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Indian IT: Can it compete with global players? - Views on News from Equitymaster
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  • Aug 29, 2008

    Indian IT: Can it compete with global players?

    As world is becoming flat, it is catapulting IT service providers into a new era of widespread global competition. In fact, the cross-movement of work and labor has created a competitive dynamic for cost structure and knowledge leadership of concept, technology, and process innovation. Indian IT firms (especially the top notch Indian firms like TCS, Infosys and Wipro) are increasingly competing against top global players such as IBM, Accenture and EDS for large deals. Now, the question that arises is can Indian software firms compete against global giants?

    According to a recent study by Gartner, the top Indian IT companies are more frequently being invited to bid on large deals that were earlier closed to them. India's top outsourcers are competing effectively with the top three global service providers on large deals.

    Although the size of entire Indian IT services industry represents less than a quarter of IBM Global Services, it is having a dramatic impact on the global consulting services industry. Global giants like IBM, Accenture, Electronic Data Systems and Deloitte are expanding rapidly in India to benefit from the low-cost and high-quality workforce. But they have not been able to benefit from this offshore strategy because customers in the U.S. and the Europe and other countries are increasingly looking at a mix of onshore and offshore delivery. At present, the onshore and offshore delivery teams of the multinational services providers are not as well integrated whereas those of Indian outsourcers are integrated properly. The Indian IT services industry have been able to make inroads into the global marketplace with its global delivery model (GDM), which uses a mix of onshore and offshore development.

    How India IT Firm can compete?
    To become recognized global brands and move up the value chain, Indian software firms must promote knowledge leadership, create incentives to innovate and foster efforts to enhance cultural alignment. This can be attained by Global Delivery Model (GDM), Strategic Acquisitions and by providing Integrated Full-Services.

    Global Delivery Model
    GDM is outsourcing model, which is a combination of onsite and offshore model but unlike the onsite/offshore model wherein the offshore development center of service provider is located at only one place, in the global delivery model, the service provider has its offshore development centers spread out across the entire globe. The service provider need not have their own offshore development centers across the globe but they can use the resources of their partners located around the globe and thus follow a global delivery model. This provides the client with a large working team with varied qualities and expertise in different fields. There are many advantages of this model. GDM is a lower risk model. In case of any disaster/emergency at one of the offshore centers, the work continues at or is transferred to other offshore development centers. So the risk involved is low. The productivity is higher in GDM as 24/7-work cycles becomes possible because people work in different time zones. Furthermore, the lead-time is shorter because the work is completed by a number of offshore development centers working together with the same target and communication gap does not happen as onsite teams are in direct contact with the client and are able to understand the client's needs in a better way and respond faster.

    Strategic acquisitions
    The strategic acquisitions done by big three Indian IT companies over the years have created new capabilities within the company and have started yielding synergistic growth. These companies have made a number of small acquisitions in order to plug the gap in its solutions capability and competency. These companies have also made acquisitions to improve its presence in select geographies. These strategic acquisitions have brought Indian IT firms at par with global players. Following are some of the major M&A in the industry, which indicates that Indian IT firm, are building their capabilities to take on global majors.

    Indian IT: Major IT M&As
    Acquirer Target Size
    Infosys Technologies Axon Group US$ 753 m
    Wipro Infocrossing US$ 600 m
    Firstsource MedAssist US$ 330 m
    Infosys Philips BPO Captive US$ 28 m

    Integrated Full-Services Play
    Indian IT companies are increasingly focusing on expanding the breadth of its service offerings and capabilities to become a full services provider. These companies are providing end-to-end IT Services offering like - Application Development and Maintenance, Technology Solutions, Package Implementation, Systems Integration, Enterprise Solutions, Business Intelligence, Assurance Services, IT Infrastructure Services, Business Process Outsourcing, Global Consulting Services, Asset Based Services and Engineering and Industrial Services. This entails entire value chain of IT - from consulting to products and solutions and from implementation to support.

    Indian IT services firms are currently into transitioning phase. However, the transition might not be smooth and they are likely to encounter many hurdles. While these firms can continue to grow around 30% or more with numerous small - and medium-sized low-end projects, scalability and management will become increasingly challenging. Firms who have positioned themselves as knowledge leaders would move to next level successfully and would generate superior returns for the investors.



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