India Lockdown and Key Considerations for Companies with Outsourced Support in India

In a notable response to the COVID-19 pandemic last week, India has instituted a 21-day national lock-down that commenced on March 25th. The lockdown, one of the strictest measures implemented by any nation so far to counter the COVID-19 threat, was announced by India’s Prime Minister Narendra Modi and applies to all commercial, private, and industrial establishments – including ITO and BPO support facilities. The result is that all suppliers providing offshore services to their company customers are having to deliver these services with personnel from their home locations. These measures are being implemented by state and local authorities in their respective jurisdictions throughout the country.

There are several considerations, implications, and corresponding recommendations related to this unprecedented action. This is true from a variety of perspectives – most notably: 1) operational, 2) contractual, and 3) financial.

We have been working with our clients to address these unexpected changes and challenges across the dimensions above, as well as consulting with leadership of the outsourcing providers who maintain significant Indian offshore support functions. We are also keeping a close pulse on issues impacting the overall market, tapping into our relationships with law firms, private equity, private research organizations, and governmental entities.

Below are some key considerations and recommendations across the operational, contractual, and financial spheres, with varying applicability depending upon whether an enterprise customer is currently outsourced, is planning to transition or is in the midst of a transition, or is contemplating embarking on an outsourcing journey. Given the financial challenges many companies are experiencing, outsourcing certain functions and processes (including offshore to India) may make more sense than ever, but the recent lockdown is a wakeup call regarding various items that must be considered.

These considerations/recommendations include:

  • Put this in perspective. No service delivery model is immune from this unprecedented circumstance, whether outsourced offshore/onshore, kept internal, supported via global in-house centers (“captives”), etc. This is an issue that anyone with India support operations must address and manage.
  • So far, the wheels are on. While many challenges exist, we have not yet been seeing major steady-state operational disruptions. The work is getting done and the BCP plans are generally working, but resource contention is starting to be a bigger issue and service level degradation may in fact occur during this period. We expect we may start seeing more operational disruptions as the constraints and challenges persist – whether due to service locations, personnel issues re: wellness/availability, etc.
  • Not a force majeure event. Despite the circumstances, your suppliers are still obligated to perform the services. Well-crafted agreements will not have a pandemic as a qualifying force majeure event, so the supplier should still be responsible to provide all the services at the requisite service levels. Even if it were a force majeure event, there still should be contractual obligations to re-instate the services in accordance with strict contract provisions, typically 3 days.
  • You may actually be better off in an outsourced model. Outsourcing models have more service elasticity to bring incremental support to bear, and suppliers have been aggressively addressing issues (e.g., we have a client situation where a supplier’s laptop shipment did not arrive on time, so the supplier pulled desktops out of the walls from their offices and sent them to employees’ homes). Being able to tap into literally hundreds of thousands of resources at certain outsourcing providers is a mitigating factor that cannot be overlooked.
  • Ensure the supplier has the necessary tools and enablers. The best run service providers have made preparations and are implementing plans, such as significant equipment and software purchases, training employees to work effectively from home, ensuring appropriate Wi-Fi connectivity is in place, and enabling VDI, VPNs, and Citrix. We have seen circumstances where certain supplier resources do not have the necessary bandwidth or tools to get their jobs done. This is something that must be insisted upon with your supplier and monitored closely.
  • Be reasonably flexible - managing this situation will require a partnership driven mindset. In spite of what they might say, most enterprise customers and suppliers did not anticipate the possibility of this pandemic occurring. Enterprise customers will have to show operational and contractual flexibility to accommodate this “black swan” event and the scale of people impact. To that end, we have seen modifications to pricing models on a temporary basis – e.g., managed services being moved to Time and Material (T&M) pricing with due consideration to operational challenges, temporary elimination of resource unit (RU) floors that would otherwise trigger take-or-pay or required termination, and other flexibility measures.
  • Evaluate your contracts for required changes. Supplier resources working from home is driving the need to modify existing contractual provisions, as well as adding new provisions to provide the requisite controls and protections. This is particularly the case in areas that include intellectual Property (IP), confidentiality, physical and logical security, data privacy, and audit provisions.
  • Make sure your supplier has the “right” BCP/DR plan. Operational and business continuity plans do/should cover logical and physical security, privacy, confidentiality, tools, connectivity, etc., in out-of-office locations. But traditional BCP/DR plans are often overly focused on facility continuity and need to consider non-facility disruption circumstances like the current situation. Plans must be modified, or re-developed, quickly to address a different mindset than has traditionally been the case. Testing and audit processes for remote work need to be developed as well.
  • Assess your location strategy. If the COVID-19 situation persists longer than planned, and if India’s situation becomes particularly problematic, enterprises will have to make tough decisions to diversify their offshore footprint. Services could be moved to less impacted places such as Latin America, or places recovering from COVID-19, such as various Asian locations. In such a situation, well-crafted agreements have provisions to move service locations at the supplier’s expense as a risk mitigation measure.
  • Make sure your suppliers’ resources are safe and healthy. Whether or not you are in a managed services, staff augmentation, or some other arrangement with your supplier, keeping supplier resources safe and healthy while they do their jobs at home is critical. Enterprise customers should obtain assurances regarding access to key personnel and insist upon reviewing supplier procedures for ensuring supplier personnel remain in a position to continue getting the work done.
  • Leverage lobbying efforts. Most suppliers are members of NASSCOM (the industry trade group, which has political pull) and the top-tier suppliers have a lot of influence with the state governments given the size of their operations and the number of resources they employ. This can enable them to obtain essential services classification designations. This can make the difference in the ability to get equipment into the country for at-home use, keeping certain office/data center locations open, and the overall ability to have relatively greater flexibility to maintain operations.
  • Retain the ability to quickly go back to the status quo. All changes, whether operational, contractual, and/or financial, need to be performed and contemplated with the reversion to the status quo in mind. This situation will not last forever, and specific plans and provisions must be in place to quickly recover and address the original service environment, contract and financial structures, and corresponding business needs.
  • Transitions will be impacted. We are seeing impacts to in-flight transitions. Knowledge transfer to offshore locations is more challenging due to travel restrictions. Recruitment drives at service providers have been impacted, creating hiring delays. Service providers will also prioritize existing service delivery vs. in-flight or planned transition initiatives, further impacting transitions.
  • Consider virtual transitions but plan appropriately. Some enterprise clients are conducting transition activities “virtually,” and in such instances, transition management and vendor governance is taking on even greater significance – evaluation of suppliers’ meeting transition stage-gates and conducting proficiency testing of trained staff are critical activities to focus on prior to moving to the next transition phase.
  • Consider e-learning. Historically, onsite training engagement has been a popular method to support offshore transitions, and remote training options have, in general, been considered less effective. E-learning based training approaches could be considered where it makes sense, but require additional investment and planning. Enterprise customers in planning stages of transitions can consider this option to be better prepared in case COVID-19 persists or such a crisis emerges again.
  • Decide quickly and communicate. Transition initiatives are being delayed and, in certain instances, suspended for the time being, creating operational, contractual, and financial impacts for enterprises. It is important that buyers work collaboratively with service providers to assess impact, decide, and communicate decisions quickly to their internal teams, as well as to suppliers. If enterprise customers decide to continue, it is important the stakeholders are aligned with the approach and understand the risks and how they are being mitigated.
  • India is still the premier offshore location. A combination of positive factors make India the premier offshore location to support enterprise customers. These positive attributes include a highly skilled technical workforce, English language ubiquity, a rich outsourcing history and home to many of the world’s leading outsourcing providers, access to talent at scale, significant cost advantages (that only continue as the Rupee devalues), a history of success, and many other factors. Enterprises currently evaluating India as a potential offshore destination need not be overly concerned. By the time they proceed with implementing services in India, this pandemic should hopefully be behind us. These prospective customers will benefit from the suppliers having gone through this challenging period – i.e., will be more protected in steady state services than they otherwise would be, based on the learnings from this situation.

We will continue to monitor the situation closely. Please reach out with any questions and/or if there are modifications you are considering or need to make.

Your Pace Harmon Team