E-Services Firms Mining Offshore Development - CRN, August 15, 2001

E-services companies, battered by grueling losses, are clearing a path to India for offshore development.

More than 20 percent of Sapient's revenue, up from 5 percent in the first quarter, now is generated from client engagements executed through the company's global distributed delivery model. While employees were laid off in the United States this year, Sapient hired more than 250 in India.

Bob How, CEO of New York-based Scient, emphasized "access to low-cost, offshore resources" as an attractive opportunity during the company's recently announced plans to merge with Atlanta-based iXL. The merger is expected to be finalized by the end of December.

"It's one thing to say it, it's another thing to do it effectively, and for some of [the e-services companies], it might be too late," says Jeroen Tas, president of MphasiS.

MphasiS, an interactive integrator for the financial and retail sectors, was early with a business model based on outsourcing to India.

MphasiS earned Level 5 certification of the Capability Maturity Model for software version 1.1 of the Software Engineering Institute at Carnegie Mellon University. The company offers ISO 9001-certified processes and has delivered more than 400 projects since 1992.

The company,based in Santa Monica, Calif., and Bangalore, India,reported second-quarter profits up 213 percent from the same period last year.

That success can be found, in part, in a reduction of at least 30 percent in the cost of application development and maintenance for customers. Tas says.

Jerry Greenberg, co-CEO of Sapient, says he has been hearing definite, yet cautious, interest from CIOs about what offshore work in India can represent.

Sapient's aim is to meet client demand for end-to-end solutions within a trusted relationship but get the advantages of lower-cost offshore work, he says.

MphasiS has found recent success in an automated e-CRM solution and live support services in India, Tas says. The company set up two 24x7 satellite customer-care centers in India where employees handle voice mail and e-mail, and clients collaborate with engineers and consultants via a secure Web site.

The system alleviates most customers' fears about dealing with a different culture and the work being done so far with the satellite centers. That model is based on Tas' and MphasiS co-founder and CEO Jerry Rao's background as top financial executives at Citibank.

"It's easier said than done. Nobody is paying $250 anymore for Web-site design, so Sapient has seen that and changed their tune," Tas says. "IXL and Scient may be talking about it, but I haven't seen any evidence they've actually changed their model."

IXL would not comment on the details of its offshore work or how much that work would figure into the merged company.

IXL began its foray offshore in December, when the company finalized an offshore development partnership with HCL Perot Systems (HPS), whereby iXL sold 1 million shares of its stock for $3 each to HPS, according to company information.

As part of the agreement, HPS, a joint venture between HCL Technologies Limited and Perot Systems, supplements IXL's engineering capabilities, including e-commerce, legacy system maintenance and enterprise integration.

HPS has eight development centers in Noida and Bangalore, the company says.

"To be successful, they'll probably have to open their own offshore company because companies like HPS don't come cheap," says Stephanie Moore, an analyst at Giga Information Group. "There are a lot of great possibilities, but Bob Howe and the Scient way need to prevail."