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September 10, 2007

A new model of outsourcing?

Helion Ventures-backed Anatara Solutions has attracted a lot of media buzz including in a Businessweeek column around its "second generation" outsourcing model.

Extract from the Businessweek column:
They call their model Second Generation Outsourcing. Here's how it works: Anantara operates as a prime contractor and the interface with clients. It puts together a "solution," including strategy, business proceses, technology, and performance management. The company, with just 40 employees, has an ecosystem of 25 other companies, with a total of 2,500 employees, who are specialists in everything from Java coding to software testing. It draws on their skills to deliver the solution. Rather than focusing just on India, Anantara's ecosystem also includes companies from Russia, China, and Singapore. And it plans on expanding into additional countries. Anantara gets the advantages of high-level skills from Russian companies and very low programming costs from some in China--where labor rates are as low as $8 to $11 per hour. "For the past 10 years, the outsourcing business model hasn't changed, but the scale has expanded," says Prabhat. "We have a radical vision of how outsourcing can change."

You can see how this could disrupt the status quo. Rather than having huge fixed costs, like TCS, Infosys, and Wipro, Anantara pays for value received--and billed to clients. That is incredible leverage. And it can pick and chose among hundreds of small specialist firms anywhere in the world. That's a true global delivery model. With costs of real estate and labor rising rapidly in India, Anantara could quickly have gain advantages over its much larger competitors.

It has two main challenges, as I see it. 1) It has to establish credibility among potential customers, something that is typically only gradually won, and 2) it has to manage its ecosystem of partners and prove that it can really deliver higher-quality services at a lower cost.

Sounds a lot like "sub-contracting" to me - but there must be a specific reason why Anantara is avoiding using that word.

You could also listen to Anatara's Founder & CEO G.B. Prabhat explain the model in his own words in this interesting two part podcast with Kiruba Shankar.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.