Is it time for Indian IT majors to focus on the local outsoruce market?
October 28, 2008
IBM’s India strategy of concentrating in the outsourcing and BPO services from Indian companies is working well for them. Last month IBM and Bharati Airtel signed an outsource agreement in which IBM will provide customer service support to Airtel’s top-end customers. Recently Bharati outsourced all the IT support and services to IBM for its Sri Lanka operation. For the 2008 third quarter, IBM reported a 24 percent increase in revenue from its Indian operations. Like IBM, HP’s Indian subsidiary won outsource deals with Godrej, Bank of India, Britannia, etc. Similiary MNC software companies like Oracle, Microsoft, and SAP won major outsource deals with the Indian companies.
So far none of the big Indian IT companies like (Tata, Infosys, Wipro, Sathyam) paid attention to the local market. Very few outsource deals were signed by the Indian IT majors, Wipro won $600 million infrastructure outsource deal from Airtel and TCS won $140 million on the BSNL contract. Infosys has yet to sign a major outsource deal from Indian companies. Maybe they might have thought that focusing on the small Indian market may not be worth the effort comparing with global outsourcing market. But the small Indian market is offering large multi million outsource contracts just like UK and US. The Indian IT and BPO market grew 42% in the year 2007 and it is forecasted to reach $23 billion as per Nasscom.
One of the major advantages for IBM and HP is that they can offer packaged solutions to its customers like Airtel. They can offer services that consist of software, hardware, infrastructure, BPO, etc., as a packaged deal along with their usual outsource consulting services. Similarly Oracle and SAP sell their software solutions along with their consulting services to the Indian companies.
Indian IT majors do not own either software or hardware to sell; they have been differentiating from their global competitors with their process innovation, CMM quality standards and global delivery model that suits well with their foreign customers. In BPO, with the right mix of onshore and offshore teams they chop the business process value chain into manageable units, offshore it to India, finish the sub process and integrate it back into the overall business process value chain. Similar strategies worked well in IT outsource projects as well. With the right mix of onshore and offshore teams along with proper tools they gave great labor arbitrage to their global customers.
With the current global financial meltdown, Indian IT companies do not have a choice and they need to target the domestic outsource market to maintain their revenue growth target. They need to modify or customize their global delivery platform to suit the local companies and give better value proposition than MNCs. If the existing global delivery model does not work, then they have to create a new local delivery model that suits the Indian businesses. If they don’t act now then they will miss the biggest outsource opportunity to their MNC competitors forever.