CHICAGO – Steve Pazol is CEO of nPhase. Based in Chicago, nPhase provides enterprise-class machine-to-machine (M2M) services to manage, monitor and control global assets.

Along with Sandeep Mehta, Pazol co-founded Professional Consulting Services, Inc. (PCS) in 1990. In 1993, they founded Mehta & Pazol Consulting Services (MPCS) in Pune, India. In 1998, they started ManageTheWorld, a subsidiary of PCS, which became nPhase in 2003.

In part two of a three-part Q&A, Pazol sat down with international expert Michael Muth to discuss the benefits and drawbacks of outsourcing to India as well as the pros and cons of working in various cities within India.

Michael Muth: Who are your customers? Why are they not international?
Steve Pazol: We play in three primary market segments. The first is industrial machine manufacturers that make things like compressors, pumps and valves. They want to network those machines because most of the profit is in servicing the machines, the consumables, the extended warranty, installation and the audit.

It’s very inefficient to service a machine if you don’t know its state. Therefore, you go to it every Tuesday whether you need to or not. With M2M, the manufacturer can provide better service more cost effectively. Today, many machines are highly networked at the plant level but not across plants.

If you service a machine, how do you connect to it? That’s what we do. The second segment is the wireless data market for companies that have their own applications to keep track of your driving teenagers. You can get an alert if they drive outside of your parameters. It gets big brother-like sometimes with mapping software.

Yes, they need the wireless carriers, but they’re difficult to deal with. That’s why we deal with that problem. We’re a VAR on the Cingular network. We give them one bill for thousands of devices. We’re easier to deal with than the carriers.

We sell those applications that need to be connected where it’s not feasible to work directly with the carriers. Siemens and Wavecom have the majority market share of devices. They refer opportunities to us. They want to sell the radio in the truck. It has taken too long to sell. Trucking telematics are used by OnStar. Where are their drivers on their routes?

We also monitor chemical tanks. We provide the connectivity for their sensors in their supply chain. We extend the Internet. The third market is our legacy market: cell towers and wireless infrastructure. They don’t want planes running into cell towers. If a blinking red light goes out, the FAA says they have 30 minutes to replace it.

The large majority of companies we work with are domestic. Still, they are global companies. We do have a relationship with Atos, which originally was a 50,000-person company like EDS. They’re No. 1 in Europe and want to grow in the U.S. We have an agreement with them. They have a great footprint in Europe.

MM: What’s going on with your PCS and MPCS businesses?
SP: nPhase has a recurring revenue business model where we’re paid to manage their devices. That’s a completely different model from a professional services firm. We have R&D. They don’t. PCS was doing pretty well with 95 people, 65 in India and 30 in the U.S.

I’m an equal equity partner in PCS, MPCS and nPhase with my partner. He runs PCS and MPCS and I run nPhase. We’ve split them operationally since they’re two different businesses. We just try to be capitally efficient. I sit on their boards and he sits on my board.

MM: How does your technology differ across countries?
SP: It really doesn’t. If you think about standards (such as XML, Web services, .NET and J2EE for Java), we support the most commonly used applications and interfaces. Using the Internet as our backbone or a VPn, we can move data any way we want.

Sometimes you have to nationalize screens. Between GSM and CDMA, there are significant differences. That’s part of our secret sauce. We’ve figured out how to move it back and forth across all different kinds of networks in order to extend the enterprise. Our intellectual property is hosted as part of our infrastructure.

MM: Is implementing your solutions any different in different countries?
SP: It’s pretty much all the same.

The challenge isn’t technological. It’s commercial. To do a large project, you need a contract with a foreign carrier. It’s a six- to nine-month process that costs thousands of dollars. You need scale at a certain point. There are also international hassles, taxes and tariffs.

The challenge with opening a company in a foreign country is that you need a native who’s on the ground and who you can trust. My partner has that network in place. He and I met at a client. We used to work for Unisys as independent contractors at a manufacturing customer in 1988.

We ran into each another again in 1989 at another common customer and decided we should hook up in Chicago. He went to university in India and ended up working for IBM, which sent him to the U.S. He then went to Unisys. When he got his green card, he started freelancing. PCS just celebrated its 15th anniversary.

MM: How much time do you save by outsourcing to India?
SP: If your development process works, you can save 40 percent in time in the development cycle. You can send a task off at night and have something to review in the morning (especially with bug fixes). You can basically double shift.

When you think about outsourcing programming or other business processes, you need to look at things other than just the cost. How secure is the data? How locked down are the processes? How easy is communication? How reliable is the infrastructure?

In India, the government is providing incentives for this kind of work. The legal, commercial, language and infrastructure are there and the processes are mature. Managers in India have often worked in the U.S. or abroad. The English language is not a barrier.

In Russia or China (where you can get even lower costs), intellectual property protection is an issue. Look also at the political ramifications. Even Pakistan is getting call-center work. If you’re evaluating outsourcing, you also need to look at labor cost, political climate, communications infrastructure, language, intellectual property and natural resources.

China has issues with water. If you outsource, typically you’re not going to do it for a year or two. You’re going to do it for five to 10 years at least. You need to look at the bigger picture. Israel, Ireland and India are the three leaders. Large companies like GE, Cummins, IBM and Microsoft have significant presence there.

Business process outsourcing is really just starting. White-collar jobs in many places are candidates for outsourcing. Wall Street firms are looking at whether to hire an analyst in New York for $125,000 or for $25,000 in India. You’re seeing a major transfer in business process outsourcing in white-collar jobs.

MM: Have you considered other outsourcing destinations?
SP: We used to have an office in Delhi. That wasn’t the right place. It didn’t have the labor force. It was the capital with a lot pollution. Pune was more natural from a personal perspective with access to well-educated people. A lot of other companies have figured that out. They’re more friendly with bank relationships. It was more advantageous to be in Pune than Delhi.