The Hindu Business Line : Making the jump

Indian software companies or large foreign companies with development centres in India (for instance, Cognizant) are growing their knowledge capabilities and winning deals beyond the traditional technology services domain.

Recent tie-ups illustrate that Indian companies are going for more than the usual IT services and BPO combination: Tata Consultancy Services (TCS) has struck deals with market research firm Ac Nielsen and Formula 1 racing team Ferrari, Satyam has signed up with Fifa, and, in a multi-vendor strategy, TCS, Genpact and Cognizant have teamed up with Kimberly Clark, the US- based health and hygiene company.

Beyond utility business

As Indian companies expand their domain capability (and credibility) in various verticals, they will increasingly be in line for such orders, says Partha Iyengar, Regional Research Director, Gartner. “It is a natural evolution/move up. They have to take up such work if they are to move to higher profitability/higher revenue opportunities away from the ‘utility’ business that is their ‘bread and butter’ today.”

Indian companies also have greater visibility and credibility globally now, and there is sometimes more ‘cachet’ in working with a top-tier Indian provider now, as opposed to one of the ‘traditional’ providers. “However, these opportunities will, I believe, be open only to the top five-eight Indian companies and not the lower-tier companies,” he adds.

Typically, the expectations will be for a higher level of domain and business skills and competence being brought to bear on these projects, as opposed to only technical or low-end transaction processing skills. In some cases, these may extend to high-end BPO deals (what the industry calls knowledge process outsourcing or KPO), which need domain and business capabilities in the specific industry and, often, geography as well, says Iyengar.

Along path of evolution

Traditionally, the growth of the Indian IT industry has largely been driven by three major industries: BFSI (banking, financial services and insurance), telecommunications and manufacturing. But because of the success that clients in these industries have seen, coupled with business pressures, newer industries such as pharmaceutical, media, consumer goods and transportation have begun adopting global sourcing strategically, and more from India, says R Chandrasekaran, President and Managing Director, Cognizant.

The Indian IT industry has evolved over the years. In the 90s, it focused on simple application maintenance, application development and solutions such as Y2K. With the advent of the Internet and mobile technologies, it transitioned to the Web and the wireless and expanded offerings to include complex application development, testing, remote infrastructure management (RIM), business/knowledge process outsourcing, CRM (customer relationship management), engineering services/embedded systems, and business intelligence, he says.

Take, for example, the pharmaceutical industry. With the pipeline of blockbuster drugs diminishing and large-scale consolidation, there is intense pressure on increasing revenue and profitability, reducing operational spend and enhancing research and development throughout. These pressures have pushed pharmaceutical companies to look at global sourcing not just for their IT and BPO requirements but also for their core processes in the pharmaceutical continuum — discovery, clinical, manufacturing and commercial operations.

The top 20 pharmaceutical companies are looking to global partners — right from supporting their research and development (clinical trials, clinical data management) to commercial operations (analytics, modelling and forecasting). Similar pressures are driving other industries also to embrace global sourcing, which is benefiting the Indian IT and BPO industry, he says.

Given the talent pool and expertise in domain, technology and processes, Indian IT companies are increasingly becoming eligible to build stronger customer businesses in newer industries.

For instance, in the healthcare and pharmaceutical practice alone, Cognizant has over 10,000 dedicated professionals, including doctors, pharmacologists, physicians, biomedical engineers, pharmacists, biostatisticians and medical writer consultants providing domain-aligned consulting, IT, business process and analytics solutions globally.

Growing in the game

An interesting deal in 2007 was that of Satyam signing as a FIFA World Cup Sponsor and the official information technology services provider to the FIFA World Cup. The Hyderabad-based IT company will partner the international football association for the 2010 World Cup in South Africa and the 2014 edition in Brazil. The support also covers the FIFA Confederation Cup tournament.

Satyam is one of four FIFA World Cup sponsors announced for the 2010 event and is the sponsor in the IT services category. Satyam will provide FIFA with business and technology services. The company has not disclosed the deal size.

Indian companies started with the cost arbitrage advantage. Today, customers are looking for more and the confidence level and expectations from India Inc and Indian companies have gone up. The establishment and growth of multinational companies — both consulting companies and industries — have reinforced this. Dupont and ArcelorMittal setting up their core research and development centres in India for their global market, and IBM and Accenture’s commitment to grow their size here are a few examples, says Subu D Subramanian, Director and Senior Vice-President, Manufacturing and Automotive Business Group, Satyam Computer Services.

For Indian companies, it has been an on-going process to innovate on service offerings and provide the same with a global delivery model — from Y2K to ERP to engineering and so on. Exploring new markets will happen in three dimensions — newer verticals with domain competency; newer geographies with local capabilities and newer service offerings with new competencies built organically as well as inorganically.

Better growth and profitability compared to their American or European counterparts enable Indian companies to consider bold acquisitions for new capabilities to address emerging opportunities. The newer deals clearly represent opportunity on the table for the Indian companies, says Subramanian. Clients expect new services beyond the traditional technology services: Solutions that will have business impact – for example, integrated IT and BPO solutions and integrated engineering and manufacturing solutions.

Indian companies need to take the turnkey approach as risk sharing partner, he says.

A decisive clincher

In one of the biggest IT deals for an Indian company in 2007, TCS signed a $1.2-billion 10-year agreement with Nielsen, the global information and media company. TCS will assume responsibility for important IT and operational processes and help Nielsen integrate and centralise multiple systems, technologies and processes on a global scale. TCS will also assume responsibility for certain finance and human resource business processes, which will be executed on new BPO platforms built by TCS.

According to Ravi P.V. Viswanathan, vice-president and head of Chennai operations for TCS, Indian IT companies have had a ‘tremendous’ record in bringing efficiencies to the business processes of customers. A combination of process efficiency and quality has become the brand dimension of Indian IT companies.

A deal like Nielsen was the ability of not only understanding the processes of Nielsen but also to apply technology to drive new business models. It is the ability to look at “how we can use business process outsourcing, knowledge process outsourcing, IT and RIM’ to help the customer’s business.”

Today, tier-one companies can take up large deals without margin erosions.

“Ten years ago, TCS could not have won this deal even if the value proposition was the same or even stronger than what we have today. Clearly, in such deals, track record, brand, value proposition matter and scale and size become key enablers,” says Viswanathan.

Domain expert numbers

V. Balakrishnan, Chief Financial Officer, Infosys, says Indian companies have emerged as the best option for clients when it comes to outsourcing and offshoring. By entering into new terrain, companies are de-risking their dependence on traditional sectors such as BFSI and telecom.

The industry is moving from the ADM (application, development and maintenance) model to more of value-added services for growth and profitability.

But do we have enough numbers of domain experts? Balakrishnan says for complicated deals domain people are not required in large numbers. Experts of around 500 will only be at the front end, while the execution will happen in India.

raja@thehindu.co.in

The quality pull

Michael R. Guilbault, Senior Research Analyst-Managed Services, AberdeenGroup, a Harte-Hanks Company, says Indian companies are taking on new and complex deals because outsourcing is now an accepted mainstream activity and the best vendors have delivered ‘extraordinary value’ by leveraging both professional talent and process efficiencies to exceed end-user expectations.

Aberdeen research shows that clients considering outsourcing higher-level professional activities are motivated less by cost and more by the desire to improve service quality, access professional resources, increase delivery capacity and shorten time-to-market, he says.

More Stories on : Software | Insight | Outsourcing

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
With you, right through

Making the jump

SiRF impulse? No way

‘Adopt customer value management’

Retrieving important files

Quiz

From ‘supply chain confusion’ to competence

Cartoon

Wristwear

Call of clarity