Reverse outsourcing: India farms out jobs

Reverse outsourcing: India farms out jobs
Fort Wayne Journal Gazette - Fort Wayne,IN,USA

By Rebecca Buckman

Wall Street Journal

GURGAON, India – Plenty of companies are outsourcing work to India. Now, one of India’s biggest companies is turning the tables, farming out hundreds of millions of dollars of work to Western companies, including IBM Corp. and Sweden’s Telefon AB L.M. Ericsson.

The new business model, pioneered by Indian phone giant Bharti Tele-Ventures Ltd., is on display in this high-tech enclave outside New Delhi. Hundreds of former Bharti employees – technical staff who build, operate and maintain Bharti’s fast-growing, wireless network – do that work as employees of Ericsson.

They toil in a gleaming new Ericsson office building complete with blond-wood trimmings and a seven-story atrium lobby.

The ultramodern building sits off a dusty road where stray cows compete for space with noisy cars and trucks. Virtually all of Bharti’s network employees took new jobs at Ericsson when the two companies signed their innovative, $400 million outsourcing pact in February 2004. After the deal was struck, “there was nothing much to do (at Bharti) anymore,” says one transferred employee, regional manager T. T. Thomas.

Call it reverse outsourcing – with an Indian twist. Bharti, India’s second-largest wireless outfit, has handed off the operation of its entire phone network to three European companies. Ericsson has the largest chunk of the business, while Finland’s Nokia Corp. and Germany’s Siemens AG run Bharti networks in a handful of Indian regions. About 500 Bharti employees initially moved to new jobs at the three companies, leaving Bharti with a skeleton, internal technical staff.

Bharti also outsourced most of its information-technology services, including billing and customer-management software, internal e-mail systems and the company intranet, to IBM. That deal is valued at as much as $750 million over 10 years and involved transferring 240 Indian employees, the companies say.

Bharti’s deals show that outsourcing isn’t just a one-way, West-to-East street anymore, says David Jordan, IBM general manager and vice president, who helped seal IBM’s pact with Bharti. As outsourcing grows, “certain jobs move one way, but other jobs move the other way,” says Jordan, who is based in Tokyo. Indeed, IBM beat out several Indian rivals for the Bharti contract – Indian companies that have been criticized in the United States for stealing jobs from American workers.

To be sure, the Bharti deals with IBM and others don’t mark a reversal in the global-outsourcing trend. Bharti hasn’t moved jobs to higher-cost locations in the United States or Europe; most of Bharti’s technical work is still being performed in India, by Indians. “This is very local outsourcing,” says Hans Vestberg, an Ericsson senior vice president.

But the arrangements demonstrate the growing global clout of big Indian companies such as Bharti, which likely will wring significant cost savings out of its outsourcing deals.

Bharti declines to comment on any specific cost savings. But Ericsson officials say phone companies typically save at least 20 percent of their operating costs through such in-depth network-outsourcing arrangements.

That’s important for Bharti, a company trying to gain market share in a very competitive cell-phone market, where per-minute charges are among the lowest in the world. Bharti had about 9.4 million mobile customers as of Nov. 30 and is adding about 400,000 a month.

“Our strategy was, if we can be the lowest-cost producer of minutes (in India), then we can still make money,” even with super-low voice charges, says Don Price, chief technical officer for Bharti Cellular Ltd.

While some other phone companies around the globe also are hiring outside vendors to run their networks, Bharti is giving contractors more operational leeway than most. Bharti’s deals are “a little bit radical” and are “still new in the industry,” says Vince Pizzica, Asia-Pacific chief technology officer for France’s Alcatel SA, an Ericsson competitor. Analysts say deals like Bharti’s often work best with fast-growing phone companies in developing markets, where building the network can be relatively simple.

Bharti can save money through its outsourcing pacts partly because it doesn’t pay anything anymore for expensive computer or telecom equipment. Instead, IBM, Ericsson and the other vendors figure out what equipment Bharti needs, then install the gear and keep it running. In return, Bharti simply pays IBM a percentage of its revenue. It pays the telecom-equipment companies strictly for the capacity it uses on its phone network. It’s like reading a gas meter once a quarter and then paying a local utility for the gas consumed.

That gives all the companies involved an incentive to add customers and keep networks operating smoothly, officials of Ericsson and Bharti say. Bharti’s goals of keeping dropped calls and “blocked” calls – calls that don’t go through when dialed – to no more than 2 percent have been exceeded since the deals were signed, according to Price.

Another plus is that Bharti doesn’t spend time recruiting and hiring technical employees anymore, or performing cost-benefit analyses on new computer systems. Now, if there’s a decision to be made about buying a new machine, or upgrading a system, “it’s not my problem,” says Akhil Gupta, Bharti’s joint managing director.

Former Bharti manager Thomas says he and his colleagues initially worried about ceding so much control over Bharti’s network to outside vendors. But now, he and other new Ericsson employees say they relish working for a well-known, global technology company with plenty of resources.

One ex-Bharti staffer is about to leave for a new, temporary work assignment in Oman; others have attended training sessions and conferences in places such as Sweden and Iceland. Transferred Bharti employees also maintained all their employee benefits and saw no change in take-home pay after the switch.

V.P. Sharma, an Ericsson senior manager, says his recent project to help build central, “network operation centers” for Bharti was far easier because he could draw on Ericsson’s in-house expertise. Actually, “we’ve copied the whole design from Sweden,” says Benoit Hanssen, an Ericsson director based in Gurgaon.