HB InfoTech (HB) is a global IT company. HB offers clients business solutions that leverage all aspects of the software life cycle. These span consulting, design, development, re-engineering, maintenance, systems integration, and package evaluation and implementation. HB also offers software solutions aimed specifically at the banking industry. HB leverages its global client base and its professional workforce through its Global Delivery Model. The company divides projects into components, which it executes simultaneously in several different locations: at the client's site and at HB development centers in US and worldwide. In order to expand its product and solutions offerings, the company is looking to build its expertise in emerging trends, new technologies, specific industries and business issues, enabling it to meet client needs as they arise. HB also seeks to boost its share of new clients and new geographic markets, including focusing on India, China and Australia. It seeks to pursue alliances and acquisitions that enhance its brand value in the market. As the part of future expansion and to explore new geographic horizons, HB is keen to start its offshore operation in India. This move will not only result in cost-savings but also result in reduction of company’s burn rate. This project report will give an insight of HB’s future venture in India. It will also highlight some of the related strategies, its challenges and future prospects. Why INDIA?
India is now one of the biggest IT capitals in the modern world. Over the past decade or so, India has emerged as an attractive destination for offshore outsourcing. Companies all over the world are off shoring many different processes to India to harness the benefits offered by the country. Businesses in the U.S. and other parts of the world continue to move a portion of their development, support and other operations offshore to India, primarily for cost-saving reasons. Availability of a large pool of talented and motivated professionals, India has a large pool of young talented professionals. India's edge over other competing nations in the IT outsourcing business is significant and based on the country's decade old experience in this area, fluency in the English language, supportive Government policy infrastructure, and high quality offerings.
Significant cost advantage
One of the biggest advantages of off shoring to India is cost savings. HB would able to save about 30 to 40 percent for most services by outsourcing processes to India. Cost savings in India can be accounted for by savings in the following three heads: 1. Labor: Indian professionals work at wages much lower than that in the US and Europe. 2. Capital: Infrastructure costs in India are lower thus saving significantly on capital. 3. Labor management: The number of employees required during a project is not same throughout the course of the project. Hence, when a business process is carried out in-house, companies have to pay the employees and maintain office space for them, even if these employees are not working on any project. Outsourcing would enable HB to do-away with the expenditure on bench labor, as the outsourcing vendor allocates the bench employees to projects for other clients or bears the cost of inefficiency.
Effect of off shoring to India:
| Pre-off shoring| Post-off shoring| Effect|
Sales| 100| 100| |
Labor| 60| 45| 25 percent decrease|
Materials| 20| 20| |
SG&A| 10| 10| |
EBITDA| 10| 25| 150 percent increase|
(EBITDA: Earnings Before Interest, Taxes, Depreciation and Amortization)
After Off shoring, HB would be able to save 25 % on labor cost. This will lead to an increase of 150 % in the Earnings Before Interest, Taxes, Depreciation and Amortization (EBITA). There is a vast difference in the labor costs in US and India in the IT industry as well. An IT professional with 1-2 years of...