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Where in the World?

CRN – by Heather Clancy

Clearly, it's time for even smaller solution providers that don't typically look beyond the U.S. border to brush up on their world geography. Not only can solution providers use offshore alliances to extend their own business reach without overextending existing staff, but some of the smaller offshore players from India, Russia, Poland and China are now saying they're eager to forge relationships with U.S. VARs and systems integrators because they can provide that all-important local face to the customer - and an all-important entre into the midmarket, where few offshore companies have made many inroads. "Many of these companies in India are very interested in aligning with a U.S. company because it is very difficult for them to get into accounts and align with accounts," said Atul Vashistha, CEO of neoIT, an offshore consulting firm in San Ramon, Calif.

Among the top five companies with India development centers, Cognizant Technology Solutions (which officially has its base in Teaneck, N.J.) and Infosys appear most open to teaming with solution providers or ISVs boasting an industry or regional specialty. EPAM Systems, a Russian powerhouse with headquarters in Princeton, N.J., and Moscow-based Luxoft, a wholly owned subsidiary of IBS Group, are also open to alliances. (See country-by-country sections for more on the partnering strategies of 10 offshore powerhouses.)

"When we deal with smaller, midsize integrators, those who are very active and flexible, that's where we can get very quick and significant mutual benefits. We are ready for that," said Luxoft CEO Dmitry Loschinin.

And, increasingly, so are stateside solution providers like IT Solutions Consulting, a $3 million VAR in Jenkintown, Pa., that sees working with offshore resources as a way of adding to its own services portfolio. The company's president, Ted Swanson, first began looking abroad to handle custom application development - work that his in-house staff wasn't prepared to handle. Now, Swanson said, IT Solutions Consulting receives e-mails "all the time" from offshore companies looking to partner. "They're all cheap. They're all talented," he said.

So how do you differentiate? In Swanson's case, he looked for a partner roughly his own company's size that already had feet planted on U.S. soil and then subjected them to a tryout. "When we search someone out, we're looking for some sort of system they have in place to communicate with them regularly. That is the biggest concern."

CherryRoad Technologies, an ERP software integrator in Parsippany, N.J., that has a large PeopleSoft practice, was approached by more than 100 potential partners when it began looking to work with offshore facilities for some of its well-defined development projects. Tom Garvin, executive vice president at CherryRoad, said his internal costs for the work he has sent to an offshore facility are roughly $15 per hour vs. $60 in the United States. "It can be a significant competitive advantage if you link up with these guys and do it right," he said. His estimates jibe with those of other U.S. solution providers that have dabbled in using offshore partners.

Application development projects, of course, are by far the most common type of work being sent offshore. CherryRoad, as an example, is turning to a company in Denmark, Next Innovation, to deliver Axapta solutions and specifically an accounting feature it needs for certain customers. "We're partnering to build out this capability," Garvin said. "We think now that we've got our arms about it, we think it will become a more accepted form of doing business."

Indeed, Tallan, a software integrator and development company in Glastonbury, Conn., has created a formal process around the offshore partnership it forged slightly more than a year ago with Visual Soft Technologies, Hyderabad, India.

Craig Branning, president and CEO of Tallan, cautioned any solution provider considering an offshore relationship to weigh the cost savings against the risks. Projects that require integration across several different architectures or that involve a new business concept that hasn't been completely nailed down aren't great candidates for an offshore partner, he said. "Don't chase the dream of savings. ... The risk to time line, delivery, quality and so forth isn't worth it," he said. And, to forestall potential problems, Branning said Tallan assigns a senior-level person to shepherd projects sent offshore.

And don't expect offshore giants to limit themselves to software work. Most are building vertical industry practices, just like U.S. solution providers, and IT infrastructure management may be the next thing to begin moving offshore, according to executives on both sides of the Atlantic.

Global IT services firm Wipro Technologies, for one, in August released the results of a survey showing that close to one-third of about 150 executives from various industries were planning to offshore pieces of their infrastructure within the next 12 months. Another one-third were evaluating this idea. Bangalore, India-based Wipro itself is studying scenarios under which it will take on remote application management services.

John McCarthy, an analyst with Forrester Research, said functions like remote database administration, data center monitoring and management are natural things for a customer already happy with an offshore partner to consider outsourcing. "They are nibbling around the edges," he said.

That possibility is enough to make smaller solution providers including IT Solutions Consulting's Swanson hold off on creating a managed services practice for now. "If it's that easy, it's going to be pushed offshore," he said.

Where is the work likely to go? Following is information about five countries - and 10 companies - that are considered to be leaders in the offshore or, as it is becoming more widely known, low-cost global delivery movement.

Monsoon wedding

Depending on whose numbers you use, as much as 80 percent of the work sent offshore winds up in India. Indeed, half the companies CRN is featuring in this special report are either based in India or maintain substantial development center presences there.

Make no mistake, with close to 28,000 employees Bangalore-based Infosys isn't just in the game of being the cheapest option. "We're not the low-cost provider in the marketplace because that is not what the clients are looking for," said John Conlon, vice president of global alliances.

Conlon said the company is actively exploring pacts with U.S. ISVs that complement its recent thrust into industry-focused solutions for eight sectors including banking and capital markets; communications services; high-tech and discrete manufacturing; retail/distribution; insurance/health care/life sciences; utilities; transportation; and automotive and aerospace. The integrator, on a run rate to reach $1.5 billion in revenue for its fiscal year 2005 ending March 31, employs 5,000 to 6,000 business development and engagement managers in locations such as Michigan, New Jersey, Texas, North Carolina and California.

"We won't put an alliance in place with anyone unless it is being driven by a specific business decision," Conlon said. Currently, his team manages approximately 15 relationships. One area in which he sees future partnering possibilities is infrastructure management.

Cognizant COO Francisco D'Souza describes his company's partnering strategy as "active." Currently, the 13,000-employee company has about 50 alliances with other integrators and ISVs, and it just acquired a systems integrator in Europe. "Probably about half [of those relationships] are strategic partnerships where we have go-to-market plans," he said.

On Cognizant's radar screen are smaller firms with deep expertise in industry verticals including telecommunications, D'Souza said. "We will continue to aggressively build out," he said. The company is projected to reach $565 million in revenue for 2004.

Wipro, with annual sales of about $1.2 billion, tends to go it alone for projects involving its flagship middleware and enterprise application teams, but it does dabble with partners in other areas. "From an organization perspective, there are instances where we have alliances in a very niche space. It could be a vertical or certain services to offer end-to-end solutions," said K.R. Sanjiv, vice president of eEnabling at Wipro.

One example is a pact Wipro disclosed in mid-September with American Traffic Solutions, an embedded systems integrator that provides electronic toll and traffic management solutions. Under the deal, Wipro will work on business process automation and Web security functions.

India's biggest services company, Tata Consultancy Services, with more than $1.55 billion in revenue for its latest fiscal year ended March 31, appointed an executive, Abhijit Mazumder, in late September to forge new alliances in North America. The company could not provide a spokesperson to comment on its strategy by press time.

Meanwhile, Satyam Computer Services seems more content to go it alone, saying its size allows it to provide more customer intimacy, according to Neeraj Nityanand, senior vice president of marketing and communications at Satyam, based just outside Hyderabad.

With about 18,500 employees worldwide, Satyam is projecting sales of $700 million for its fiscal year ending March 31. "We are a small enough company to provide an intimate relationship," Nityanand said, adding that while the company will team opportunistically with midsize U.S. integrators, it has no formal partnering strategy.

Satyam is serious about being local: It actually boasts offices in more than 45 countries and executives like to describe the company as providing global sourcing capabilities. " 'Offshore' is a meaningless word," Nityanand said.

From Russia, with love

The largest provider of outsourced services out of Russia, EPAM, is actually different from its India-based peers in that the majority of its business comes from building custom applications and software for some of the biggest software product companies in the world, including Microsoft, SAP and BEA Systems.

"That's our largest forte and foray," said Bill Gargano, senior vice president of sales and marketing at EPAM.

The company maintains seven development centers and more than 1,000 employees outside the United States in Moscow, Budapest and Minsk, Belarus. It develops extensively in BEA WebLogic, Java and .Net. Through its work with U.S. software developers, the company has been tapped to help with integration and implementation for its software vendor partners, and said it has forged tactical alliances with U.S.-based solution providers as a result. "Many of them are trying to build their own capabilities offshore," Gargano said.

Still, EPAM is open to pacts that can help it penetrate verticals. One example is its two-year-old partnership with Madison Consulting Group, a 30-person technology consulting firm based in Jersey City, N.J., that is strictly focused on financial services clients. "They really recognized our value a lot," Gargano said.

Likewise, Luxoft is looking for U.S. implementation partners in verticals where it doesn't have domain expertise on staff, according to Loschinin.

The company, which employs more than 850 people, has four offices in the United States and another four development centers throughout Russia. Luxoft has already partnered on multiple projects related to the automotive industry with the likes of IBM Global Services and EDS.

"We find this approach useful if both sides are able to agree on the model up front and have an idea what the future will be of the deliberation. I don't believe in partnerships where the partner just brings contacts. That is just a mediocre role. Each side should deliver something significant," Loschinin said.

Polish up your act

Although it isn't mentioned as often as Russia in terms of software development, Poland's labor pool - 40,000 new IT graduates enter the work force each year - and language proficiency in English position it as an up-and-comer in the offshore movement.

One of the largest players in the market is Krakow-based ComArch, which spun out of an academic project 10 years ago and now employs 1,300 people in Poland as well as the United States, Germany, Russia, Finland and the Middle East. Its specialty is billing and customer care systems for telecommunications companies.

Marek Wojciechowski, ComArch vice president of the Americas based in Miami, said the company is working with U.S. systems integrators primarily to help build its own reputation here. "We are cooperating and meeting on certain projects because we are integrating our stuff into an existing environment. ... It's about creating confidence," he said.

Chinese wall tumbling?

China is considered the dark horse in the offshore movement, with the potential to overtake India's lead position as the low-cost provider of software-related services. Consider that neoIT predicts the country's annual software exports could reach $15 billion by 2005.

However, what makes China's position precarious is its longstanding trade policies, as well as the diminutive size of the many companies deluging U.S.-based solution providers with partnership proposals. In fact, more than half of the country's software services firms have fewer than 50 people, according to neoIT. This could, however, make them amenable to pacts with U.S. solution providers of approximately the same size.

Two larger systems integrators to watch are CommVerge Solutions and Datacraft Asia, both based in Hong Kong.

Datacraft, a Dimension Data company that touts itself as the Asia-Pacific region's leading technology services company, posted about $266 million in revenue for the nine months ended June 30. CommVerge, which specializes in telecommunications solutions, has a footprint in San Jose, Calif., and is publicly working on projects for the U.S.-based interests of companies such as China Telecom.

Neither company responded to e-mailed interview requests for this report regarding their partnering strategies with U.S. solution providers.

Oh, Canada

Although our neighbor to the north isn't often mentioned in the offshore debate, the North America Free Trade Agreement has stimulated a steady flow of IT services work between the United States and Canada.

One player to keep tabs on is Montreal-based CGI Group, approaching the $3 billion mark in revenue after its May acquisition of American Management Systems, Fairfax, Va. The combined company is a powerhouse in financial services, health care and telecommunications.

Throughout its history, CGI has directly acquired more than 60 companies, and in a speech earlier this year CGI Chairman and CEO Serge Godin suggested that the integrator's buying spree isn't over. "I would go so far as to say that, in 10 years time, only a handful of independent firms, or pure players, will remain in our industry," Godin said in an April speech. "Our goal is to ensure that CGI is one of them."

Where to next?

As more larger integrators begin to look beyond their own local markets to establish a global footprint, additional countries will become desirable destinations, according to U.S. solution providers that are now exploring offshore partnerships.

This week at TechXNY, representatives from the Philippines hope to aggressively position the country as a significant provider of offshore IT services to U.S.-based companies.

Claiming a labor force of roughly 75,000 IT professionals coupled with strong government backing, the former U.S. territory believes it has the cultural affinity with Western nations that is needed to challenge China for the No. 2 position in offshore outsourcing. "The Philippines has conditions that are very similar to India. ... China and Philippines are vying for the next spot," said neoIT's Vashistha.

Some solution providers say South America is another likely candidate. Robert Rhodes, chairman and CEO of Systems Evolution, a Stafford, Texas-based IBM Business Partner, has established an alliance with Colombia-based Uniservex, a programming services company with U.S. offices in Miami specifically focused on teaming with IBM Business Partners. Systems Evolution chose Uniservex for its expertise in the Rational Unified Process and now is outsourcing three different projects to Uniservex teams in Bogota, Colombia.

Rhodes discounted the option of working with larger integrators such as Tata Consultancy Services because their documentation requirements for projects can often be overly complex. "The level of documentation they require wastes 10 percent to 20 percent of the overall cost," he said. Besides, his partners in South America can travel to him more quickly if they're needed on-site. "Sometimes, you need to be able to get in a car and go over and be able to touch the equipment," Rhodes said. And that, when it comes down to it, is what offshore partnerships are really all about: cutting costs in one area to provide better local service in others.