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 this.
Q: What's the biggest mistake a buyer can make when it outsources offshore?
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 will last?
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 tracking.
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 strategic goals?
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 customer service.
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 advantage?
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 Europe.