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Home Articles & Speeches Telstra looks at moving services offshore - The Australian Financial Review
Telstra looks at moving services offshore - The Australian Financial Review
Emma Connors
The Australian Financial Review

Telstra is considering proposals that would send some of its information technology services offshore as it renegotiates outsourcing contracts worth about $400 million a year.

The move comes as China lays down the welcome mat for multinational software service suppliers in a bid to emulate India's success as an offshore supplier. Last year Indian software exports jumped 30 per cent to reach $US8 billion ($12 billion).

Computing services supplier EDS Australia confirmed it has put forward a number of proposals to Telstra that include leveraging the multinational's various development centres.

EDS has bolstered investment in its "BestShore" strategy which promotes software and call centre services in 16 cost effective locations including Australia and New Zealand. The company also opened a 500-seat centre in Mumbai, India.

"This is a global industry and we will use our global resources to assist customers who need to drive down costs," said EDS Australia managing director Don Easter.

About 750 Telstra staff moved over to EDS two years ago when EDS signed a five-year, $500 million contract with Telstra to maintain its billing and shared services applications.

Telstra chief information officer Jeff Smith yesterday confirmed the carrier was considering various proposals from EDS and IBM GSA as it set about "re-engineering" its outsourcing contracts.

Mr Smith said the carrier would consider offshore options.

"One of our goals is to leverage the intellectual property of our suppliers . . . If they have different options for where different pieces of work can be done we will consider that."

Mr Smith said the carrier expected to have restructured the contracts by the end of the year.

Meanwhile other suppliers are hoping to benefit from Telstra's drive to reduce the cost of supporting its information technology infrastructure by 50 per cent in the next three years.

"We hope to get more work from Telstra as it re-evaluates non-performing contracts that were too technology focused," said Geoff Stalley, managing director of BearingPoint Australia.

Like many other suppliers, BearingPoint, formerly KPMG Consulting, has discovered businesses are acutely aware of savings that can be made by contracting work in offshore locations or importing labour from low-cost countries.

The company recently opened a development centre in Shanghai after comparing the relative virtues of China and India.

It was China's domestic market that tipped the balance, said Robert Lees, executive adviser, Asia-Pacific at BearingPoint.

A recent report from offshore outsourcing specialist NeoIT outlined some of the advantages of the Chinese market for service suppliers now fighting to stay price competitive.

"Labor rates are very low [think India 10 years ago]. Typical information technology rates range from $US3000 to $US8000," the NeoIT report said.

Drawbacks include a lack of English speakers, a weak affinity with many Western cultures, gaps in some infrastructure and government policies that have been less than supportive of foreign enterprise in the past.

None of this is news to Mr Lees who first started doing business in China in 1978. However, he maintains recent developments mean advantages now outweigh the disadvantages.

Growth in demand from Chinese companies like the Bank of China and China Telecom and multinationals like Federal Express have redoubled efforts to crack the Chinese market, and convinced BearingPoint to open the Shanghai development centre.

Internationally, the Asian region is growing faster than its European and North American counterparts, Mr Lees said.

"Our north-east operations pay a lot of bills. South-East Asia has potential as well," he said.

Software development and systems integration work has become increasingly important for BearingPoint during the past couple of years as the market for traditional consulting dried up.