A Candid Chat on Offshoring
In May, Ernst & Young named Jerry Rao, MphasiS Chairman
and CEO, and Jeroen Tas, Vice Chairman, Entrepreneurs of the Year
2004 in the Information Technology (IT) category for the New York
region. MphasiS, a global IT and BPO outsourcing firm based in Manhattan,
is growing rapidly and making its mark in the offshore financial
services industry. The supplier announced in July its first quarter
net profit was up 81 percent and predicts it will grow from 7,500
current employees to 25,000 in the next 36 months. Editor Beth Ellyn
Rosenthal interviewed Tas after he won this award.
Q: What are the buyers looking for when they offshore?
A: Everybody is looking for cost reduction. But we have to reduce
cost more than 25 percent to get buyers interested. Our clients
are now expecting quality and productivity improvements on top of
Q: What's the biggest mistake a buyer can make when it
A: Focusing on cost reduction instead of thinking strategically.
Buyers stare themselves blind at the numbers but then forget that
a thorough understanding of their business processes is more important.
Also, a well-defined interaction and governance model is crucial.
If you only focus on the numbers, you're focusing on the wrong thing.
My advice: stop looking at the details and get a better look at
the big picture.
Q: Any advice for navigating the cultural differences?
A: Don't underestimate this problem; integrating the US culture
with the Indian culture is difficult. Issue resolution can be a
nightmare. Learning how to deal with problems is tough. If a buyer
asks an Indian something and he doesn't get it, he won't ask more
questions. Instead, he'll remain silent. The silence becomes awkward
for an American. We teach our employees to ask pointed questions
and to reach out to our clients for assistance, validation, and
clarification. But communication is a big issue that should be part
of the company culture. And you can't capture that in an RFP.
Q: How long do you think the boom in Indian outsourcing
A: India will remain a competitive proposition for at least another
10 years, even if there is wage inflation. Look at what happened
in the diamond trade. Before the Indians entered the arena, cutters
could only effectively cut stones of a minimum size. The Indians
brought in the craftsmen to cut smaller diamonds, so they created
an entirely new market. And we won't have a shortage of people.
Every year we have two million college graduates entering the market.
Q: How do you feel about the complaints that offshoring
takes jobs away from New Yorkers and South Dakotans?
A: These are valid concerns. In the global economy, work is moving
to the place where companies can execute it most (cost) effectively.
This uprooted manufacturing in the last 10 years and will impact
the services industry in the next 10 years. Stopping outsourcing
is not an economically sound answer, nor is doing nothing. The transition
needs to be managed and supported. I am looking forward to hearing
some sound policies on this topic from our two presidential candidates.
Q: Offshoring has become a heated issue in this year's
presidential election. Is the negative talk affecting your business?
A: The offshore issue hasn't impacted our momentum. In fact, the
politicians' noise has educated a lot of people about offshoring.
Suddenly a lot of people are reading about outsourcing and offshoring,
which legitimizes them as a trend. The publicity has given India
credibility. Not a week goes by without a photo of an Indian call
center in a US magazine. People know now: offshoring is for real!
We have noticed some large companies in the US want to stay off
the radar. They have told us they want to wait until after the election
to do their offshoring deals.
Q: Although you are based in New York, the majority of
your employees are offshore. Where?
A: The majority of our employees are in India. We currently have
two centers in Mumbai, Pune (outside of Bombay) and Bangalore. We
believe in India. The IT industry is mature and the BPO business
is rapidly shaping up. We will continue to grow our centers there.
We are currently planning to add a third center in either Chennai
or Mangalore that will have the capacity for another 3,000 people.
There are cultural differences within India we use to help our
customers. For example, people in Bombay are more assertive. So
we send our most complex work to our center there because our employees
need to be challenging assumptions and asking lots of questions.
We send the better defined work to Bangalore.
We also believe other areas of the world are important for a global
firm. We have a 70-person center in Tijuana, Mexico that handles
business in Spanish. We have high hopes for this center because
Spanish is the first language for 40 million Americans. Currently
the operation is mainly a call center, but we're starting an IT
team there as well. Our management actually lives in San Diego,
California; it's a 45 minute drive.
We also have a center in China. China is where India was six years
ago in terms of IT capabilities. There's a lot of IT talent, but
many employees still lack the language skills and the management
capabilities necessary to be an established offshore supplier to
the US/UK market. Just wait five years! I developed a rule about
China when I lived in Hong Kong: Never underestimate it. I think
it's stupid to assume China will never get there. Our Shanghai center
supports our clients in the Asia Pacific region. We also do work
for American companies that do business in China.
We are also looking at eastern Europe -- Prague and Budapest --
but their labor laws are complicated and being part of the ECC will
drive up cost, so that is on the board for later.
Because of international security, we made a business decision
not have more than 3,000 people in any one place. Concentration
increases vulnerability. Moreover, very large centers have a tendency
to become impersonal.
Q: Who are your buyers?
A: The majority of our clients are from the US and UK, but we have
important clients in Singapore, Australia, Japan, Canada, Germany,
and the Netherlands. Interestingly, all of our key customers visited
our sites in India and did their due diligence before selecting
us. India is clearly well established as a sourcing destiny for
IT and BPO services.
Q: Your focus to date has been on the financial services
industry. Why? How did focusing on this industry help you compete
against the Big 3 Indian providers (Infosys Technologies, Tata Consultancy
Services, and Wipro Technologies)?
A: We selected an industry we knew well. Our management team comes
from Citibank. Insurance companies, credit card companies, and banks
all have similar challenges. They want real-time processing; they
are seriously focused on security; and they have a lot of compliance
Buyers tend to offshore areas first that they have already outsourced
in the US. The financial services sector has been outsourcing call
centers for the last 10 years. They know how to manage an outsourcing
relationship; they understand the cost dynamics; and they have experience
with governance. If you've been outsourcing a process from New York
City to somewhere in South Dakota, it's not that much of a leap
to send the work to Bangalore.
Q: Can offshoring help financial services companies reach
A: Absolutely. Look at retail banking. Banks can offshore their
branches' back office to us. We can set up a self-serve loan application
on the Web for them. Or, the customer service reps can capture the
loan information digitally and have our staff do the processing.
Redesigning the loan process to accommodate both on-line and offshore
processing can help the bank's bottom line and dramatically improve
Q: How do you compete against the Big Three Indian Providers?
A: We consider ourselves the smallest of the big players. Right
now we're very focused on financial services, combining both IT
services and BPO for those industries. We are very good at understanding
business processes and best practices in those industries, and we
know how to leverage IT to automate and integrate the processes.
We believe we can compete with them because we grew up in those
industries and no one knows these industries better than we do.
Q: Why do you have centers outside of India? What's the
A: We pursue a global model to offer a combination
of low costs, high quality, and effective customer interaction.
India is the best location to support Anglo-Saxon countries, China
to support Asia Pacific, and Eastern Europe to support continental