Setting up operations in India (Part 3): IT outsourcing as intermediate stage

After having discussed the costs and risks of setting up operations in India as well as IT Outsourcing as a long term alternative, we will now take a look at the happy medium: IT outsourcing as an intermediate stage towards setting up an operation in India.

This approach is especially convenient for SMEs that are planning to (one day) set up their own operation in India or are undecided about whether to do it now. More and more Indian outsourcing vendors recognize their clients’ wish to (potentially/one day) set up their own operations in India and add another trend-setting feature to their outsourcing models: Additional exit strategies. By giving such options, the client does not have to take a definite decision beforehand, but stays fully flexible.

Good examples for additional exit strategies are the possibilities of….

  • Moving into a Joint Venture, which means that outsourcing vendor and client jointly set up a legally independent enterprise in India. Thus, he can benefit from his partners know-how and experience as well as  share investment and risk.
  • Moving into a Build-Operate-Transfer, which means that the client assigns the outsourcing vendor to set up a location for him and to operate it for a contracted period of time. Thus, the client can focus on its core business while knowing the project is in capable hands.
  • Migrating “his” employees into his own operation, either as single exit strategy and/or in combination with a JV/B-O-T. Thus, the client does not necessarily lose “his” talents.

What are the advantages of having IT outsourcing as an intermediate step?

First of all, starting off with IT outsourcing ensures immediate productivity benefits with lower risks of investment. Furthermore, it gives the outsourcing client the possibility to gain knowledge about India as a viable IT location as well as to analyze the profitability of investments before taking action.

And above all, they have the chance to find a professional and trustworthy partner for jointly tackling their “Operation in India”, which means shared risk and investment.

Overall, IT outsourcing is a good approach for all SMEs. Thanks to the new outsourcing models, the SMEs stay flexible on when  and how to set up an operation in India while having immediate productivity benefits, gaining knowledge of India as IT location, analyzing the profitability of investments as well as getting to know a potential partner for this undertaking.

We’re listening.

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Author : Jenny Date : 04 Jul 2011