How the Mumbai Terrorist Attacks Affect You and Your Outsourcing Operations

The loss of life in the recent terrorist attack in Mumbai is a tragedy-- the repercussions of which will be keenly felt on a personal and geopolitical level for a significant time to come. But what impact will it have on those companies that buy or provide outsourced services from India?

The simple answer is that, while tragic, this attack was designed to cause fear and panic but will not disrupt business at the macro level. The reasons are many, but first and foremost, the scale of the attack is unlikely to occur again. India readily admitted that warnings from the U.S. intelligence community, while heeded, were not given an appropriate response. That is unlikely to be the case going forward; rather, this attack is likely to mark a shift in India’s stance to become more proactive and focus on preventing terrorist attacks in much the same way that 9-11 did in the United States. When the Twin Towers came down, it was a tragedy beyond belief, but people across the nation went back to work the next day; and no one in the international community stopped doing business with the United States because it was suddenly unsafe.

In much the same way, India will react to prevent further occurrences and mitigate the damage should another attack occur. Certain micro effects of the terrorist attack will no doubt be felt in the outsourcing industry, such as an increased level of security at operations centers and, in the short term, a possible reduction in travel for meetings that can be held virtually instead. But at the macro level, the terrorist attack, as unconscionable as it was, will not have a significant impact on the viability of purchasing and delivering services from an India-based outsourcing services provider.

Indian outsourcing providers Infosys, TCS and Wipro will continue to provide services from Mumbai, as will U.S. outsourcing providers CSC, HP (including EDS), Accenture and IBM. The Fortune 500 companies that depend on those services have no reason, let alone contractual or operational capability, to take those services back in-house. On top of that, Mumbai is but one of many tier one cities in India in which outsourced services are provided.

No, the recent terrorist attack, in and of itself, will not affect outsourcing to India. Rather, it is the rhetoric and posturing between India and Pakistan that have followed the terrorist attack that pose the legitimate threat. The tension between India and Pakistan spans over five decades and includes three wars. Thus, this latest turn of events could be likened to pouring lighter fluid on an already smoldering fire.

That being said, all-out war between India and Pakistan – both of which are nuclear-armed countries – would have such a devastating impact that most experts feel it is unlikely to occur. One Alsbridge executive recalls meetings with the U.S. ambassador to India during the nuclear testing of both countries in the mid-90s. He and many other U.S. executives based in India stressed the importance of their Indian operations and their relationships with Indian companies and how sanctions could greatly harm the interests of U.S. companies. One would expect that those same conversations took place while Secretary of State Condoleezza Rice visited India last week.

However, “unlikely to occur” may not be good enough. Given the state of the global economy and the war in Afghanistan, the United States cannot afford to take a hands-off approach to the situation. What level of escalation between India and Pakistan will trigger sanctions/restrictions from the United States and the broader international community? And more importantly, are you or your providers prepared if escalation occurs? 

If you have an existing outsourcing contract or if you’re planning to migrate services to India or any other country, the following are a few things you can do today to protect your business against the possibility of future violence or another event that could disrupt your business.

To begin, you need to understand your service provider’s obligations during a Force Majeure event or disaster.  Does your contract provide adequate protection in case future violence or another unplanned event impacts your business? 

If the answer is yes, it would be advised that you review the current contractual protections and the service provider’s recovery plans to validate the plan currency, last test date, test results and evaluate whether the current plan still provides your business adequate protection.

If the answer is no, is your business comfortable with the risk of service degradation or outages due to a Force Majeure event or disaster? Could your business withstand the impact of your India-based service not being provided for three days, three weeks or three months?  We advise all outsourcing or shared services clients to have contractual agreements and well-tested plans to manage the risk associated with Force Majeure events or disasters.

A geographically distributed model for service delivery can aid in reducing risk. Having infrastructure and expertise in place in multiple cities or countries reduces the impact of geopolitical and natural disasters.

If you do not have a geographically distributed model for service delivery, now may be the time to consider adding in that capability. Be it internal or through service providers, the effort to at least analyze the current capability and cost out some options is certainly well worth it