’Sunnyvale, You Have a Problem’
India’s Latest Outsourcing Frontier

Is Servicing Computer Networks,

But Hurdles Remain
By RASUL BAILAY and PETER WONACOTT
May 18, 2006; Page B2




NOIDA, India -- In the wee hours of a May morning, the computer system for Advanced Micro Devices Inc. started spitting out alerts. The technician taking note was nowhere near AMD’s computer servers in Sunnyvale, Calif., or Austin, Texas. He was working the evening shift from an office cubicle in this suburb of New Delhi.
The latest wrinkle in outsourcing has come to this: The network-computer guy working for American and European companies is an Indian engineer -- working in India. Industry executives think the market for long-distance monitoring of computer networks, dubbed "remote infrastructure management," could be worth tens of billions of dollars, as multinationals try to cut costs and Indian outsourcers tighten security checks on corporate data they manage.
Growth is expected as factories become more computerized and remote services expand to include controlling plant temperatures from afar and even monitoring who enters and exits the premises. "Theoretically," says Azim Premji, chairman and founder of India outsourcing company Wipro Ltd., "anything on a network can be managed remotely from India."
The market is still small. Revenue for Indian outsourcing companies from remote infrastructure-management contracts ranges from $300 million to no more than $1 billion a year, according to industry estimates. But the market’s size is set to swell as foreign companies look for ways to slash operation costs by shifting information-technology services abroad. India’s software lobby, the National Association of Software & Service Companies, or Nasscom, estimates that as much as 60% of the business of managing corporate IT systems could be handled from abroad, creating a $55 billion market.

U.S. companies led by Internation al Business Machines Corp. and Electronic Data Systems Corp. in the 1990s pioneered the practice of managing IT systems remotely and still dominate the field. But Indian companies are gaining ground, partly by pricing services as much as 40% cheaper than the likes of IBM, says Vineet Nayar, president of HCL Technologies Ltd., one of India’s biggest outsourcing companies by revenue.
IBM has responded to these threats by beefing up its operations in India and playing to its global strengths. With nine locations around the world and 12 years of experience, IBM is competing on more than just price, says William J. Ireland, an IBM director in Bangalore for global-service delivery for India. IBM’s prices for remote infrastructure management, he adds, "are extremely competitive."
Tapping Indian outsourcers for managing computer networks still marks a big leap in faith for foreign companies. Although Indian engineers have long been hired to produce specific software projects or to handle various chores on IT systems, they generally haven’t managed entire networks or production sites before. For many multinationals, this type of outsourcing is loaded with a big question: What is to prevent proprietary information from falling into the wrong hands?
Last year, Indian police arrested employees of outsourcing company MphasiS BFL Ltd. for allegedly stealing $350,000 from the accounts of four Citibank customers in the U.S. Though security lapses also occur in the U.S., the incident fanned fears that data theft could stem from inside Indian software firms. In a recent report, researchers at Gartner Inc. predicted these security concerns would have a detrimental effect on providers’ ability to capture new business.
India’s software companies have taken a number of steps to reassure potential customers. Nasscom has trained Indian law-enforcement agencies to detect data theft and is building a database of employees at software companies to make tracking them easier if they commit crimes. The database will include a person’s date of birth, education, family background and a biometric, such as a fingerprint.
"The goal is to reassure customers that their data will be taken care of, perhaps even better than if it was at home," says Kiran Karnik, Nasscom’s president.

Shobhit Joshi at HCL is at the front lines of these new computer defenses. The 27-year-old team leader is one of 200 people at HCL who work from a warren of office cubicles monitoring AMD’s computer network from thousands of miles and several time zones away.

When he sees an alert pop up on his flat-panel computer screen, he can usually tell what city it came from. The alerts typically turn out to be false alarms, but they signal potential dangers such as overloading of a server or possible breaches in a network firewall from virus or hacker attacks.
If a genuine threat emerges, he will try to fix it immediately. If he can’t, he will forward it to a group within HCL that specializes in network capacity or security issues. The final option is to alert HCL experts on call.
"We can do everything from here," says Mr. Joshi. AMD didn’t respond to requests for comment on work it has outsourced to HCL.
Led by the likes of HCL, Indian companies are making market inroads. In January, HCL signed a multimillion-dollar deal with European retailer DSG International PLC to run its computer systems.
India outsourcing titan Infosys Technologies Ltd. says its infrastructure-management unit has been growing 100% annually from its inception four years ago and is expected to grow as much as 80% a year over the next three years, according to Priti Rao, vice president for infrastructure-management service at Infosys.
Write to Rasul Bailay at rasul.bailay@wsj.com and Peter Wonacott at peter.wonacott@wsj.com< /a>