I met Vivek Paul at the Enterprise conference a couple of weeks ago. Vivek, now an investor, was the number two guy at Wipro and helped grow its US operations rapidly in the first half of this decade. Vivek ribbed the work I do for clients in helping source technology - "You give customers the illusion of control".
We both laughed, but I walked away thinking Vivek's "illusion of control" was a more apt description of where Indian firms like Wipro find themselves after the last few years of sustained success. Their growth was particularly striking in contrast to the flat or negative growth at many Western firms.
But Accenture, IBM even EDS, CSC and other Western firms have survived and not lost much market share and three realities are challenging Indian firms:
a) This NY Times article points, with plenty of examples, the labor shortages. As the article showcases, even now Indian firms keep looking for top notch engineering and science talent - a formula which worked in the past, but has proved difficult to scale even as they remain wary of business and arts graduates. For years, executives at Indian firms would bravely say we have our recruiting engines humming. Or that 20% staff turnover is really not that bad compared to our peers. Or that we can afford to pay 25% raises and pass them along - since labor is only 20% of our fees, the client impact will only be 5% - etc, etc. The article did not mention that Western firms are accentuating the issue by aggressively recruiting their own talent in that market. Every outsourcing deal I have reviewed this year has considered non-India options because of turnover and inflation concerns and uncompetitive pricing. India still has formidable assets, but 2 years ago, clients would not even bother to look hard at other global delivery options.
b) The core strength of Indian firms continues to be in application maintenance. They have not made meaningful dents in the systems integration market - especially in projects which call for complex program management, industry knowledge or change management (something their focus on engineering talent has actually prevented them from developing organically). I was talking to a partner at a large US SI this week, and he said 3 years ago he was worried about the Indian firms but he still does not see them qualify for large systems integration short lists In 3 large SI deals I have been involved in over the last few months, the client in each case did not feel comfortable with an Indian firm as a prime contractor - they were ok with portions being sub-contracted to Indian firms, but the prime Western firms usually propose their own growing offshore resources in such deals. Even in areas like testing where Indian firms emphasize their quality certifications, functional testing tends to be somewhat weak given the lack of business process depth.
c) When it comes to infrastructure management, a growing focus for many Indian firms, they have generally shied away from capital investment in data centers, hardware and automation. As I wrote here, IT Capex expectation is increasingly moving from consumer to vendor. They sell instead the virtues of remote database and other management. Again, labor oriented and subject to the same staffing issues in a. And inreasingly their competition (or at least the benchmarks) will be SaaS vendors, not the more expensive Western outsourcers they have grown accustomed to competing against.
The rapid growth of the Indian firms masks the fact that they are doing more of something they have done for a while, but are challenged to optimize given the labor issues. And when it comes to newer markets, the assumption that the success in application maintenance will automatically give them success in other markets - systems integration and infrastructure services or BPO - is flawed.
Every few years or so Indian firms face a challenge - in the past it was what will we do after Y2k, then it was how do we survive security and visa issues after 9/11. The Indian cat has not used up its nine lives - but it is going to take a new set of discipline, investments and innovations from them to overcome the next set of challenges.
But as Vivek would say - a good first step would be to get over their "illusion of control" over the IT services market.
10% of your employees are turkeys
Jack Welch says it as he practiced it. Much as I criticize high staff turnover in offshore markets like India, I have to agree with "Neutron Jack" we may have too little turnover in the West.
October 22, 2006 in Industry Commentary | Permalink | Comments (1) | TrackBack (0)