Contracting for a state of emergency

19 June 2002
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20 June 2002

British companies and their IT services subcontractors in India have been quick to put contingency plans in place should the Kashmir dispute escalate. David Arminas reports

UK businesses and their Indian IT outsourcing partners are moving fast to avoid major disruption to services in the event of war in India. Companies such as utilities business Thames Water and its IT services provider Wipro are leaving no stone unturned as they reach agreements on how to safeguard services.

Importantly, if war breaks out between Pakistan and India over the disputed territory of Kashmir, Wipro and other Indian companies are prepared to move not just technical operations but their essential people to Britain to ensure uninterrupted service to their clients.

The actions of Thames and Wipro are a reminder to procurement professionals of the importance of managing risk in an outsourcing agreement. Their actions come in the wake of the still vivid terrorist devastation of the twin World Trade Centre towers in New York on 11 September.

Many business leaders - and in this case supply chain professionals - are still wrestling with how to deal with potential security breaches, of which the ultimate is a major terrorist attack.

The 11 September attack and the subsequent "war on terrorism" have driven home just how small the world is now and that it is getting smaller all the time. The consequences of a war in Kashmir would be felt as far away as Reading.

Companies outsource for many reasons, including improved services through more highly skilled staff in the outsourcing company and reduced costs than if the service were provided in-house.

One of outsourcing's main principles is to negotiate terms that allow for the client to manage risk.

Much has been made in recent years about how western companies have outsourced their IT maintenance, services and other high-tech requirements to India.

These IT companies on the subcontinent have found that they can undercut many western competitors on cost and so get the immediate attention of many large clients, such as Thames Water.

Contingency planning

But without sufficient emergency plans to mitigate risks, no amount of money saved will be enough to undo a client's loss of market share through its poor performance.

In that respect, Indian companies have acted responsibly for their clients. As one Indian IT services company said, its actions now to reduce risk to its clients should make the Indian IT services sector stronger for future contracts.

A lot is at stake for the Indian companies, according to their umbrella body, the National Association of Software Services and Companies (Nasscom).

It estimates that the sector's income grew by 29 per cent last year and it predicts a 30 per cent rise this year, making IT services one of the country's biggest export earners.

It also calculates that 60 per cent of business that flows into the Indian software and service industry is repeat business. It understands that a loss of confidence in the sector would be devastating.

The importance of getting outsourcing right is shown by its growing use in the UK. According to a recent analysis by research firm Ovum Holway, IT outsourcing is expected to grow by 15 per cent this year to reach £8 billion.

But up to now outsourcing has not been an area open to many purchasers, something that must be addressed, according to Jeannie Bevan, CIPS president, who is also director of strategy at National Savings. In one of her earliest speeches as president, she urged them to get more involved.

The present situation represents an opportunity for purchasers to show that their knowledge of risk management makes it essential that they are included in future deals.

But the ultimate test of the present risk management is war itself. May UK purchasers and Indian IT services companies alike never be tested to the extreme.

SMjun2002

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