Offshore outsourcing seen reshaping the tech sector
Lure of lower costs has sent sales soaring for software services provider in India
By KEITH DAMSELL
TORONTO -- The trend of outsourcing to lower-cost foreign jurisdictions is reshaping the technology sector -- whether Canadian firms want it or not.
Increased competition dictates that technology players find low-cost partners or contract out work, said Ramalinga Raju, chairman of Satyam Computer Services Ltd., a tech provider based in India's booming tech capital of Hyderabad. Mr. Raju was interviewed while visiting Toronto to address an entrepreneurs' association.
"Competition is something you cannot wish away," said Mr. Raju, founder and chairman of India's fourth-largest software services exporter. "More often than not, offshore delivery has meant an offset in costs."
Potential savings are dramatic. In Canada, the average computer programmer with two to three years experience earns between $33,000 and $65,000 annually. In comparison, programmers in India earn between $8,000 and $13,000 each year, reports on-line research firm Neolt.com.
The appeal of lower costs has sent Satyam's sales climbing. In fiscal 2003, the company reported revenue of 20.5 billion rupees ($594-million), up from 18 billion rupees a year earlier. Sales are expected to rise 26 to 28 per cent in fiscal 2004.
"The global economy is showing signs of reviving again and more importantly, global outsourcing and its advantages are now much better understood than ever before. Clients are clearly looking for better value for their money," Mr. Raju said.
Canadian partners include document management software maker Hummingbird Ltd. of Toronto and business intelligence software provider Cognos Inc. of Ottawa.
"It makes sense for us to outsource certain aspects of development," said Andrew Pery, Hummingbird's chief marketing officer. Satyam developed a data warehousing solution that works closely with Hummingbird's analysis software and the two firms co-market their products across Asia and Europe, he said.
In addition, outsourcing frees up financial resources for better use, reports ATI Technologies Inc. of Markham, Ont. All of the company's graphics chips are made for it by low-cost manufacturers in Taiwan, allowing the company to invest more heavily in research and development.
The trend is expected to continue. Research In Motion Ltd. of Waterloo, Ont., currently makes all of its popular BlackBerry communications devices in-house. But "in the next two years, if it makes sense to outsource, of course," Dennis Kavelman, RIM's chief financial officer, told a Toronto investment conference last week.
Nevertheless, many firms are resisting the outsourcing trend. For example, Toronto's Cryptologic Inc. says the value of the low Canadian dollar means manufacturing its gambling software at home makes financial sense.
"The lure of lower-cost development . . . is not a panacea," said Jim Ryan, chief financial officer. Past dealings with India have been marred by long air travel time and problems related to weak infrastructure and networking, he said.
Cinram International Inc. of Toronto said timing makes it nearly impossible to manufacture CDs and DVDs in foreign markets.
"The product has to be very close to the pipeline. The retailers today work on just-in-time inventories and its very critical to be able to ship the product very quickly," said Cinram's chief financial officer Lewis Ritchie.
And finally, nationalism plays a strong role, too. Open Text Corp., a rapidly growing business management and analysis provider based in Waterloo, Ont., has no plans to outsource future jobs, chief executive officer Tom Jenkins said in a recent interview. The company has resisted past offers to move its operations and remains strongly committed to building its Canadian presence, he said.
Nevertheless, Satyam's Mr. Raju argues that "the push for more and more outsourcing" is inevitable as global trade intensifies. Outsourcing will reduce costs and, ultimately, save and create jobs as Satyam's partners grow and prosper, he said.
"This is good news for more mature and developed markets," he said. The company describes growth opportunities in Canada as "significant."
"The offshore model is now a fairly established one," Mr. Raju said. "Customers have stated that offshore delivery has also meant more consistent, reliable service and lower cost."
By KEITH DAMSELL
TORONTO -- The trend of outsourcing to lower-cost foreign jurisdictions is reshaping the technology sector -- whether Canadian firms want it or not.
Increased competition dictates that technology players find low-cost partners or contract out work, said Ramalinga Raju, chairman of Satyam Computer Services Ltd., a tech provider based in India's booming tech capital of Hyderabad. Mr. Raju was interviewed while visiting Toronto to address an entrepreneurs' association.
"Competition is something you cannot wish away," said Mr. Raju, founder and chairman of India's fourth-largest software services exporter. "More often than not, offshore delivery has meant an offset in costs."
Potential savings are dramatic. In Canada, the average computer programmer with two to three years experience earns between $33,000 and $65,000 annually. In comparison, programmers in India earn between $8,000 and $13,000 each year, reports on-line research firm Neolt.com.
The appeal of lower costs has sent Satyam's sales climbing. In fiscal 2003, the company reported revenue of 20.5 billion rupees ($594-million), up from 18 billion rupees a year earlier. Sales are expected to rise 26 to 28 per cent in fiscal 2004.
"The global economy is showing signs of reviving again and more importantly, global outsourcing and its advantages are now much better understood than ever before. Clients are clearly looking for better value for their money," Mr. Raju said.
Canadian partners include document management software maker Hummingbird Ltd. of Toronto and business intelligence software provider Cognos Inc. of Ottawa.
"It makes sense for us to outsource certain aspects of development," said Andrew Pery, Hummingbird's chief marketing officer. Satyam developed a data warehousing solution that works closely with Hummingbird's analysis software and the two firms co-market their products across Asia and Europe, he said.
In addition, outsourcing frees up financial resources for better use, reports ATI Technologies Inc. of Markham, Ont. All of the company's graphics chips are made for it by low-cost manufacturers in Taiwan, allowing the company to invest more heavily in research and development.
The trend is expected to continue. Research In Motion Ltd. of Waterloo, Ont., currently makes all of its popular BlackBerry communications devices in-house. But "in the next two years, if it makes sense to outsource, of course," Dennis Kavelman, RIM's chief financial officer, told a Toronto investment conference last week.
Nevertheless, many firms are resisting the outsourcing trend. For example, Toronto's Cryptologic Inc. says the value of the low Canadian dollar means manufacturing its gambling software at home makes financial sense.
"The lure of lower-cost development . . . is not a panacea," said Jim Ryan, chief financial officer. Past dealings with India have been marred by long air travel time and problems related to weak infrastructure and networking, he said.
Cinram International Inc. of Toronto said timing makes it nearly impossible to manufacture CDs and DVDs in foreign markets.
"The product has to be very close to the pipeline. The retailers today work on just-in-time inventories and its very critical to be able to ship the product very quickly," said Cinram's chief financial officer Lewis Ritchie.
And finally, nationalism plays a strong role, too. Open Text Corp., a rapidly growing business management and analysis provider based in Waterloo, Ont., has no plans to outsource future jobs, chief executive officer Tom Jenkins said in a recent interview. The company has resisted past offers to move its operations and remains strongly committed to building its Canadian presence, he said.
Nevertheless, Satyam's Mr. Raju argues that "the push for more and more outsourcing" is inevitable as global trade intensifies. Outsourcing will reduce costs and, ultimately, save and create jobs as Satyam's partners grow and prosper, he said.
"This is good news for more mature and developed markets," he said. The company describes growth opportunities in Canada as "significant."
"The offshore model is now a fairly established one," Mr. Raju said. "Customers have stated that offshore delivery has also meant more consistent, reliable service and lower cost."
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