A destination for all IT requirements

Other IT outsourcing locations - FT.com, 02/07/2003

A volcanic island might seem like an unlikely place to site a disaster recovery centre, but as businesses cast their net across the world for IT talent, no destination is too strange.

Mauritius is just one of a pack of nations, in South America, the Caribbean, Africa, and Asia, all hot on the heels of India, China and other leading countries, and bidding to host the world's IT and call centre businesses, handling everything from application development to disaster recovery.

Each country has its own particular set of advantages and challenges. South America and the Caribbean, for example, share time zones with the US. Africa shares time zones with Europe, and has strong French and English language skills.

Sri Lanka, Nepal, Bangladesh and Pakistan have many of the same advantages of their larger neighbour, India, such as a low cost base, and strong English language and technical skills. Being close to India is increasingly becoming a plus point in its own right as India's bigger companies look to expand beyond its borders.

Infosys, the big Indian outsourcing company, set up a $25m disaster recovery centre in Mauritius last October, and this coral-fringed volcano in the Indian ocean, better known as a holiday island, is rapidly becoming a technology hotspot.

Ceridian, the Minneapolis-based human resources IT company, has been outsourcing software development to Mauritius for several years. It currently has 30 application developers, with plans to expand the force to 70.

Bruce Thew, executive vice-president of Ceridian International, appreciates the low staff turnover on the island, which helps him to keep overall costs at around 70 per cent of what they would be in the UK.

He cites the political stability of the island, pleasant climate and good infrastructure as reasons for working there. "We're welcomed on the island as an important employer," he says. "And we never have problems persuading trainers from Europe to come here."

South America has the potential to rival Mexico as a provider of low-cost IT services to North America. "If the only criterion is labour costs, I can beat India hands down, in Argentina or Brazil," says Dan Zadorozny, president of EDS Applications Services, which has outsourcing facilities in both countries.

Smaller companies in Brazil are also working with international clients, and trying to compete on quality as well as price.

Vetta Technologies, based in Belo Horizonte, a large industrial city north of Rio de Janeiro, has 50 developers providing software development services to companies in Europe and the US. Their expertise is construction and manufacturing, bioinformatics and financial services.

"Though our costs are lower than the US, it's not feasible for us to compete in terms of costs with a multi-million-dollar Indian company with thousands of employees," says Thiago Maia, executive vice president of Vetta Technologies. "Our strategy is to compete in a niche where no-one else can beat the value we provide."

Specialising has also been the core of the approach taken by Virtusa, a US-based company which has 400 developers in Colombo, Sri Lanka, as well as a facility in Hyderabad, India.

The company supplies development services to a number of US companies, including Vignette, the content management software company, edocs, an e-billing company and Fannie Mae, the US mortgage provider.

"Sri Lanka is a phenomenal place to leverage IT talent," says Kris Canekeratne, chairman and chief executive of Virtusa. "Not for everything, but for high value services. People have a high degree of literacy, [there is] a large proportion of English speakers and a high level of technical skill."

"Sri Lanka's costs are slightly higher than India, but by focusing on its core areas, we managed to grow the business by 50 per cent last year," says Mr Canekeratne.

For all the talents of its people, however, northern Sri Lanka has seen ongoing civil war since the mid-1980s. Having facilities in India and Sri Lanka hedges some of the political risk involved in working in either country, but Virtusa has had to develop cast-iron disaster disaster recovery practices to reassure clients.

"In fact, last year when some clients were a bit apprehensive about the situation in India, that experience from Sri Lanka was beneficial to us," says Mr Canekeratne.

These countries have few or none of the same advantages that India does, in terms of an established track record, a well-organised industry lobbying group to promote them, and relative political stability.

With a few exceptions like Mauritius, it will take a while before companies from many of these countries are able to take on large, business critical outsourcing deals, where a failure with the provider could cause major damage to the client.

"You can find talent in all these places," says Russ Owen, president of global infrastructure services at CSC, the big US-absed outsourcer. "But with large outsourcing deals you have to put a lot into training staff, you need to think of them as a lifetime investment. You can't just move it somewhere else, so you have to know the country is stable." CSC has avoided large investments in Brazil and Argentina for that reason, he says.

Work such as application development and simple call centre functions is less risky, and allows buyers to dip their toes in the water gradually. Price competition will be severe in these markets, but many countries which do not win the large strategic outsourcing deals will be able to participate.

For clients who do not want to trawl the world for the best suppliers, companies such as EDS allow them to get some of the price benefits of offshore work, by using their global network of nearly 100 development centres across the world.

That does not mean that companies should not pay attention to where their work goes. "You can't just throw it over the wall," says Ian Marriott, research director at Gartner. "You have to know what is happening and where - especially if they are dealing with sensitive customer information, or intellectual property."

Whether companies choose to set up their own facilities, work directly with local providers, or through established western corporations, there is now a world of talented IT professionals waiting to hear from them. Though the risks in some of the less popular countries are significant, the rewards will be significant too.