Cognizant, which is based in Teaneck, New Jersey, does about 70% of its application development and management work at offshore facilities in India. Kym Rajah, vice president for Europe, told ComputerWire that the company is now considering using its low-cost delivery model to provide back-office processing services to its Western client base.
BPO is interesting, particularly the interface between IT and the business process, he said. The part that we are interested in is the natural extension into the business process from our existing applications work, such as insurance processing.
Rajah said the company does not have the resources to make this step into BPO, and the company has recently been rumored to be a potential bidder for GE Capital’s International Services operation, which provides offshore BPO services. One driver behind any move into insurance processing services would be Cognizant’s close relationship with US insurance giant MetLife, where the vendor has some 400 people working across 60 separate IT services engagements.
Formed in 1994 as the in-house technology development division of Dun & Bradstreet, Cognizant initially focused on the IT needs of the healthcare and media industry sectors, but broadened its scope to encompass telecoms, financial services, manufacturing, pharmaceuticals, insurance and retail, when it spun out of D&B in 1996 along with its former parent firm IMS Health.
Cognizant continues to rack up strong quarterly increases in both profitability and revenue. In the first quarter ending March 31, 2004, net profit rose 95% to $19.8m on revenue that grew 61% to $119.7m. Rajah said: Where we differ to many of our Indian competitors is our flat management structure. Indian companies tend to be much more hierarchical, and we encourage entrepreneurialism among our national management teams who are able to make their own decisions on areas such as recruitment, he said.
Cognizant is increasingly challenging for resources and business against Western IT services giants such as IBM Global Services, EDS, and Accenture, which are accelerating the growth of their offshore delivery arms in order to lower the cost of project delivery. Rajah acknowledges that many of these companies have superior financial muscle to back this growth, but believes that they do not offer the most appealing work to potential recruits.
They are offering big pay rises as inducements, but offshore workers joining these organizations are realizing that there is a low career ceiling. These companies have a very immature offshore model where the onsite team throws parts of a project over the wall to the offshore team and there is little interaction or integration between the two. One of the attractions for staff working at Cognizant is that after two years, they will get to work onsite in the US, UK or Switzerland. Offshore staff at the Western companies don’t tend to get to go onsite and visit the client, he said.
Cognizant runs a development site in China for a single client, which Rajah says is focused on local delivery to its Chinese operation rather than offshore work. However, he believes China is some way from challenging India as the world’s premier offshore location.
He said: The cost differential will make China an attractive second-source location after India. There isn’t huge pressure on entry-level salaries in India, but there is on salaries for people with four years or more experience. Middle management salaries in the country are increasing by between 5% and 10% annually, but this is not an unmanageable rate.
China is not the only alternative offshore location on Cognizant’s radar. Rajah said: We are still considering expansion into Eastern Europe. However, with 10 countries from the region joining the European Union, there will be a lot of wage pressure. One of the big attractions for skilled IT workers from the Czech Republic, which is probably the most attractive of the East European countries, will be to work onsite. It won’t be long before they are leaving the country to work in countries such as Germany and the UK.
