Think Global, Act Global

Wood adds that investing in the process of Indian outsourcing "will make it that much easier to implement this model around the world". And that's one of the goals at Otis - to get more of the company's locations in 200 countries and territories worldwide to benefit from Indian outsourcing. Doucette also hopes to use the initial offshore work done at Otis and Pratt & Whitney to get its other subsidiaries to India where appropriate.

UTC and its subsidiaries are exploring the possibility of sending other work to India, including call centre operations and nonstrategic engineering work. After all, the only way to increase the company's Indian savings - barring a highly unlikely drop in labour prices there - is to send more work there. Check back in a few years. They'll probably have some stories to tell.

In the meantime, Beaver has some advice for other would-be outsourcers to India: "If you're not already doing it, find a project and just get started. It's inevitable."

The Hottest Trend in Outsourcing Management

When to set up a dedicated offshore centre - and when not to

Establishing a dedicated offshore development centre (ODC) is the latest trend in Indian outsourcing - witness United Technologies subsidiary Otis Elevator, which created one with Bangalore, India-based Wipro Technologies. After two years of sending software work to India on a project-by-project basis, the company had accumulated a portfolio of 30 applications, all requiring ongoing maintenance work. Each time work needed to be done, Wipro had to assemble a new team. A month after the project was complete, the team would disassemble, taking with them their knowledge and expertise. Today, Otis instead has a permanent 20-person Wipro team devoted to its application and development needs.

Although the capability to set up such ODCs for clients has been available in India for years, this delivery model is just now catching on, as CIOs' comfort levels with sending software work to India have increased. "This has been one of the hottest growth areas [in Indian outsourcing]," explains Marty McCaffrey, executive director of Software Outsourcing Research. "Besides the potential cost savings and other benefits, a major reason this is increasing is because clients are making larger offshore commitments. More and more deals are at 100, 200, 300 [full-time equivalents offshore] right from the start and are a result of the maturing of the industry."

The benefits of a dedicated offshore centre are clear: sustained knowledge retention, better rate negotiation, speedier ramp-up times for new projects and increased productivity. Additionally, foreign workers even halfway around the world can feel more connected to the client company, as they are often located in a private building or floor with the client company's logo adorning the wall.

The feeling of being part of the customer's company can often translate into reduced turnover and better quality.

But a dedicated centre is not the best choice for every situation. Setting up an ODC at an Indian vendor comes with its own unique contractual requirements.

For instance, in such an arrangement, most vendors require customers to commit to a certain number of man-years of work - in Otis's case, 20 man-years. The commitment makes the deal worthwhile to Indian companies, which have to set up the labour and infrastructure requirements necessary for an operational ODC. If you cannot adequately forecast your minimum annual manpower requirements and clearly identify the work that has to be done, or if manpower loading will be inconsistent or hard to project, an ODC is a bad idea. And you'll pay a price.

"If you overestimate the amount of work and don't end up utilising all that manpower, you're going to incur certain costs," McCaffrey says. "The vendor may work with you, but there will wind up being delays as they have to shift people around."

It's not a cheap proposition in terms of set-up costs either. Even though Otis had an existing relationship with Wipro (working on individual projects), the company had to spend $US70,000 to set up the technical infrastructure offshore (such as the development environment, required development software and applications, and telecommunications) and another $US350,000 on knowledge transfer, which required 10 members of the offshore team to be on-site for four months.

It took a year to recoup those costs, but David Wood, Otis's director of systems development, says it was worth every penny for the efficiency, cost-effectiveness and productivity gains. "For us, it's just a better way to do things," Wood says.