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Software: Consulting to grow - Views on News from Equitymaster
 
 
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  • Jun 17, 2003

    Software: Consulting to grow

    Technology has, over the years, changed the dynamics of businesses worldwide. As business models mature, there arises an ardent need to understand and incorporate technology as a ‘thinking’ function, rather than a mere ‘doing’ function’ in business model of enterprise. Here is where IT consulting comes into play.

    From Indian IT companies’ perspective, providing consulting to clients is still at a very nascent stage. Although Indian software companies have proven time and again their ability to acquire competencies in different domains faster than their Western counterparts, consulting is not that easy. It is still to take a prominent revenue-share for these Indian companies. Another reason is that, consulting being mission-critical in nature, clients tend to be apprehensive while awarding such projects. While software majors like Infosys, Wipro and Satyam have managed to make some headway into IT consulting space, there is still a long way to go. Consider the table below.

    IT consulting contribution
    (FY03) Share of total revenues Value ($ m)
    CSC 49% 5600
    IBM* 30% 3050
    Infosys 4.3% 32
    *Share of Global Services revenues for 1Q 2003

    But why is IT consulting important for Indian software majors?

    • Since consulting is at the higher end of the software value chain, such skills are not easily replicable, like application development and maintenance, in the short-term. The barrier to entry is, therefore, higher.

    • Earnings visibility increases as companies move up the value chain, unlike BPO and hardware segments.

    • Margins are also on the higher side, especially since such projects are mission-critical in nature. Unlike maintenance services, IT consulting cannot be commoditised i.e. it is more customised than standardised.

    That said, whether Indian software companies are in a position to bid for such projects is still in question. Since we are still miniscule in the global arena, it will take some time before companies like Infosys increase contribution from IT consulting. As Indian software companies become more mature in the consulting space, going forward we are likely to see a higher contribution to the bottomline from this service offering. Software majors – Wipro, Infosys, TCS, HCL Tech and Satyam – have been trying hard to make a mark in the consulting domain.

    A recent example of Indian software companies’ initiative towards IT consulting is Wipro’s acquisition of NerveWire, a US based business and IT consulting company serving financial services clients. This acquisition is likely to help Wipro scale up on the consulting front. Acquisitions like these, apart from adding to Indian software companies’ clientele, are likely to place these companies as end-to-end service providers and technology consultants, rather than those merely offering technology solutions across different domains. Also, Indian companies’ existing technical expertise and their competencies in understanding complex business models will open doors for them in specialized domains that have been the stronghold of global IT majors like IBM, HP and Microsoft.

     

     

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