Can Indian Outsource biggies survive and thrive in global recession?

January 7, 2009

When recession occurred in US after dot-com bust Indian outsource companies thrived and got many outsource projects from US companies. During that time Indian outsource companies were relatively small and they responded well to get outsource projects from US businesses by marketing “Cost Reduction” as the main selling point. But this recession is completely different, started in subprime mortgages, moved to financial institutions, and widened to all business segments in US. Obviously US businesses have cut-down their payroll expenses by layoffs and reduced other expenses to fight the recession. The recession started in US now widened to the entire world impacted Indian outsource companies significantly and they are struggling to maintain their reduced growth targets for this year.

Labor arbitrage outsourcing
Can Indian outsource companies use the same “Cost Reduction” as a marketing mantra to win customers?
Of course not, Though US companies want to reduce their expenses; cost cutting alone can not win customers. During dot-com bust, there were less global outsource companies in the market but now as per Gartner more than thirty countries like China, Philippians, Russia, Mexico, Czech Republic, etc are marketing aggressively to get the piece of the outsource pie. Also now US outsource companies like IBM, Accenture, HP-EDS all have outsource centers in India and they can compete aggressively with Indian outsource companies on price.

How Indian IT outsource companies can compete?
Indian outsource providers must move up the business value chain by providing strategic outsource solutions like increase business efficiency and effectiveness, reduce business risk, reduce product development time, etc. Gaining market share in strategic outsourcing is not easy, Indian companies must compete aggressively with consulting giants like IBM, HP-EDS, Accenture, Mckinsey, KPMG, Deloitte & Touche and CapGemini, etc. These companies have been advising clients in many countries on strategic initiatives for several years and have gained significant business vertical expertise in solving complex business problems. In addition, these companies have good relationships with the business’s board of directors and can target their marketing efforts efficiently.

Following are some of the ways Indian outsource companies can compete with US consulting companies:

1. Indian outsource providers can buy niche US based consulting companies to gain market share in niche vertical markets. With the current depressed assets, cash rich Indian outsource companies can buy smaller companies for less price. Simply hiring marketing staff to market will not help and they need strategic consulting expertise to compete with big US consulting firms.

2. With the current financial melt-down several business mergers are started in financial industry and it will accelerate in the coming years. Due to mergers and acquisition there will be huge demand for business process changes in front, middle, and back offices, Indian outsource companies should market their strategic consulting, ITO, and BPO solutions aggressively to win new outsource projects in the financial industry.

3. Similar to financial institutions there will be mergers and bankruptcies in other industries will give huge opportunities in business agility and technology integration projects. Indian outsource providers should hire experienced middle managers with deep business process and regulatory knowledge and market their experience to customers to make their businesses efficient and reduce their future business risks.

4. Until now Indian outsource vendors have been marketing their BPO and Information Technology outsourcing (ITO) services separately. In fact, these two units have been operating independently and they should integrate them and market as one-service offering to customers. Integrating BPO and ITO helps to market higher value services like business process transformation, business process standardization, business process efficiency, consolidation of IT infrastructure, etc. In pure BPO, the pricing is associated with number of seats per hour, which is fixed so in short-term they may lose their BPO revenue as the number of seats reduces due to increase in business efficiency and consolidation. But in the long-run Indian outsource providers can gain more market share and charge more for higher-end outsourcing services.

5. Software as a service (SASS) and outsourcing (both BPO and ITO) business models are colliding with each other. SASS model is gaining popularity in niche vertical markets and SASS providers are already targeting offshore outsourcing customers to gain market share. Except for TCS BaNCS and Infosys Finacle, none of the other Indian outsource providers have software products to offer to customers. Even these two products may not be ready for SASS model. In any case Indian outsource providers must buy and/or collaborate with SASS providers to market their hosted application services and combine it with traditional outsourcing solutions.

6. For some reasons, big Indian IT vendors are not actively participating in Open source software design and development efforts. Open source software is growing steadily in organizations all over the world. Now is the time to use their talented employees to work on open source projects if they are not fully utilized in client’s projects. In the short-term, they may not gain ROI but in the longer run, open source efforts will create innovation and niche market acceptance from customers. For example, TCS has been involved in open source efforts in bio medical field; other Indian IT companies must follow TCS.

Indian Outsource Companies

7. I have already blogged about how Indian IT majors can focus on local outsource market in India.

8. Several reports have discussed how Indian IT companies can target other untapped regions like Japan, France, and Middle East to reduce their US dependency. But not sure how for this strategy will work, issues like language barrier, policy regulations, trade protection, etc. will slow-down the outsource market penetration. Also still US is the number one country for Indian outsource vendors to spend their marketing dollars.

This global recession will not significantly alter the global sourcing models for the Indian outsource giants but 2009 will be slow growth for them. Indian outsource companies do not have a choice but to respond to the current economic conditions. The offshore outsourcing is moving in so many different ways due to global recession, competition, business mergers and acquisitions. Indian IT companies should act fast and compete aggressively with both US based strategic consulting companies and also with other low-cost outsource providers from several different countries to stay competitive and come out as a winner.


9 Responses to “Can Indian Outsource biggies survive and thrive in global recession?”

  1. Can Indian Outsource biggies thrive in global recession … on January 8th, 2009 2:50 am

    […] Originally posted here: Can Indian Outsource biggies thrive in global recession … […]

  2. Mark on January 8th, 2009 11:58 am

    Good Blog, but you missed one point, with new President Obama there will be lot more initiatives from companies to go for green computing. Indian outsource companies must adapt to green computing to win more customers and it is their social responsibility to the community. Soon companies will add “green clauses” in their outsource contract and all the outsource companies must practice green outsourcing.

  3. Mani Malarvannan on January 9th, 2009 5:32 pm

    Hi Mark,
    I agree with you, Green Outsourcing is going to be big in the coming years; new government under President Obama will put lot of pressure for companies to go for green computing and outsource vendors who embrace green outsourcing will benefit by getting more businesses from US customers. Companies like IBM and Accenture have already launched green computing initiatives and other vendors must also do so.

  4. Murg on January 15th, 2009 12:13 pm

    All the point you provided are good except the following:
    I don’t agree with your suggestion that Indian outsource companies shouldn’t market their services to non US countries. I think it is a good strategy to target non-US customers in fact they’re already started targeting countries like Japan to get outsource business from them. Check out this article

  5. Mani on January 25th, 2009 3:56 pm

    I’m not sure how much business Indian vendors can get from non US and UK customers. Yes, there are opportunities in countries like Japan, France, Middle-East, Germany, etc, but not sure the volume of business they get from these countries. You have limited marketing budget and you need to use it to get maximum value out of it.

  6. Wipro on January 25th, 2009 4:08 pm

    Some of the points you mentioned in your blog, Wipro has been doing it for a while. Wipro’s Performance And Capital Efficiency (PACE) offers Product/Process optimization, Application Optimization, Infrastructure consolidation, SASS, etc. to increase shareholder value in these tough economic situations. PACE goes beyond survival and sustainability of company and transforms the business to thrive in uncertain economic climate.

  7. Indian outsource vendors will Thrive on May 24th, 2009 6:46 am

    Did you read the news that Infosys is planning to hire 1000 new employees in US, Wipro CEO told that business is slowly improving. Big Indian IT vendors will survive and thrive once the recession is over

  8. The Philippines: India's outsourcing step child | Outsource Portfolio on May 31st, 2009 9:42 am

    […] the Philippines remains a clear leader over Indian outsourcing vendors and other rivals for the quality of the voice related work done there and has a head start over […]

  9. Why throw away a good slowdown? | Outsource Portfolio on June 7th, 2009 6:06 pm

    […] the US financial services slump was a wake-up call for Indian outsource vendors. In 2006-07, the dollar averaged Rs.45.05 to a dollar. In 2007-08, it averaged Rs.40.4. That’s […]

Got something to say?