3.3 GlobTel s externalization to India
We present a summary of key issues in GlobTel s externalization programme in table 3.1, and then elaborate these issues in the discussion that follows .
Phases of the relationship
Initiation (1991 “6)
Motivators: cost efficiency considerations, resource crunch, globalization imperatives and using the enabling force of technology
Global R&D Group (GRDG), the hub of the initiation effort
Some initial resistance from GlobTel line managers Indians have little prior experience of telecommunications or in doing GSA work
Expansion (1996 “8)
Projects selected based on potential for offshore work rather than ˜body-shopping
Steady evolution in the level of work
Steady growth in infrastructure
Growth in problems, including attrition and perceived lack of long- term commitment
Stabilization (1998 “2000)
GlobTel managers less upbeat on the relationship, recognizing the inherent nature of the problems
Indians demanding a different pricing basis to their work in tune with the higher level of work they were doing
GlobTel reluctant to change the pricing basis
New competition in the industry
New technology focus in the industry induced by the Internet
Both sides acknowledge learning through the relationship
Initiation of externalization (1991 “1996)
By the end of the 1980s, there were various labour statistics reports predicting a large and increasing shortfall of developers in North America. These reports were making firms seriously think about strategies and options to meet the software needs that in the meanwhile were growing exponentially. The idea of GlobTel having partnerships in India as a source of software R&D emerged in the late 1980s, in a discussion between Soumitro Ghosh, the Vice President of the Global R&D Group (which we call the GRDG), and the then Chief Operating Officer (COO) of GobTel who later went on to become the CEO. Ghosh, an Indian by birth, had lived in North America for over two decades and harboured a strong desire to contribute to the development of his homeland. The issue of developer shortages in North America triggered the discussion between Ghosh and the COO and the knowledge that other companies like Unisys and Texas Instruments were already doing software development in India. GlobTel was also, of course, no stranger to global operations. The COO, who at that time was heading the wireless division of GlobTel and was an influential figure in the company, thought this idea was worth pursuing. Three senior members of the staff from GRDG including Ghosh, Paul and Shinde, all of Indian origin, conducted an initial feasibility study. While Ghosh and Paul were responsible for nurturing the relationship in later years , Shinde died of a heart attack soon after. Ghosh and Paul played a key role in shaping the nature of evolution of the Indian programme.
Ghosh and Paul were both charismatic personalities with a strong desire to innovate and take risks. For example, Ghosh argued against the traditional model of innovation (starting in high-cost countries and gradually moving to low-cost ones), as being too orderly, predictable and static. This traditional model was questionable because access to foreign markets despite financial backing and advances in communication technologies had enabled global networking in such a way that sharing of ideas did not necessarily need to follow predefined trajectories of innovation. Paul described himself and Ghosh as ˜ shock absorbers for the GlobTel management. He believed that their Indian background would enable the programme to be built on a sound understanding of local problems in India. The strong support of the GlobTel management, coupled with their ability and desire to innovate, as well as their individual personalities and charisma, helped Ghosh and Paul to seek out and develop personal relationships with Indian companies.
The ˜externalization programme, as it was known in GlobTel, started with the establishment of a liaison office in the early 1990s following the feasibility study conducted by Ghosh, Paul and Shinde. This program was part of a larger network of GlobTel s international R&D initiatives in Eastern Europe, China, India, Vietnam and Brazil. Right from the start, India was seen as a long-term initiative. GlobTel did not follow the short-term and opportunistic cost-cutting strategy that was typically adopted by many North American firms. Four Indian firms were initially selected as partners , primarily based on their diverse technical strengths and the congruency of their business practices and principles with GlobTel.
At the point of the initiation of the externalization program, private sector involvement in the Indian telecommunications business was relatively limited, and expertise was primarily located within public sector units like the Indian Telephone Industries and the Centre for Development of Telecommunications. The four Indian firms, like most in the industry, had limited prior expertise in telecommunications. GlobTel s initial motivation for externalization was primarily a resource issue, although they saw a future potential to tap into the Indian and possibly also the Asian markets. Speaking at an international conference, Ghosh described GlobTel s motivation to outsource to India to be based on four reasons: cost efficiency considerations; imperatives of globalization; coping with the ongoing resource crunch; and the enabling potential of technology.
Cost efficiency : Ghosh said:
Offshore contracting to a country such as India can ease the R&D budget crunch since its lower cost of software development can create a powerful multiplier. For example, take the case of proposed software development that costs $100 but available funds amount to only $75 leaving a shortfall of $25. Taking advantage of an offshore multiplier of three, a US company could divert $10 of its funding offshore to produce as much software as it would take $30 to produce in North America. At that point the budget of $75 would have purchased $95 worth of software and a shortfall of only $5 would remain . If the company diverts $12, there will be no shortfall.
Imperatives of globalization : Ghosh said:
North American corporations can become globally more competitive if they can develop software more creatively, more efficiently , and more economically. Having an international software operations affiliate is not just a cost saving measure. It can be a strategic move designed to provide a competitive advantage over more centralized, narrowly focused competitors . Indeed, it should be the objective of any growing corporation to transform into an international and multi-talented organization. Apart from GlobTel, many other companies are already active in India including Hewlett Packard, Texas Instruments and British Telecom. Can any North American company (irrespective of size ) afford to forgo the competitive benefits that such companies are realizing from such international software operations?
Coping with the resource crunch : Ghosh argued that India, with its strong educational infrastructure and English-language capabilities provided GlobTel with a rich source to access software developers. Another GlobTel senior manager said ˜on the top of the list [of reasons] was that there were not enough people in North America to hire on, to train to do our project work. So we wanted to externalize and get other people throughout the world to do development. This access would allow GlobTel to free their domestic resources to concentrate on activities closer to their customers in North America, and potentially roll out new products with shorter time to market. Externalization, Ghosh argued, provides various benefits including workload balancing, shorter time to market and round-the-clock software development. It would, in addition, help develop strategic partnerships with Indian institutions that could open up potential market opportunities in India.
The enabling potential of technology : Ghosh said:
One issue of special note in our experience in India is the way in which GlobTel uses telecommunications to make the partnerships work. We enhance our ability to communicate with our partners by investing in and engineering data, voice, and video links to their offices. By connecting them directly into our global, corporate-wide area network, we reduce the influence of distance. Boston and Bombay are only three seconds apart. In addition, we replicate our software development environment at the partner s location. Today, we develop software in India at a distance of 10,000 miles as an integral part of our global business process.
Despite the intention of establishing long-term relationships with Indian partners, GlobTel opted for vendor “contract relationships with all the four partners rather than JVs. However, the HR Director at GRDG described this as a ˜services agreement that in practice was more like a ˜joint venture . Another GlobTel expatriate manager said, ˜it was possible to have a legally sound, binding commitment that may be a customer-contract relationship on paper, but at the working level, it could be a partnership . In this way, GlobTel attempted to get the best of both worlds “ the benefits of a JV without necessarily exposing itself to the risks that such a partnership entailed, for example through financial investments. However, GRDG was open to the possibility of the relationship evolving and taking on a different form in the future. An Indian-based GRDG Director justified the choice on the ground that: ˜right now GlobTel has not been doing well in selling in India so we are not looking for a joint venture. If we were to enter the market in a big way later, we can then think of changing the relationship with the partners [to a joint venture]. Another senior GRDG Director said: ˜I am trying to convince GlobTel people to make a joint venture of some of these relationships, and not an arm s length contractor relationship.
The work externalized from GlobTel to India initially was relatively routine, involving bug-fixing for software of telephone exchanges. Telephone exchanges have historically been a major revenue earner for GlobTel. The hardware of these exchanges involves standard processors. Different kinds of functionality in the operation of these exchanges, which constitute the competitive strength of the company s products, are provided by custom-developed software. This software for the older exchanges has been developed over a period of twenty years and constitutes more than 24 million lines of code. A senior GlobTel executive told us this software library is second in volume only to NASA. A major part of this software had been coded in a proprietary language (which we refer to as GlobSoft). The systems with the underlying software constitute a stable and reliable product that continues to be used extensively by large telecommunication service providers and also new customers all over the world. In this scenario, the maintenance of software modules which have been developed in response to market changes over two decades is a critical task from GlobTel s perspective. However, this work is not very interesting to programmers who generally prefer to work with newer technologies and non-proprietary or ˜open platforms. Maintenance work is also seen as a cost that needs to be minimized in order to further support the development of new technologies. Reducing costs in an environment characterized by increasingly rising salaries of development personnel is extremely problematic , making maintenance of legacy systems a prime candidate for outsourcing.
Actors involved in the externalization network
The GRDG was the hub in the network for externalization, playing a key role in building multiple relationships including those between the GlobTel line managers and their Indian partners, and between the partners themselves . One Director described GRDG s role as similar to that of a broker or real estate agent, who had the responsibility of matching the needs of line managers with partner strengths within a broader framework of externalization. The initial criteria for matching were the urgent need to satisfy R&D resources and carry out complex R&D projects in cost effective ways. Within GlobTel, the budget structure for R&D had changed from one of a centralized pot of money to a divisional allocation based on lines of business. As a result, a GRDG Director commented, ˜now the money on R&D is extremely visible, and dependent on lines of business under the direct control of the business manager. So, externalization will be based more on cost rather than on urgency in the future.
While the ˜ champions within GRDG were promoting the idea of externalization, there was an initial reluctance among some of the GlobTel line managers owing to their lack of confidence in the ability of Indian partners to deliver the necessary outcomes and their discomfort in managing work at a distance, particularly when that work involved different cultural conditions. In some quarters , there was also a fear of job losses in the parent labs if the Indian experiments were successful and work was increasingly shipped out to them. One line manager who was unconvinced about the virtues of outsourcing to India said, ˜I don t think having development spread across multiple sites and time zones is conducive to delivering things fast with a high degree of quality. While cycle time can be reduced, fragmentation of other activity hurts quality. He did not think he would have taken this route if it was his company, and was only following orders. He thought some of the initial equipment was sent to India only because it was not used in North America. They could thus go along with the top management decision to externalize, and yet not part with anything important. Not all the views were negative, however, and some managers saw the potential for positive effects. The following quote summarizes the views of the positive thinkers:
Having a remote lab that is almost 12 hours out of phase with the parent lab allows two days of work to be done in one day. They can build when I go home at night and can be ready for us when we return next morning.
Within this initial scenario of uncertainty about what to expect in India and the pockets of internal resistance, GRDG played an aggressive role, which it was expected (and hoped) would scale down over a period of time with the fostering of more direct contact between the line managers and development partners. At the Indian end, GRDG was seeking to foster a sense of collaboration between the four development partners, a non-trivial task since traditionally these firms had seen themselves as competitors. Overall, GRDG had a very complex and important role to play in the initial stages of the program in building multiple relationships, lobbying with the Indian government for various permissions, creating communications and software development infrastructure, nurturing confidence and trying to develop a shared understanding about the aims and means of the externalization programme among the different actors involved.
Since the relationship was not a JV, it did not share equity. Nonetheless, there was still substantial sharing of resources and risks by both parties. GlobTel made significant technical and management investments. On the technical side, investments were made in infrastructure including replicated servers, high-speed links to facilitate easier partner access to software libraries and better utilization of software tools (for example, being able to access one page at a time rather than one line at a time). Improved infrastructure would enable more complex projects involving interdependent communication between North America and India. Significant management investments were also made in the field of training, especially in the technical domain of telecommunications. A senior GlobTel manager described the initial projects given to the Indians as a ˜training mode where you are not trying to pay them for results, but when you have reached a certain plateau, you need to come up with the next step function . In addition to technical training, efforts were made to support interaction between the personnel from both sides through specially designed orientation programmes for Indians visiting North America on local customs and culture. At the initial stages, such reciprocal programs for North Americans going to India did not exist.
Expansion of externalization (1996 “1998)
GRDG initially selected pilot projects from the line managers and allocated them to the development partners. A GRDG Director described the selection criteria for the projects as follows:
They [the GlobTel line managers] ask, ˜Can you get me some ten people? For what, we ask? ˜Anything that smells of body-shopping, we reject it. If there is continuity in the project, or potential of continuity, we may support.
The above quote is significant for at least two reasons. One, it shows the key role of GRDG in the initial selection of the projects. Two, it emphasizes GlobTel s commitment to support only those projects that were to be genuinely developed offshore from India and to reject ˜body-shopping activities. Initial projects were simple jobs requiring minimum direct interaction of the Indians with GlobTel. A GlobTel expatriate described the initial projects to be related to mature software, which also helped to minimize the internal perception that GlobTel were losing expertise to an external agency. As the Indians developed technical capabilities and core competencies in telecommunications, they moved up the ˜trust curve and took on more complex projects that required greater interdependent team processes. This movement in trust levels was evident in the attitude of a GlobTel line manager who, despite being sceptical initially about the Indian relationship, said: ˜We could have written contracts with very strict clauses. But I like to deal with them the way I deal with any other group. In the year before they demonstrated their capability and I trust them now. He added that this trend would continue in the future:
I am trying to give them high visibility feature, a little more challenging work. I am involving them in the development of a new platform so that they can retain more people. I will grow faster in India than I can in North America.
A key issue initially, especially from GlobTel s perspective, was dealing with the uncertainties of distance. The HR Director at GRDG described three strategies adopted by line managers to deal with the uncertainties of distance:
When we start a project we can do things three different ways. Our first preference is that a project leader from GlobTel goes to India and meets the project leader there and his team to explain things. The second alternative is that the Indian project manager comes to North America for a discussion. The third is, no one goes and they have a videoconference. But this is not the same as meeting face to face. We really push them to go over.
A senior GlobTel line manager based on his prior experience of GSA in Israel had abstracted a three-year model of ˜technology transfer to India. This included the first half of the initial year on establishing infrastructure including captive offices, telecommunication links and the software development environment, and in the second half to transfer the software to India. The following two years were spent in the more complex task of the transfer and strengthening of various project management practices. GlobTel adopted an interesting mix of face-to-face and electronically mediated project management. For example while expatriates provided face-to-face control, electronic mediation took place by shifting servers to India. This allowed local login rather than remote access to the servers from India where fast connection was typically obtained in the night time. With time, trust gradually grew, and the Indians, who were initially resistant to the presence of GlobTel expatriates in their offices, started to accept them and acknowledge them as a useful help to resolve technical problems. The investments made by GlobTel in the relationship “ for example, in servers and library systems “ were seen positively by the Indians as a sign of commitment to a long-term business. The Indian partners also reciprocated the investments by establishing independent laboratories, allocating workstations and providing training.
Despite an initial lack of expertise in telecommunications, GlobTel acknowledged that the Indians were willing to learn, and as a result could move from simple jobs to more complex projects rather quickly. It was also felt that the Indians had the potential to take on ownership responsibilities in the longer run. They did not, however, gain intellectual property (IP) rights (which GlobTel was unwilling to relinquish). The Indians were keen to learn new technologies and take full control over features and sub-products, and they harboured expectations of having products of their own. The HR Director, however, captured the expectations of GlobTel, in this statement:
We would like to evolve to a stage where they take up ownership of a product. People call them whenever there is a problem. They do the upgrades. They do the enhancements, the evolution. Intellectual property is the only thing we will own and there is absolutely no way that we could give that away.
Although legally the relationships continued as contractual vendor relationships, GlobTel wanted the Indians to see themselves as ˜virtual GlobTel labs . A GlobTel Director in India said ˜even though we have four partners, they are all virtual GlobTel labs. You are all GlobTel in here, and not Witech, not Softsys, not ComSoft and not MCI. You are all GlobTel. GlobTel tried to implement this thinking operationally by encouraging the Indian labs to interact with each other as GlobTel labs globally would. This implied a changing mindset in which the development partners would view each other not as competitors but as partners and collaborators. They would share information about projects, technologies, training and satisfaction levels. This identity of a ˜virtual lab where the Indians were partners and not contractors was not easy to implement in practice, as it would necessitate the Indians gaining more access to confidential information about technologies and pricing models. This information GlobTel was not always ready to share. The Indians, too, did not feel comfortable in taking on a new role, as a GlobTel expatriate remarked:
The Indians see themselves as providing service to a client. Even though we try to stress that this is a partnership as opposed to a client “service provider or client “contractor relationship, they still do not feel comfortable demanding some support because you cannot do that to a client.
Technology was the key to the development of the relationship. Communication links were critical, and breakdowns led to significant drops in productivity. A GRDG Director said: ˜An issue is the umbilical cord [communication links] which ties them to us. If a lab in India loses communication links with us, there is zero productivity. India right now has a Department of Telecommunications strike, and we lost all links. There are long periods of low productivity. Videoconferencing played an important role in project management, both to exchange and coordinate information and also to develop trust and confidence. However, technology on its own was not enough, as there was a lot of logistic support required in setting up the times and booking rooms for the meeting. Both sides needed to make adjustments to their work schedules to attend the meeting, and often the Indians felt that their comfort levels were sacrificed for GlobTel in the process of scheduling meetings. A GlobTel manager described the Indians viewpoint:
There is some resentment. It is very difficult because to communicate with India you have to deal with a 10 1 / 2 hours time difference. You have to stay up late so that you can talk to them. If there is resentment, it is easy not to answer the phone, or not get back the email. We are starting to hit a lot of bumps around the soft skills. You have to be willing to make that phone call from your house at eleven in the night or come to the office at six in the morning to get through. There are sacrifices that you must be willing to do.
A number of other issues were becoming a cause for discussion and concern among the partners, especially from the perspective of GlobTel, including attrition and measures being taken by the Indian partners to prevent it. While GlobTel thought the measures were not enough, the Indians saw some of GlobTel s efforts as interference into their internal affairs. Another issue related to the nature of long-term and large investments made in telecommunication switches that required ˜evergreen maintenance. As a GlobTel Director commented, the Indian developers with their computer science orientation were reluctant to make such long-term commitments:
I cannot go back to the customer and say things have changed. So, the evergreen concept is that whatever investments are done in the past, are valid today. The platform is green for extended periods, ten, fifteen or twenty years. Equipment that you have bought becomes obsolete. Each machine is worth some four million dollars, once he invests, it stays, and he expects you to maintain it. This is not the norm of the computer industry; if it is obsolete you change it.
Within this context of growth in the level and volume of growth, and associated management tensions, the stabilization of the relationship is described.
Stabilization of externalization (1998 “2000)
By 1998, the relationship through joint efforts of the partners had evolved and reached a state of maturity wherein each side was exploring various options by which further value could be added to their respective businesses. The maturing of the relationship introduced new dimensions and complexities, and also created further challenges and opportunities. By the middle of 1998, the GlobTel managers seemed less upbeat about the Indian partnerships than when we first met them in 1996. In 1996, negatives in the relationship were considered teething problems which are likely in the early stages and which could be addressed with more effort. However, by 1998, there was a stronger feeling that these problems were inherent in the process, enduring , and difficult to solve. From the GlobTel perspective, some of these problems included the inability of the Indian managers to deal with attrition, inadequate progress in the relationship, lack of proactivity of Indian managers, and significant problems in the absorption of technology. Maturation also raised different expectations as the Indians needed to take on ownership and marketing responsibilities, and GlobTel managers needed to ˜let go and allow the Indians to manage independently. The Indians needed higher levels of management expertise to deal with ownership and provide service to global customers at the same quality level that GlobTel had previously accorded.
Another challenge arising from maturation and rising level of work was felt on the pricing of the existing vendor “contract relationship that had been based on time and material. As the Indians took on more ownership responsibilities, they wanted to be paid not on the basis of the time they spent on the project, but on the value they brought into the relationship. As GlobTel was reluctant to change this model, it raised a debate about the need for alternative organizational arrangements. While the Indians felt the present contractual form would be difficult to implement in the more unstructured tasks that ownership entailed, GlobTel thought the adoption of alternative organizational forms like joint ventures was premature. The reasons were the variety of complex issues it introduced such as intellectual property concerns, and the changing face of technology and competition in the industry.
The entry of firms including Lucent, Cisco, and GE into the Indian telecommunications market put pressure on both the retention of people and the pricing standards. The Internet was catalysing changes in competition through the convergence of voice and data technologies. As a result, GlobTel embarked on a ˜right-angle turn strategy to become a ˜voice over data rather than the ˜voice company it traditionally had been. The CEO urged that the preconditions of this shift were ˜trust, agility, and alignment of goals, and most important of all, a real market focus. This contributed to rather dramatic changes within GlobTel including layoffs and relocations of existing staff, closures of existing projects, and some bold new acquisitions. For example, in 1998, GlobTel in a US $9.1 billion deal acquired a US high-technology firm to create a partnership ˜suited to this era of end-to-end mission critical IP networks. The strategy of new technology acquisitions rather than in-house R&D investments raised questions about the future of the Indian relationships, and what projects would be externalized in the future. This uncertainty and churn made GlobTel, who otherwise might have been more patient with the Indian partners, to be much more critical. The company became concerned primarily with its own existence.
Despite this ongoing churn and problems, there was no doubt that the relationships had been a real learning experience and had survived the test of time. The relationships were still going strong after nearly a decade that was longer than the average duration of a typical joint venture. Both sides had learnt significantly from this experience, though in different domains, the Indians in telecommunications and GSA relationships, and GlobTel in doing business in India. Paul, one of the champions of the Indian program reflecting on the benefits from the Indian experience said:
One of the things that we can be rightly proud of is that we put in very little money up front. We kind of grew the thing organically. Every time it was giving us back more than we had to put back into it, and that itself is an achievement. GlobTel could grow the labs with minimum risk.
The overview of issues at various stages of the GSA program provides the background against which three of the individual relationships are analysed in micro-level detail in three subsequent chapters. The aim of this analysis is to understand how particular GSA relationships evolve over time and is guided by different theoretical perspectives. These theoretical perspectives have been formulated based on an ˜ongoing conversation between the empirical analyses of particular cases and theoretical understanding developed from our readings on globalization.