting some traction. And Nearshore locations, especially Brazil and Mexico, maybe Colombia, are getting a lot of traction.

NSAM: What will be the next hot spot?

RS: There are three criteria to measure this: majority, expertise, and scale. Getting the majority will take time to develop in Nearshore locations. India has been in the space for many years and they are in the majority, most of the developers are on level five. In China they are at level one, two, and three. Scalability in Mexico is not comparable to India and China. In China, India, and Mexico the attrition rate is 10% to 16% annually.

It depends on how much focus Nearshore providers are willing to put into the three criteria. When you compare the resources, how well can these markets perform? There is a lot of emphasis on training in India. Someone like Infosys will hire 25,000 people each year, 80% could be fresh out of college or even high school and 20% could be from the market. They will undergo an intense 60- to 90-day training program and enter the workforce with strong capabilities. The new grads will be able to do most tasks at a low wage, and the more complex programming will be given to the experienced programmers who earn three times more. Even though in India the annual salary increases 15%, FTE costs have not really gone up because of the influx of fresh graduates.

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I am not sure that firms in Mexico and Brazil understand the training concept as they do in India, and they need to establish strong training programs for new graduates.

NSAM: Will there be a growing move toward US onshoring in 2012?

RS: Yes, absolutely. States are coming up with incentive plans for companies to establish locations and hire locals. North Carolina is an example where we got a good incentive to create 500 jobs there. Onshore capabilities are being developed mostly by Indian players who are building in various states. Accenture and IBM are building facilities as well.

NSAM: Does this create internal competition?

RS: There are certain capabilities available onshore which are not available offshore. For example, mainframe operations are not easy to get in India, so they are delivered from onshore.

NSAM: What is the attrition rate in the US?

RS: In the US attrition is around 3%.

NSAM: How will competition for good candidates increase if onshoring continues to grow?

RS: Competition for experienced workers will increase, but not for fresh grads. The ability for organizations to train grads in IT systems is really great; there are so many tasks that can be performed by high-school grads. It is not necessary to have computer majors or people with experience in IT to work for an IT company because the company provides specialized training.

Five years ago, 90% of the employees would be coming from offshore to work at onshore facilities. Now it is reversed. A company needs to have the ability to train fresh graduates, putting them into 60- to 90-day training programs. Use training as a tool to create scalability.

 

 

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