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Krishnan Thiagarajan

WHEN the World Bank-funded report in 1992 identified India as a possible software superpower, it appeared a distant and fancy dream. With software export revenues of a little over $100 million, India had neither a clutch of `high profile' software companies nor the `visibility' to make a difference at the global level.

Lo and behold! In a decade, the software services sector has transformed this distant dream into reality, notching export revenues of $7.5 billion in 2003. It is one of the few sectors where India has emerged as a genuine global player against daunting odds.

Five companies have come to dominate the Indian outsourcing landscape — Tata Consultancy Services, Infosys, Wipro, Satyam Computers and HCL Technologies. TCS already has revenues in excess of $1 billion and Infosys and Wipro are on the threshold of crossing the $1-billion mark.

Between them, these five companies also account for over 40 per cent of the total software exports from India in 2003. Three themes underlie this saga of growth:

Offshore delivery model

Until 1994, nearly 70-75 per cent of the Indian software exports were executed in the form of onsite services (pejoratively called body-shopping) at the client site, say, in the US or Europe.

In the early 1990s, there was deep-rooted scepticism in the ability of Indian companies to manage software projects from remote and offshore locations such as India. But starting with low-end basic maintenance and migration projects involving code-writing for blue-chip multinationals, TCS, Infosys and Wipro pioneered what came to be known as the Global Offshore Delivery Model.

By the mid-1990s, using this model, they tapped into the English-speaking engineer talent pool to deliver value-added software services from multiple offshore locations at a low cost. Besides, the 10-hour time difference between the Indian and US markets also helped them offer 24-hour services on specific projects.

Today, a significant chunk of the Fortune 500 clients, including established names such as Citibank, GE, Cisco, Reebok or Goldman Sachs, figure in the client list of the Indian software companies.

As it gained greater expertise and experience in handling an ever-larger basket of global clients, the top companies were able to improve the qualitative aspects of the model to develop and deliver faster, better and more complex solutions. The shift from onsite to offshore will, however, remain an ongoing challenge.

Crest of two waves

Just as the software industry was beginning to find its feet in the mid-1990s, a god-sent multi-billion dollar opportunity came its way. Called the Y2K (or the millennium bug), for the first time, it offered the entire industry an opportunity to handle large projects with pre-defined specifications and to stiff deadlines. More than revenues, this bug helped enhance India's project management capability and assert its credibility in the global turf.

A horde of Indian companies was able to leverage on the Y2K opportunity to bag numerous bread-and-butter application development and maintenance work from Fortune 500/Global 1000 clients.

In the late 1990s, similarly, when the Internet and e-commerce wave was on the ascendant, India was able to ride on it by offering a range of Internet consulting, tools and development work.

By this time, India's wage arbitrage and project capability was so strong that software companies were able to command top dollar billings from the American and European companies and drive up their margins substantially.

Slowdown and strategic offshoring

In 2000-01, when the dotcom, wireless and optical networking businesses collapsed across the US and Europe, the software industry was caught on the wrong foot. Over the next year and a half, however, the top software companies launched a drive to reposition themselves as partners of their global clientele in their cost-cutting efforts.

In the process, frontline companies have increased their engagement/deal sizes and offshore outsourcing has become mainstream to most blue-chip multinationals which have worked with the India model. To supplement software services, IT-enabled services — involving delegation of non-core activities to an external vendor — is emerging as a strong revenue driver.

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