The Hindu Business Line : Optimistic note

The India advantage in the offshoring story is thinning, says the latest report by market research company Forrester. There is an increasing ‘chorus of dissatisfaction’ against Indian offshoring vendors due to various reasons, cautions the report, which also predicts a rather bleak start to this year following the economic recession in the US.

eWorld raised these issues with Krishnakumar Natarajan, President and CEO-IT Services, MindTree.

Natarajan brushes aside fears and says India is on track to becoming the hub of IT services. Over to Natarajan:

The latest Forrester report says the quality advantage of offshore providers versus large onshore services firms is diminishing. Offshore providers seem to be losing out on the value-for-money count as well. Would you agree?

I do not think the quality advantage of offshore providers is diminishing. Increasingly, partnering for offshore services is becoming strategic to enterprises. and hence it is no more an initiative managed by the CIO.

It’s clearly become an initiative that is being tackled at the Board level. Hence there is a lot of interest as well as investments for making the offshore programme a success.

I would think that offshore service providers are gaining more and more confidence and credibility in providing significant value-add to their customers. The pitch of offshore service providers is moving away from cost arbitrage to value creation and I see that their impact is increasing dramatically.

Clients are increasingly dissatisfied with Indian offshoring vendors. The reasons cited are mounting costs (such as power, real-estate and hotel room rates), poor infrastructure, unrealistic career expectations of Indian staffers, attrition, changed political agenda, natural disasters, social tension, disruption of work due to riots and terrorism. Your take on this..?

I am not sure the dissonance indicated in the report is more arising out of issues that are being faced by captive centres.

Increasingly, captives are realising that running an offshore operation is not just creating infrastructure and hiring a few people, but it involves significant enhancements in their methodology as well as requires specialised management and organisational capability.

Since many companies have started captives purely with the intention of creating a centre with no long-term vision they have not been able to handle issues of career expectations of Indian staffers as well as cost increases and hence this is purely dissonance from captives. It is a commercial fact that captives below a certain scale will not make business sense and some of the dissonance is due to wrong judgments and decisions made and it, in no way, impacts the economic viability or the significant value-add that offshore providers continue to provide their customers on an ongoing basis.

Increasing complexity of work has exposed the Indian workforce. Skill availability has gone down. Education and skill-building initiatives have not taken off the ground. How far is this observation true?

I think increasing complexity of work is a great advantage for the Indian workforce. I would totally disagree with the notion that skill availability has gone down. We should look at the share of R&D spend by many of the top technology organisations and see how many are leveraging on Indian talent for their R&D. The premise above will be totally negated when you look at this data. If you look at a company, say Cisco, the investment that it has made in India in the last two years has been a testimony for the value it is getting from the skilled Indian force.

I believe that the quality of talent is very good and increasingly more and more companies are strategically investing to build this talent and India will become the new hub for innovation in the high technology space.

The broad mood in the offshoring industry is a bit dull, in the wake of the economic recession in the US. A pall of gloom will loom over the future too, at least for the first half of 2008, predicts the Forrester report. How will you prepare to tackle this forecast as a company involved largely in offshoring work?

I do not agree that the broad mood in the offshoring industry is dull. There have been issues with one segment of industry which has primarily been impacted by the sub-prime crisis. In several other industries, we are seeing customers who are looking for more cost efficiency but clearly are not talking of ramping down on their budgets. In every decision where customers are looking at more cost-effectiveness, offshoring is becoming a viable alternative and to that extent I anticipate that the current issues in the economy will only be beneficial for offshore providers. This is certainly the sense that we get from the customers and I can confidently say that the demand scenario is unlikely to go south.

Again, the current slowdown is very different from what we faced in 2001. In 2001, because of 9/11 and a host of other factors, every broad segment of the economy was impacted by the slowdown.

We have a different scenario where the key business issues are with specific segments and assuming that there is going to be a slowdown, I do believe that it will be temporary and will not impact the Indian offshoring industry.

The uncertainty in 2008 will centre around the offshoring budgets of clients. Discretionary spends will get cut. There will be slowing growth for US purchase of IT goods and services in 2008. New projects may suffer. There will be a slowdown in larger deals in the first half. H1 will be tough. There will be potential acceleration in Q4. What is your reaction to these predictions?

I think the picture projected is gloomy without proper understanding of the underlying market dynamics. If you have seen the recent Gartner report, Gartner clearly indicates it is unlikely that even if there is a slowdown, it will impact the offshore companies. If you look at the overall portfolio of the business Indian providers have addressed, a good part of it is sustenance and maintenance and since the companies need to run their organisations, the investment in those will continue to happen.

However, the customers would start demanding better efficiencies in those services.The overall budget for discretionary spending may go down but models like offshoring, which will deliver business value to clients through a more cost-competitive model, will certainly tend to thrive and if at all there is a threat, the threat is for organisations that have a strong onsite presence.

The report says Indian vendors should ramp up and focus on higher-growth accounts. It emphasises on the need for specialisation and differentiation. As a vendor, what strategies do you adopt?

What the Forrester report indicates is nothing new. As an organisation, we have always believed in focusing on specific domains for which we want to be global leaders.

We started as an Internet solutions company and we continue to be the market leaders in that space. We have added a couple of other businesses such as data warehousing, business intelligence and testing, etc....We are also very focused on domains such as manufacturing, travel and transportation, capital markets, insurance and target customer acquisitions in these domains. We believe in bringing in significant value-add to customers in these specific domains. Hence, Forrester is articulating something we have built as a part of business strategy in the last nine years.

The offshoring game has changed a lot today but lot of Indian vendors have not ramped up their strategy to meet the challenges. They need to project more than just the low cost advantage. They need a ‘dramatic front-end’ to articulate themselves. What have you done to keep up with changing circumstances and challenges?

The Forrester suggestion is valid. However, MindTree was started with the premise that we need to have a strong front end with consulting capabilities. It was a part of our genetic inclination and we started as a company that would provide end -to-end solution for customers with a very strong front-end capability. In our IT services business, we are strongly consulting-led and in our R&D services we are strongly IP-led and this provides the differentiation as well as the ability to deliver value for customers and domains, which we focus on. So I do not see any transition issues involved in the MindTree context to undertake such a path to become a billion-dollar company.

What’s the road ahead? How do you see the offshoring industry in the future and what will be India’s role in it?

Customers are increasingly looking at agile and attentive service providers who have the right attitude to partner with them and help them make their offshoring initiative a great success. Hence, I do see that for the offshoring industry CAGR of 20-plus per cent is achievable. Across the world there are very few industries that can think of market growth rates which are around 20 per cent.

India being the leader in the offshoring game with 65 per cent of market share in the application development and maintenance market will continue to be a leader in this space. As companies gain scale, cost of key inputs, such as communication, are on a downward trend. India will continue to be a cost-competitive location for the next four-five years. There will also be issues like talent availability and the abundant talent pool available in India itself would be great source of differentiation which will sustain its leadership position.

Indian organisations are also reinventing themselves to become strongly domain-focused and this will get them a status of trusted partners with customers. This will also provide continuity as well as predictable revenues for Indian organisations.

I see India become a key hub for services, which needs to be delivered with high quality and cost competitiveness. Indian companies will expand delivery centres beyond India and I see the Indian IT Industry sustaining its position as the global leader in this space.

swetha@thehindu.co.in

More Stories on : Interview | Off-shore Development

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

Stories in this Section
Modern face of historical city

Wave the Web wand

Nurturing talent and health

System trouble

Optimistic note

‘Improving by the day’

More nests for your eggs

Quiz

Cartoon