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September 20, 2005 


 Q&A: Steve Pazol, CEO of nPhase in Chicago, on Outsourcing to India 8/23/2005
The mission of Going Global, which appears on ePrairie on most Tuesdays, is to educate and inform Midwest technology companies on what local technology companies are doing internationally so other firms can learn from the successes of like-minded peers.

CHICAGO Ė 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.

Itís very inefficient to service a machine if you donít 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? Thatís 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 theyíre difficult to deal with. Thatís why we deal with that problem. Weíre a VAR on the Cingular network. We give them one bill for thousands of devices. Weíre easier to deal with than the carriers.

We sell those applications that need to be connected where itís 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 donít 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. Theyíre 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: Whatís going on with your PCS and MPCS businesses?
SP: nPhase has a recurring revenue business model where weíre paid to manage their devices. Thatís a completely different model from a professional services firm. We have R&D. They donít. PCS was doing pretty well with 95 people, 65 in India and 30 in the U.S.

Iím an equal equity partner in PCS, MPCS and nPhase with my partner. He runs PCS and MPCS and I run nPhase. Weíve split them operationally since theyíre 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 doesnít. 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. Thatís part of our secret sauce. Weíve 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: Itís pretty much all the same.

MM commentary: There are things that are different. These include intensive planning (like what the Germans do), making due with scarce resources (as must be done in many less than fully industrialized countries of the world) and varying levels of post-installation training and support.

MM: Are there any particular countries or regions where you see potential?
SP: I see potential in the U.S. and Canada due to our location and size. For other countries, weíre going through partners. We keep getting pulled internationally into Latin America, Mexico, Brazil and Ecuador. A lot of our partners (including Siemens, Wavecom and Opto 22) have distribution channels and partnerships already set up. We leverage those.

The challenge isnít technological. Itís commercial. To do a large project, you need a contract with a foreign carrier. Itís 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.

MM commentary: It sounds to me like working through partners in Latin America could work if theyíre pulling you there and willing to pay for it.

MM: What are the relationships now between the companies?
SP: MPCS is based in Pune. My partner was born there. Pune is a small university town of 4 million people. It used to be lower cost. Everyone else is recognizing that in India. Cummins & Microsoft have opened facilities there. Itís become popular because of the universities.

The challenge with opening a company in a foreign country is that you need a native whoís 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.

MM commentary: MM comment: I suppose I have to revise my comments from a previous column: A company can save some time on some specific tasks after working out the process for an extended period of time.

MM: How much money do you save by outsourcing to India?
SP: There are issues and benefits. The time difference in Pune is normally 11.5 hours as compared to Chicago, which can be horrible or great. However, the cost advantage is not so slowly going away.

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 youíre 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 youíre not going to do it for a year or two. Youíre 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. Youíre seeing a major transfer in business process outsourcing in white-collar jobs.

MM commentary: Unless there is a major security breach, Iím afraid the outsourcing wave will become a tsunami rather than a ripple.

MM: Why Pune and not, say, Bangalore?
SP: The price and competition for people in Pune wasnít like what it was in Bangalore.

MM: Have you considered other outsourcing destinations?
SP: We used to have an office in Delhi. That wasnít the right place. It didnít 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. Theyíre more friendly with bank relationships. It was more advantageous to be in Pune than Delhi.

Michael Muth is managing director of GATA, an international business development consultancy that helps technology companies build international partnerships. He can be reached at mike@intlalliances.com.
Click here for Muthís full biography.

Previous Columns:
Q&A: nPhase CEO Steve Pazol on Machine-to-Machine Service Industry (8/17/2005)
Q&A: Daitan Labs Founder James Bergamini on Brazilian Workers (8/2/2005)
Q&A: Daitan Labs Founder James Bergamini on Brazilís Silicon Valley (7/26/2005)
Q&A: Daitan Labs Founder James Bergamini on Next-Generation Telecom (7/19/2005)
Q&A: Op2mize Founder Geoffrey Kasselman on Asian Advancement (6/28/2005)
Q&A: Op2mize Founder Geoffrey Kasselman on Findings From Asia (6/14/2005)
Q&A: Op2mize Founder Geoffrey Kasselman on Analog, Smart Buildings (6/7/2005)
Q&A: Manpower CEO Jeffrey Joerres on Changing European Regulations (5/31/2005)
Q&A: Manpower CEO Jeffrey Joerres on Comparison Between U.S., France (5/17/2005)
Q&A: Federal Reserve Bankís William Testa on Cautionary, Hopeful Prospects (5/3/2005)
Q&A: Federal Reserve Bankís William Testa on Chicago Business (4/26/2005)
Q&A: Federal Reserve Bankís William Testa on Headquarters, Exports (4/19/2005)
Q&A: Lisle Technology Partners CEO Adarsh Arora on Keys to Outsourcing (4/5/2005)
Q&A: Lisle Technology Partners CEO Adarsh Arora on Outsourcing in India (3/22/2005)
Q&A: Lisle Technology Partners CEO Adarsh Arora on Offshore Outsourcing (3/15/2005)
Q&A: CECís David Weinstein, Kapil Chaudhary on International Experience (3/1/2005)
Q&A: CECís David Weinstein, Kapil Chaudhary on Internationalization (2/22/2005)
Q&A: Brian Briggs of Acclaro on Whether to Outsource Localization (2/8/2005)
Q&A: Brian Briggs of Acclaro on the Complexities of Localization (2/1/2005)
Q&A: Brian Briggs of Acclaro on International Localization Services (1/25/2005)
Q&A: RPXís Robert Okabe, IECís John Janowiak on Global Events (1/11/2005)
Q&As: FastRootís Terry Howerton, Doug Cogswell of ADVIZOR Solutions (1/4/2005)
Q&A: Opportunity Internationalís John Kamperschroer on Partnerships (12/21/2004)
Q&A: Opportunity Internationalís John Kamperschroer on Technology (12/14/2004)
Q&A: Opportunity Internationalís John Kamperschroer on Innovative Financing (12/7/2004)
Q&A: IEC Senior Director John Janowiak on Trade Show Realities (11/16/2004)
Q&A: International Engineering Consortium Senior Director John Janowiak (11/9/2004)
Q&A: Founder John Lee of Chicagoís Hostway on Web Site Localization (11/2/2004)
Q&A: Founder John Lee of Chicagoís Hostway on Growing Globally (10/26/2004)
International M.B.A. Guide to Moore School of Business, Thunderbird (10/12/2004)
Your International M.B.A. Guide to Northwestern, Loyola University (10/5/2004)
Entrepreneurís Guide to International M.B.A. Programs in Chicago (9/28/2004)
Q&A: Prairie Angels Founder Bob Okabe on Diction, International Cities (9/7/2004)
Q&A: Prairie Angels Founder Bob Okabe on International Adaptation (9/1/2004)
Q&A: Prairie Angels Founder Bob Okabe on Managing U.S. Subsidiaries (8/24/2004)
Q&A: Origin Ventures Founder Steven Miller on Investments, Angels (8/17/2004)
Q&A: Origin Ventures Founder Steven Miller on the Canadian Way (8/9/2004)
Q&A: CPCP Founder David Baeckelandt on Multilingual Importance, Mentoring (8/3/2004)
Q&A: CPCP Founder David Baeckelandt on Japanese Disclosure, Due Diligence (7/27/2004)
Q&A: Chicago Pacific Capital Founder David Baeckelandt on Overseas Funding (7/20/2004)
Q&A: ADVIZOR Solutions CEO Doug Cogswell on the Art of Partnering (7/13/2004)
Q&A: ADVIZOR Solutions CEO Doug Cogswell on BP, AstraZeneca Wins (7/6/2004)
Q&A: ADVIZOR Solutions CEO Doug Cogswell on Global Software (6/29/2004)
Q&A: CEO Terry Howerton on Why Chicago, Ukraine Made FastRoot (6/22/2004)
Q&A: FastRoot CEO Terry Howerton on Blended Chicago Approach (6/15/2004)

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