The Hindu Business Line : ‘Experience will call the shots’

Dennis McGuire’s recent nomination to the Outsourcing Hall of Fame says how important he is in the IT outsourcing industry. The fact that he has been to Mumbai every February these last three years tells you how important India has become to the outsourcing industry in that time.

McGuire co-founded TPI, which advises clients on transforming their businesses. TPI’s area of expertise includes IT outsourcing, should it be recommended as part of the change.

Two years ago, McGuire had indicated that 50 per cent of all offshoring transactions would accrue to India-based service providers. Now, he says a significant portion of that market has come to Indian heritage providers. It has exceeded all expectations.

US Slowdown

Offshoring remains solid. As to discretionary spending and spending on new systems capacities, you might see a slowdown. But non-discretionary spending could just speed up. Over all, the market is going to be up, and competition between India-based providers and traditional US companies is going to get a lot more intense.

Employee ramp-up in India

I see a significant rise in the compensation for those with seven years of experience and above. The ability to leverage junior people has been there but you can’t sustain that kind of thing for long. As Indian-heritage companies (or India-based vendors such as TCS, Infosys and Wipro) seek to offer more value-added services, they need to get in more experienced people (facing the customer).

Mega deals: After ABN Amro’s deal announcements with IBM, TCS and Infosys, we have not seen too much action.

Those are still happening. Indian companies have been instrumental in changing the model, (with the offshore perspective). They started small in the area of application maintenance and development and have then expanded. It is a different strategy, from doing large deals straight away. That approach has taken a lot of risk out of the exercise. Smaller deals have been (profitable). (Till now) there has been no need to do large deals.

That is slowly changing. Most large deals are now emanating from Europe. That is (also) catching up.

But what we are now seeing is more competition. The likes of IBM and Accenture are doing well with their bases in India. So you have three solid MNCs, five well-established Indian heritage companies. There is going to be intense competition.

That would impact margins, which would shrink. Indian companies must now invest more in onshore sales and delivery, which is more expensive than investments they have made in the past. Add to that the pressures of the rupee-dollar seesaw and increase in salaries.

The MNCs have reached critical mass now (in terms of manpower count) in India and are now as good as their Indian competitors. The India delivery advantage is a given. The competitive advantage now lies with client relationships. That is now more in favour of the MNCs. So, the game is changing.

Should Indian companies start doing things differently?

All the top Indian companies have been doing well. But to take an example, look at Infosys. It has been the most timid among its peers (in terms of acquisitions). It prefers to focus on margins than expand into new areas, such as Remote Infrastructure Management (RIM). Wipro has been prudent in its acquisitions. The Infocrossing acquisition is a good one. Cognizant has a realistic profit margin.

Risk-reward sharing between clients and vendors?

The going there is very slow. Indian companies need to catch up. If you look at such contracts it is essentially time & material in most cases, under the surface. If you look at managed services, there is additional risk, they are hard to service and hence there is pressure on margins.

MNCs are a little ahead there. Also, Indians so far hadn’t the need to get into such contracts till now. It sounds easy but is a whole new mindset. It’s more complex to manage than a T&M contract. You can’t have too many more junior folks versus senior people. You have to provide a solution, not people.

Clients want a cake. So far Indian companies have only been providing the egg, flour, and the like to the client. Now, the client wants the entire cake delivered, with a happy birthday song, the works. It’s a harder mindset change than people imagine.

Any verticals hit harder than others, by the slowdown?

Healthcare has grown. So have entertainment and media, likewise for business services. Despite the concerns in the automobile sector, there seems to be tremendous growth for engineering services as well as for legal services. In the last 12-18 months, there has been an increase in the purchase of such services. When you have to speed up cost savings, there is bound to be an offshoring thrust.

bharatk@thehindu.co.in

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