The next frontier for Indian IT industry

The Indian IT outsourcing industry has grown phenomenally over the last decade. Especially in the last five years, the top 5 service providers have been adding almost $1 Billion a year to their revenue. Though the strategies differed vastly in terms of pricing and business models, and verticals there was one thing that was common – The profile of their client roster. Started with Fortune 500 and only expanded to Fortune 1000 companies. About 400 of the Fortune 500 companies leverage Indian service providers in some form or manner. Until recently, the Indian service providers wouldn’t even care to attend to a customer who had a sub $10 Million project to outsource. Not that the $10 Million customers were treated like maharajahs. The sales teams were focussed on adding marquee logos as it looked good on their resume and also offered the bosses an opportunity to claim that they were getting high value - high potential accounts. Even today the Indian service providers keep talking about winning “large deals” more than any other sales strategy.

But things are changing now. The large buyers (Fortune Club) are consolidating their portfolio, upgrading legacy systems to modern IT and importantly insourcing either back to the HQ or through their own captive centres. All the three initiatives are focussed on reducing the professional services spent in IT. The other big spender – the Government sector, is curbing offshoring through policy interventions. Now the Indian service providers are scrambling for work. With mounting pressure on top line and growth rates, they are looking at newer avenues to grow.

Globally, Mid-Market segment is the economic powerhouse. Be it the US or Europe, the mid-market segment contributes to close to 40 per cent of the GDP (private sector ) of the developed nations and accounts for more than 35 per cent of the employment. It is quite surprising that the Indian IT service providers do not have a stated strategy for this segment. The mid-market segment has a great potential both from the Product Engineering and IT perspective. According to GE Capital, the estimated R&D investments by the mid-market companies in EU alone is estimated to be 370 Billion Euros. Though they have the investment appetite, the key challenge that these companies face from an R&D and Engineering standpoint is talent shortage. Either the companies are not able to find the right skilled talent or they are unable to attract top talent. Indian service providers have plenty of “top talent” and these days, I wouldn’t be surprised even if we find them in bench! Mid-market companies are yet to leverage globalisation and that provides a great opportunity for Indian service providers to tap into. So, “abundant talent pool” is still a winning proposition!

In terms of IT services, the mid-market companies want solutions that are cheap, reliable and scalable – All the three can be offered through the modern IT (Social, Mobile, Analytics and especially Cloud) today. New technology investment ranks way high up in terms of business priorities for this segment globally. Some of their key requirements in the order of priority are in the areas of ERP, analytics, customer relationship management. These companies do not take the traditional route of going with established products and solutions.

They are willing to experiment and bet on the next big players. Especially given that Indian service providers like Infosys have a stated intent to get more revenues from the products, platforms and solutions business – mid-market is a perfect customer segment. However, instead of pushing ahead on this strategy, companies seem to be taking the foot off the pedal. Even TCS iON after a much publicised beginning has not gained traction.

The dynamics of working with mid-market is very different as compared to the traditional enterprise segment. One needs to identify channel partners and local providers and take a hybrid strategy. Near shore facilities are a must to cater to this segment. It is important to remember that most of the mid-market is “owner” driven companies. There is a single decision maker in many cases – in a way it makes the lives of sales force easy.

They will not talk about outsourcing everything; they want a hybrid strategy as the teams they have built are through family and friends and importantly the community they thrive in. They have deep domain and engineering expertise. They want help across the spectrum right from design to all the way up to development and support. So selling specific services will not work, one needs to always take a holistic sales approach. Probable conversation with a mid-market customer for an Indian service provider could start with explaining as to how they could be the go-to-market partner for the Indian market. The sales force needs to be empathetic. A very different breed of sales personnel and a humane sales strategy I would say. But, in my opinion, the investment in this customer segment will be best served.

With dreams of expanding their business at a global scale, the leadership teams of mid-market companies realise that globalisation is a perfect vehicle. Given that Indian service providers have a good experience with globalisation, it is time they harness this potential.

(The writer is Manager-Consulting at Zinnov)

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