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Software: Success follows those who… - Views on News from Equitymaster
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  • Dec 26, 2003

    Software: Success follows those who…

    In talks about Indian software companies moving up the value chain, one generally ends up concentrating only on the fact that this move would bear fruit when companies would be able to offer services (like IT consulting and package implementation) to their clients that would be at the higher end of the spectrum. However, what one fails to notice is the fact that, to really make a dent in the global marketplace, apart from moving up the software value chain, Indian companies need to become more proactive in defining problems for their clients and proposing solutions rather than only being reactive to their problems by offering solutions.

    This is like moving from saying, ”Hey, you have this problem? I have this technology solution for you,” to saying, “I believe I understand your business. These are not your core competencies and these are the problems you might face in the future. Now, I have the competence and technology solutions that might be of help to you!” In saying this, not only would the company present itself as one that has the requisite domain expertise but also a knowledge about the clients’ business. While a few Indian software majors (Infosys, Wipro and i-flex, for example) have long realised this fact, most are still to do this before they start losing outsourcing opportunities to other competitive destinations like the Philippines, Ireland, the Czech Republic and China.

    Due to the fact that Indian software companies, in these times of pricing pressure, would continue to focus their efforts in growing on the volumes front, garnering large-size contracts would be the key. And the rationale for Indian companies moving up the software value chain would be justified when these large contracts involve high-end mission-critical jobs, and more of the same. In recent times, there have been very few large-size outsourcing contracts that have flown the Indian way (see the table below).

    The (few) deals that came…
    Client Vendor Size (US$ m) Duration (years)
    Telstra Infosys 50 5
    Lucent Hughes Software 30 3
    British Telecom Infosys, HCL Tech 160 5
    Lehman Brothers Wipro, TCS 70 Annual

    Now, apart from understanding the client’s business and his technology requirements, companies like Infosys and Wipro have built up strong execution capabilities. They are in the process of refurbishing their global delivery model and are scaling up their capacities, both human (people) and physical (development centres and marketing and distribution infrastructure). The rationale for these companies scaling up their operations is that going forward, as more and more corporates look towards India for outsourcing their IT requirements, they would be in a much better position to cater to this demand. The ability to retain key personnel would also play a vital role in this regard. After all, as the Indian software sector moves on from cost arbitrage towards domain expertise, success would follow those who are able to attract and retain key employees, who possess world-class execution capabilities and who understand clients’ business in and out. Only then, would the sector continue to get a premium rating on the indices.



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