Indian Outsourcers Do More Business Process WorkIndian Outsourcers Do More Business Process Work

India-based IT services providers have been trying for years to move up the proverbial value chain, from basic software development to more collaborative and strategic work. There's some evidence they're succeeding.

Tata Consultancy Services, India's largest IT services provider, last week reported quarterly earnings that it says reflect, for the first time, application development and maintenance making up less than half its revenue. That's because consulting and IT infrastructure services--work involving higher degrees of experience, trust, and communication--are growing at a faster rate. While total fiscal second-quarter revenue was up 10.8% from the first quarter, infrastructure services revenue was up 30.4% and consulting revenue rose 18.5%.

TCS began offering infrastructure services, including remote management of computers and networks, to customers outside India in 2004. "Those deals used to be a half-million dollars," says TCS chief operating officer N. Chandrasekaran. "Now we're seeing deals of $200 million to $300 million."

And more. Last week, media company The Nielsen Co. awarded TCS a 10-year, $1.2 billion contract that encompasses infrastructure management, including integrating and centralizing systems worldwide. TCS also will handle certain finance and human resources functions. In business process outsourcing, TCS has seen particularly good growth in insurance claims processing, credit card processing, and payment management, Chandrasekaran says. TCS's BPO revenue was up 13.2% over the first quarter. Compared with last year's second quarter, TCS's net income is up 45%, to $313 million, and revenue also is up 45%, to $1.42 billion.

TCS is touting the Nielsen deal to highlight the opportunity it sees in "knowledge process outsourcing." TCS will manage a team of Nielsen employees in India with expertise in information management processes for Nielsen's retail measurement service, which sells market data to consumer goods manufacturers and retailers. TCS sees the addition of the Nielsen team helping to accelerate its own efforts to sell knowledge-processing services, such as analytics and data management.

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Other Indian outsourcers are trying to make the same move as TCS. Infrastructure services are outpacing other areas at India-based HCL Technologies, too. Last week, HCL reported quarterly net income up 42% to $77.4 million and total revenue up 43% to $429 million. Revenue from infrastructure services was up 63% to $64.7 million.

Test equipment manufacturer Teradyne last year tapped HCL for a $70 million, five-year contract for application development, consulting, and infrastructure management. That includes some HCL employees on-site at Teradyne and others managing systems remotely from India. Teradyne CIO Chuck Ciali says HCL capabilities around remote infrastructure management came as a surprise to him. "Our bias had been toward a domestic firm," he admits.

As Indian firms move up the value chain, there may be a built-in gotcha. The increasing competition for top talent in India could make it difficult for the offshore providers to deliver experienced engineers for strategic engagements. While Indian outsourcers often provide their overall attrition rates in earnings reports, what's more important--and harder to find out--are which types of people they're losing.

Also important are which types of people they're gaining. TCS, for example, hired a mind-blowing 12,000 people in the last quarter, and now has a staff that tops 100,000. Yet half of those new hires TCS describes as "trainees," meaning recent graduates or those moving over from other professions.