ARCHIVE

Bangalore, India - 3:38 PM EST Tues., June 18, 2002

Strained relations between Pakistan and India are giving India-based IT outsourcing companies cause to consider relocating.

One such firm is MphasiS, a software and systems integrator with offices in Santa Monica, Calif., and Bangalore, India.

One potential winner in these IT company migrations? China. MphasiS executives recently joined representatives of other India-based IT outsourcing firms for a weeklong trip to China to meet with government officials.

"Clearly, they [Chinese government officials] are in the mode of supporting and promoting China as a destination for IT outsourcing," said Jeroen Tas, president of MphasiS. "It's still in the initial stages, but most of the large Indian companies are looking to set up a presence in China."

Because of its solid base of schools and technology companies, Shanghai is being considered as a home base for relocated high-tech firms, said Tas. One disadvantage, however, is the high cost of doing business there, he said.

"But it's not a short-term thing for us," said Tas. "We're interested in the domestic market, but it's a tough one, so the primary goal right now is focusing on the Asia-Pacific region as a source of talent."

U.S. companies won't be rushing to India anytime soon to negotiate new IT outsourcing contracts, said Christine Ferrusi Ross, an analyst at Forrester Research. "If you weren't already in the pipeline to be a client for one of these [India-based] firms, you're probably going to rethink your position at this time," said Ross.

Tas, however, predicts that India will remain a preferred destination for outsourcing. But, he added, there are plenty of companies already operating in other places, including Africa, Australia, Canada, Ireland, Japan, the Philippines, Russia and the Ukraine.

Research firm IDC predicts that IT outsourcing and services spending will reach $177.2 billion by 2004, up from $116 billion in 1999. And Gartner Dataquest projects that the global business-process outsourcing market, where MphasiS is focusing much of its efforts, will grow to $543 billion by 2004, up from $208 billion in 1999.

"Demand will continue to grow for offshore [business] and, at some point, you'll hit a ceiling despite the huge numbers of people leaving college every year [in India]," said Tas. "So you want to spread your risk and look to the other major sources of talent."