Vivek Wadhwa writes “Why I have become pessimistic about Indian IT”
“It is not that Indian outsourcers have become less capable of servicing Western needs. It is that their customer base—the CIO and IT department—is in decline.”
He is right and wrong.
Actually there are large chunks – over $ 300 bn a year in IBM, Accenture, EDS, Cap and other outsourcing business (and over priced contracts at incumbent Indian providers like Infosys and Wipro) for the Indian firms to still target. So, by flying low – and aiming for what HCL calls the “rebid” business which I estimate will be for about half that contract value – the short term road is still ok. When it comes to scale, IP protection etc Indian firms continue to have an advantage over E. European, S. American, Chinese competitors. But they have to compete vigorously on economics not continue with poor habits they have picked up in last few years. And dust off the continuous improvement ethos which was a hallmark of Indian outsourcing a decade ago.
In the other half of that incumbent spend and in newer markets, the challenge for Indian firms is more from clouds, crowds, cybertech and customer priorities.
Clouds apps vendors like Salesforce, NetSuite and Workday have shown the world tens of thousands of customers can be supported and upgraded by a few hundred staff. That is quantum more efficient than the current Indian model where a single SAP customer needs 20 to 100 support staff. Cloud infrastructure vendors have invested billions in hyper efficient data centers and networks. Most Indian firms are capital allergic and have made few such investments (other than in broadband pipes to the West)
Crowdsourcing is starting to affect chunks of the outsourcing model – low end stuff like testing, but with models like Kaggle even high end work.
Activity after activity is starting to factor robots, drones, machine intelligence. We have moved into a world of cyber-physical IT but most Indian firms are still persisting with head count heavy business models.
The biggest challenge comes from growing customer investments in product and revenue centric technology. Many companies are beefing up their own technology staff to do that and looking for creative product design firms, digital agencies, contract manufacturers and logistics providers with scale. Few Indian firms fit that bill. Most have chased after Microsoft or Oracle and built relatively “safe” practices around mature, horizontal IT tools, not in emerging and creative vertical areas.
As Vivek says “There are new $100 billion opportunities that could revitalize this industry. But from what I’ve seen, Indian executives seem incapable of steering their ships in the right directions.”
That may be too harsh an indictment, but it is clear what worked for Indian firms in the last five years will not be sufficient going forward.