IT Outsourcing India

As banks continue to look at outsourcing most of their IT services, UK-based major Standard Chartered continues to have a large in-house IT team servicing close to 60% of its functions. While Citi is the only major bank to sell off its IT captives, the European bank has no such plans with its back-office Scope International based in Chennai, StanChart’s Group Head of Technology David Awcock says in an interview..

What percentage of StanChart’s overall IT spends is outsourced to third-party vendors and how much of it is to Indian IT vendors?

We have 6,000 employees in our IT team at StanChart across the world with a majority of them in India. We outsource approximately 40% of which close to 10% is to Indian vendors. Only a limited portion is outsourced as we have our own expertise to handle most IT functions. While data centre network services and desktop support services continue to be managed by third-party vendors, only a limited part of our software services is outsourced.

Will you increase outsourcing as it would help save costs further?

Firstly, we have never outsourced because of cost arbitrage. We look at the capabilities we have in Chennai and Kuala Lampur as value and not cost centres. Yes, these are challenging times and we are doing everything to ensure that we use this opportunity to increase efficiency internally. However, we will not be outsourcing any more than we already have. We have our own expertise in wholesale banking and payment systems, which we would not like to outsource to a third party as they would not value IT, the way we do.

How is it more cost-effective to develop your solutions in-house compared to outsourcing?

For our in-house developed core banking software platform we do not need to pay a vendor for licensing the application software. Charges usually consist of an initial licence charge (ILC) per country plus an annual maintenance charge (AMC) which is up to 20% per annum of ILC typically. In addition our software development from the outset has been based upon using JAVA and other open source tools to run in a Linux environment. This provides us with a low-cost development platform going forward and a cost-effective operating platform. For instance, we recently launched our own core-banking product in Chennai that has been released across 31 other geographies over the last five years. We will not want to give this up as we believe it is better than any other package or solutions present in the market.

Are you re-negotiating any of your current contracts? Do you see a drop in billing rates?

All our vendor contracts that are coming up for renewal will now be negotiated very keenly. Especially with desktop and network vendors. Now is a good time for us as customers are in a better position to bargain with vendors as there is some tough competition between vendors. Each one wants to do better than the other in the services offered. We are expecting a downward revision of at least 10% compared to the current bill rates.

How is your relationship with Indian vendors changing?

Vendors are willing to be more flexible now and it is easier to draw contracts. Indian vendors have been very much fixed on their US business and also maintaining high margins. This is changing. We never looked at Indian vendors for low costs, but for skills and niches we did not have. Earlier only the likes of IBM and EDS used to approach us with infrastructure services. But these days Indian vendors too are approaching us with these services and not just software services. We are having healthy discussions with them and are looking at contracts that add both value and are cost-effective for us.

Do you prefer to work with large vendors or are you open to working with the smaller ones too?

We have relationships with large vendors in India which are satisfactory. We are willing to talk to smaller vendors as they are more flexible and have new ideas. If the smaller guys have the expertise in niche areas like financial markets and it suits our needs, then we would be very much interested. But we prefer to work with fewer vendors. Currently we are working with about three large ones and 10-11 smaller vendors.

Source : http://economictimes.indiatimes.com/

The global outsourcing market continues to grow at a steady pace, with a 2007 worldwide market growth rate of 10.2% for both IT outsourcing (ITO) and BPO, with BPO showing double-digit growth.

However, healthy growth rates for outsourcing did not necessarily mean that user organizations were without challenges. Although user organizations often have fundamentally sound procurement organizations to initiate outsourcing contracts, for many, their IT sourcing strategies and governance structures are still immature, lacking altogether, or misaligned with enterprise objectives. Because these organizations lack the basic building blocks for successful vendor management and outsourcing success, expected cost savings and other benefits are difficult to obtain. In extreme cases, the lack of needed trust and control to optimize the outsourcing relationship results in deal failure.

Growth in domestic outsourcing

In many cases, large outsourcing deals are transformational, because most Indian companies are embarking on new ways of reaching the market. Large businesses wants to focus on their core business and whatever are the non-core activities for them are being outsourced to third parties mostly IT infrastructure management alongside projects such as business transformation. They seek long-term strategic partners to help them create new products and services, such as commoditizing insurance policies or billing/marketing plans for telecom subscribers. IT outsourcing will play a key role in this transformation, and they are relying on their business partners to take charge of this key role.

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