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Krishnan Thiagarajan
Bharat Kumar

Stephanie Moore, of Forrester Research, on what the Indian software scene holds.

STEPHANIE Moore, Vice-President, IT Services Research Group, Forrester Research, is one of the discerning analysts tracking strategies and trends in the global sourcing arena.

Bringing to bear several years of experience and advice on technology and outsourcing strategies, both at Forrester and Giga Information Group (prior to its merger with Forrester), Stephanie speaks with authority on the slow attrition tussle that is taking place between multinational (MNC) and Indian frontline vendors in the offshoring space.

At the recently concluded Nasscom 2005 conference at Mumbai, eWorld had a candid talk with her on vendor turf wars, acquisition of mid-tier companies and consolidation that may change the rules of the game.

What is your take on the status of the industry and how is the `Indian vendor versus MNC (multinational) vendor' attrition shaping up?

MNCs did cause a lot of attrition that we have seen. But I think even though developers went from Indian vendors to MNCs, they realised that the work that MNCs did is much less interesting than the work that Indian vendors are doing.

Indian vendors want to send as much work offshore as possible. They try and push the envelope. They send the really interesting projects, whereas MNCs send only that work which they have to. Only what the client wants to — only what is low level and grunt work.

Even though they may pay a little more initially, the resource (employee) says: "My goodness, I am not going to spend the rest of my life doing COBOL code" or whatever it is.

The other issue is that the career path at the MNCs is not as attractive as that at an Infosys or a Wipro. Indians run those companies whereas in MNCs, it may not be so.

Companies such as Accenture look at their Indian centres as solution centres, so folks here aren't even on the management track. Ambitious, talented Indian developers here sometimes think, "I should go back. I can't eventually become CEO or practice director or what-have-you."

Now, US companies are dealing with attrition. There is terrible attrition and it has an impact on projects. Some clients may have vendors build in a 10 per cent buffer so that when the project turns over, there is still someone trained that can go right into the project.

But the problem is, it is impossible for vendors to provide that buffer because of the demand for their services. So we are seeing a lot of problems with service levels, with clients being dissatisfied with the attrition levels on projects. That is the key decision criteria when they select vendors.

Typically, MNC strength stems from relationships being multicultural, from the companies' lineage. Indian vendors are strong on process quality, scale, etc. As Indians go up the value chain, do you think revenue cannibalisation arising from moving onsite work offshore is a threat to the MNCs?

MNCs have come to terms with the fact that if they don't cannibalise, they are going to lose out to Infosys, Wipro or Cognizant. That has been the biggest struggle and internally they are still struggling. EDS is an example. Their mandate is to send work offshore. But individual sales people don't want to do it, industry practice leaders don't want to because of the cannibalisation.

As a sales person, if I can log sales of $20 million in the US as against $10 million in India, I'd choose the former, till I lose the deal altogether. In your view, will an attrition war or an M&A (merger and acquisition) take this in a different direction?

There is going to be tremendous consolidation in the Indian market. A lot of tier II (or mid-tier) vendors will be swallowed up by other vendors — be they US, European or other Indian vendors. Largely because they can't grow at the rate they need to grow organically. A company like Accenture is not going away anywhere. They have 11,000 people in India. In 2001, they had 150 people. Accenture has clearly made a massive commitment in terms of IT and BPO. At the same time, there are also going to be some winners in the Indian market. Many of them will become global players. MNCs are not going to beat the Indians. Some of them, in both Indian and MNC players, will win.

When you say consolidation, do you also mean smaller vendors falling by the wayside? What value can a small Indian player bring to another bigger Indian player?

If Infosys (as an example) needs to scale up by 5,000 people very quickly, they would require small vendors. In the old days, Indian vendors used to say, "Why would I acquire for the sake of manpower... I can always hire people!" Now, that is no longer a good argument because there are not enough qualified hires, not enough people with three-six years experience.

But valuation seems to be higher on the side. Companies that have a good proposition seem to command sometimes even higher valuation than say, Infosys. Can that prove to be a stumbling block to consolidation? Ownership is also an issue. Entrepreneurs may not be willing to sell out...

Not all of them are like that. The Cognizant and Ygyan deal, for example — that's a small deal. You'll see a lot more like that. I met with an Indian vendor who is mid-tier and is looking for a major acquisition to ramp up and create market share. It is not a public company, but wants to become a bigger company. Or say, a US company, say Bearing Point, trying to get into India through an acquisition. How about an Indian vendor acquiring Bearing Point?

Is there any need for Indian vendors to take a risk, when the going is so good, and the organic growth is good enough? Silverline's experience with Seranova may still be preying on Indian vendors' mind. What is your impression?

I think Indian vendors today are all looking for acquisitions and they are much less risk-averse than they were four years ago. They are also public companies with huge market capitalisation. So they have to acquire private companies or public companies that are doing well.

In the 1998-2000 period, a possible acquisition of Cambridge Technology Partners by a large Indian IT vendor kept doing the rounds, but it never happened...

If you want to be a global vendor, acquiring a company such as Bearing Point could be pretty interesting for a large Indian vendor. The challenge would be taking over a company that has not been well-managed. I think all top vendors have full time M&A staff that work full-time looking at opportunities. They don't do that without reason. So in 2005, we could see some interesting events. Not necessarily too many big ones, but a lot of smaller ones. A lot of Indian vendors are talking to folks to increase testing capabilities. A lot of vendors who may already have a small staff for testing may be looking for testing vendors who do have the skill and a few clients, but may not be doing that well.

Picture by Shaju John

maverick@thehindu.co.in

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