Tales of an iSeries Offshore Outsourcer
September 13, 2004 Alex Woodie
For IT professionals in this election year, you can’t find a more controversial topic than offshoring. While American manufacturing jobs have been moving overseas for decades, the offshore market for skilled IT jobs is just coming into its own. And if LINC Software‘s decision to hire 100 more programmers and support specialists is any indication, the market for offshoring OS/400 software services to India is picking up.
Like many other trusted names in the OS/400 industry, LINC Software was founded in 1988, the year IBM introduced the AS/400. From its headquarters in Bangalore, ground-zero for dozens of offshoring providers, LINC primarily serves overseas clients, as the OS/400 server’s footprint in India is relatively small. Unix and Windows are most popular among Indian businesses and governmental agencies because trade restrictions in the 1970s and 1980s prevented IBM from establishing a good footprint with its minicomputers and mainframes, says vice president of business development K. Jaikishen. “So you don’t find too many players in the iSeries in India,” he says.
This has created an opportunity for LINC Software to establish itself in the OS/400 niche, Jaikishen says. While there are larger and better known offshore IT services providers in India–Tata Consultancy, Infosys, Wipro, IBM, to name a few–none are as iSeries-specific as LINC Software. “We are very well known as being an AS/400 provider,” Jaikishen says. “Other service providers come to us, including some of the companies I have named,” such as Wipro, Infosys, and IBM.
The typical LINC Software customer also happens to be your typical AS/400 shop: a Global 2000 manufacturer or distributor based in the United States and running BPCS. Jaikishen says that about 60 percent of LINC’s 15 or so customers are American companies with international reach, such as ConAgra, Crate&Barrel, and Viacom, and that about 70 percent of them are manufacturers or distributors. To date, LINC’s focus has been the BPCS ERP package from SSA Global, although its J.D. Edwards practice is growing, and it also sees good demand for programming in LANSA, for which it is also a qualified service provider. The balance of LINC’s customers is based in Europe and Asia/Pacific.
Jaikishen says that LINC has worked hard to build a reputable software services business, and that it avoids some of the more distasteful practices that have sprung up as a result of the outsourcing trend, such as “body shopping,” which refers to the practice of signing immigrants to contracts in the host company’s country and then making them work it off. “With respect to offshoring, we’ve been doing this for a long time,” Jaikishen says. “We’ve had to talk about best practices of offshoring. Everybody’s aware, customers are aware, of the benefits of engaging with companies that are certified with quality services.” In terms of qualifications, LINC is a premier business partner of IBM and is ISO 9001:2000 certified.
In a typical LINC engagement, some of the client’s application development or support jobs are moved to LINC, and a project manager remains onsite (or near-site) to work as a liaison between the client and LINC workers in India. “It’s never purely offshore; it has to be the right combination of onshore and offshore,” Jaikishen says. “Don’t make the mistake of completely offshoring [the jobs]. A lot of companies aren’t into a pure offshore mode. What we recommend usually is the right combination” of onshore and offshore.
MANAGING OFFSHORE WORK FROM ONSHORE
From his office in New Jersey, Jaikishen is responsible for a staff of about 20 employees and managers who work on and oversee projects in the U.S. He is also responsible for drumming up new sales in the U.S. When asked how much money he tells potential clients they can save by offshoring some of their software services, he answers, “Easily between 30 and 40 percent, and certainly upward of 50 percent.”
Those kinds of savings are hard for companies to turn their backs on. While many an IT manager has grimaced when faced with the multi-million-dollar cost of a top-of-the-line iSeries server, or the upfront licensing fees of a new ERP installation, labor costs easily continue to be the highest component of the total cost of an IT operation. However, it must be said that OS/400 shops typically have lower costs than Windows or Unix shops. Database administrators are practically unheard of in the OS/400 world, for example.
Jaikishen is also aware that when he is successful at landing new clients, it means that there are fewer BPCS, J.D. Edwards, or LANSA jobs in the U.S, Europe, or Japan. “In a global economy, these things do happen,” he says. “[But] a lot of American products are being used in India. If you look at the real business, the software services business is a very small part of the offshoring that is happening. There is a lot more happening in the manufacturing sector. Software services has been in the news.”
OFFSHORING: IS IT ALL BAD?
Statistics indicate that there will be both good and bad aspects to offshoring of American IT jobs. IT analyst Forrester Research forecasts that, through 2015, about 3.4 million American jobs will be lost to offshoring. And, in May, it boosted by 40 percent its projections of American job losses through the end of 2005, an indication of the rapid expansion of offshore IT service providers currently underway. These are huge job losses, anyway you cut them, and it will throw some American families into disarray until other employment can be found.
While many Indians will be doing the programming work once done by Americans, the effect isn’t as one-sided as you might think at first glance. For example, in the five-year period leading up to 2008, American businesses will save almost $21 billion by using offshore IT providers, according to a March 2004 report commissioned by the pro-offshoring Information Technology Association of America. These are savings that could benefit American families, in the form of price cuts on consumer goods and services, or in the form of increased profits and dividends for shareholders. The well-respected McKinsey Global Institute found that Americans will also benefit because businesses will have more to invest into new technologies and jobs, according to a 2003 report titled “Offshoring: Is it a Win-Win Game?”
While Jaikishen downplays LINC’s success because of the political climate, the truth is that the company is currently experiencing double-digit revenue growth, with a projection of over 30 percent growth in revenues this year. To satisfy demand from new clients, LINC recently announced plans to hire an additional 100 workers this year, to bring the total number of IT workers to 280 people.
Chandra Kumar, one of LINC’s founders and its chairman and managing director, said, “With successful large-client acquisitions and two years of healthy profits, we are now gearing for a faster pace of growth to reach our next immediate financial target of Rs. 100 crores,” or about $22.5 million at current exchange rates.