A global gambit

India gets a lot of attention but Estonia, Russia, China and other countries want your business, too.

Upgrading an Internet connection in St. Petersburg, Russia, can be complicated, as FutureTrade Technologies can attest.

"From beginning to end it took about a year, and at each step in the process an intermediary saw an opportunity to tax us," says Tom Dilatush, CTO at the Lake Forest, Calif., trading systems company.

FutureTrade's experience reflects issues that face any company looking offshore and outside established Indian centers for IT services: the inconsistent level of urban and communications infrastructure and talent necessary to support offshore IT services.FutureTrade employs about 50 developers in Talinn, Estonia, and St. Petersburg. Upgrading the St. Petersburg Internet link from 256K to 512K bit/sec involved convincing the landlord of FutureTrade's office building to change their contract to let the company deal directly with its ISP. The initial connection, about four years ago, involved laying copper in the street.

"In Estonia, on the other hand, we snapped our fingers and got an E-1 connection; it took us about a week and a half," Dilatush says, adding that in Talinn fiber is already laid out to buildings.

Seeing India's success, countries from Asia to Eastern Europe, Africa and Latin America, as well as Ireland, are promoting themselves as alternatives, and there are various reasons to consider far-flung locations, which don't all involve cost.

"Companies want to spread their geopolitical risk," notes John McCarthy, a vice president at Forrester Research.

Businesses also look for providers closer to the U.S., specialized expertise and special language requirements.

For FutureTrade, the Internet connection hassle was a glitch outweighed by talent. "The level of education is superb, even relative to the U.S. The University of St. Petersburg offers a computer science degree, and there are thousands of people without jobs," making it easier to retain talent than in India, Dilatush says.

Technology education is known to be high throughout major cities in Eastern Europe.

Minsk, Belarus, for example, is a city of about 2 million with more than 20 schools at the college or university level, says Arkadiy Dobkin, co-founder and CEO of Epam Systems, a services provider in Lawrenceville, N.J., with about 600 programmers deployed in Moscow, Budapest and Belarus.

First Index in Whippany, N.J., which uses Web-based RFQ automation to match buyers and suppliers of manufacturing components, saved application development funds by replacing its own development team with Epam.

"We went from spending $55,000 to $30,000 a month," says First Index CEO Russ White, who also considered Indian providers.

Minsk is also closer to New Jersey than Bangalore, notes Bill Burke, company president. "I was surprised at how vibrant it is. Urban infrastructure is good - there's a nice underground, and I was impressed by the Epam facilities; they have the top six floors of a 12-story building, all re-done."

While Minsk and other former Soviet-bloc cities rate high in terms of available talent pool, and generally solid infrastructure, companies with massive IT requirements need to be especially careful when looking elsewhere.

What’s the big deal?

Businesses might look outside of established Indian outsource providers for a variety of reasons: cost, risk mitigation, specialized tech and language skills and proximity to U.S. But the infrastructure to support IT services varies from region to region.

By the numbersRelative capacity of India to BPO challenger Philippines:India:100,000 call center seats (2004 capacity) forecast annual growth

50%

Philippines: call center seats (2004 capacity) forecast annual growth

20,000

100%

SOURCE: DATA MONITOR

"You can find pockets of talent and high-end infrastructure in different places, in Costa Rica, in Ecuador, for example, but the issue is scale - you can't scale up very high in Costa Rica," says Marc Hebert, a vice president at Sierra Atlantic, a Fremont, Calif., outsourcing firm that specializes in ERP and employs Indian developers. "For larger-scale projects you have to go to India, Russia and China."

Even Indian IT services leaders are looking to get a foothold in China.

"In terms of infrastructure, China scores higher than India," says Kris Gopalakrishnan, COO of Bangalore software services and business process outsourcing (BPO) company Infosys Technologies, which has set up a subsidiary in Pudong, China. "They have more telecom density as well as a higher PC penetration."

The infrastructure for BPO services is very much in place in China, according to Gopalakrishnan. "The challenge is to increase the base of English-speaking population in the country," he adds.

Other potential business problems include lack of intellectual property safeguards and cultural differences.

"Because of difference in management style you tend to see some sort of cultural tie or personal tie between China and companies that do business in China," Sierra Atlantic's Hebert says.

This is true of Fremont, Calif., security application company Sygate, whose founder and CTO, Chris Guo, has a master's degree in computer science from Huazhong University of Science and Technology in China, says Bill Scull, senior vice president of marketing.

The company has sales offices in Beijing and programmers at Huazhong, where it does prototyping. "The cost structure is pretty spectacular; it's about one-eighth that of the U.S. And I've been very impressed with the level of infrastructure," Scull says. "We don't work in a synchronous environment with the U.S., but for our purposes there hasn't been any network outage that would interfere with replicating, for example."

With better English skills than China and a closer cultural affinity for the U.S., the Philippines is one of Asia's fastest-growing services hot spots, especially for BPO facilities such as call centers, according to Miguel Garcia, managing director of call center facilities builder Diversified Technology Systems in Manila.

"Operational expenditure costs for call centers give U.S. companies a savings of an average of 30% to 40%, and even up 50%," he says.

Manila, the center of Philippine BPO, has a very good transportation system, says Rangan Mohan, president and CEO of Hinduja TMT Limited, a BPO company in Bangalore that last year acquired a majority stake of Customer Contact Center, based in the city. "Transporting employees to their work place is not a major bottleneck and in fact many companies do not undertake this responsibility, as the city's transport system is very good."

Although Mohan says the telecom infrastructure is better than what is available in India in terms of availability and cost per unit bandwidth, reports on communications infrastructure vary.

"Manila can be as expensive as India so to get lower costs you need to go to the suburbs, but the infrastructure is not uniformly good," says Arjun Malhotra, CEO of Headstrong, an IT consulting and services company in Fairfax, Va., with outsourcing facilities in India and Manila. The cost of getting VoIP applications that work well can be prohibitive, he notes.

Currently, the major problem in the Philippines is one of scale. There is a talent pool with skills for BPO, but the country does not produce nearly as many engineers as India, Malhotra notes.

Outsourcing service providers in African countries are at a more basic stage of growth than those in the Philippines. Although South Africa is already home to a handful of international services providers and homegrown providers, other countries on the continent are just beginning to build industrial parks to capture a share of the offshore BPO market.

For early BPO entrants such as Kwame Bonsu, managing director of Rising Data Solutions Ghana, the African terrain has been a challenge. For instance, although Ghana has a link to the SAT 3 intercontinental cable system, the last mile connecting buildings to the 120G bit/sec cable has not been built yet, he says.

U.S companies, however, might not need to look very far abroad for outsourcing services, especially if cost is not the major issue, and language is a consideration. Canada has a telecom infrastructure virtually identical to the U.S., and thus has the ability to scale, analysts note, but costs are similar. Mexico, however, offers some cost advantages and is particularly appropriate when Spanish services are required.

MphasiS BFL Group, a Bangalore software services and BPO company, last year set up a 50-person call center operation in Tijuana, Mexico, to meet the requirement of a U.S. customer for a call center in Spanish. "We understand that about 16% to 18% of calls on toll-free numbers in the U.S. are in the Spanish language, and that is the segment that we plan to address," said Ravi Ramu, CFO of MphasiS BFL.

Although Tijuana has proven to be marginally more expensive than India, telecom, road transport and other infrastructure is good enough at the scale the company is operating, he says.

Ferranti is a correspondent with the IDG News Service. Additional reporting by IDG correspondents John Ribeiro and John Yarney.

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