| |
Indian IT changing global offshoring
game
By Indrajit Basu
KOLKATA
- "I must salute Indian IT companies," said Mike
Melenovsky, head of research services of International
Data Corporation, at a recent outsourcing conference in
Delhi. "They have changed the course of the industry.
When large outsourcing contacts are given in the US, the
bidders are asked what their offshoring strategy is. And
the Indian model is now being written right into the
contract."
The word "slowdown" may still be
doing rounds in the US - as well as in many other
countries - but for the Indian IT industry, it's all
systems go. Indian software giants are bagging bigger
and more complex orders than ever as US multinationals
fight the slowdown by offshoring projects. And no one
less than Bill Gates of Microsoft is declaring it. "US
multinationals are offshoring more and more larger
software projects to India, and that's why Indian
companies are growing in terms of volume and revenue,"
said Gates while in India recently. "They're moving up
on both size as well as complexity of projects they
take."
As slowdown continues globally, more and
more companies have indeed started offshoring a
substantial part of their jobs to India. For instance,
recently, two of India's largest IT software companies,
Wipro and Tata Consultancy Services, together snared a
three-year US$70-million contract from financial
services giant Lehman Brothers. A few months ago, TCS
won a $100 million contract from GE Medical in the face
of stiff competition.
What's more, global
companies are making moves unthinkable a few years ago.
Sources at the National Association of Software Services
Companies (NASSCOM), India's IT industry lobby, say that
a RFP- request for proposal - for close to a $1 billion
contract over a five-year period has already been
floated, and companies in India are now being evaluated.
And the list of companies making a beeline to
India reads like an international corporate Who's Who.
There's everyone from PepsiCo to fast moving consumer
goods giants such as Procter & Gamble and Kodak. And
there are others like British Petroleum, GE, HP,
Northwest Airlines, and telecom major Lattice, and even
the German army.
NASSCOM, which has been closely
documenting the changes overtaking the industry, reckons
that in the next 12 months, 30 percent of work (over $3
billion) in the software services industry will come
from offshore orders, each worth over $25 million a
year. "Two years ago, the size of contracts was $10-15
million, on an average - at that too, this was
distributed among several IT companies," said Sunil
Mehta of NASSCOM. The association also predicts that the
number of customers with projects of over $5 million a
year will leap by at least 10 times in the next two to
three years. And Merrill Lynch, the financial services
giant, says that the total global IT spend outsourced to
India would double this year: to reach 6 percent in
fiscal 2002-03, compared to 3 percent in 2001-02.
Huge contract size is just one side of the coin.
Indian companies are also grabbing more complex software
projects: ergo higher margins that result in fatter
bottom lines. According to Mehta, "Earlier, we were at
level one with a large global share - 13 percent to 15
percent - in areas like customer application development
or application outsourcing. We had a below 1 percent
share in more complex areas like systems integration,
network infrastructure management and packaged software
support and installation. But for the first time ever,
projects - which by their very nature are large and
long-term - are coming to India."
eInfochips, an
Indian designer of microchips - a highly secretive task,
is a perfect example of this trend. Close to 90 percent
of eInfochips' work now comes from foreign offshore
seekers, while not long back, say eInfochips officials,
no client would have entrusted such key work to an
Indian company.
But if there is still a slowdown
in US, why are companies there pushing bigger and
complex IT projects to India? "It's cost, simple," says
Vijay Gupta, vice-president, Wipro. "In the environment
of budget freeze, companies look to do more for less.
The purchasing power parity of offshore execution offers
cost advantages for US and European companies to meet
their software requirements from India." For instance,
sources reckon that offshoring to India can result in a
cost savings of 40 percent.
However, it's the
biggest Indian companies that are bagging the largest
orders. According to Infosys president and managing
director Nandan Nilekani, "International companies have
become more risk-averse, wanting to work with fewer
suppliers with the full range of service. Infosys' size,
brand, financial strength, longevity, end-to-end service
offerings all help us to get that business."
Thus, even as the rush of larger projects to
India is good news for India's biggest companies, for
second-tier companies, it could spell trouble. According
to Gartner India analyst Ravindra S Datar, foreign
customers have started discriminating between big
software service players and others, which could
increase competitive pressure in both the global and
local markets for the large majority of smaller players.
That might be a cause of worry, but for the
moment, though, no one is complaining. Especially when
the richest man in the world has just announced an
investment of a staggering $400 million in India - the
largest investment outside the US for Microsoft, and
said that he considered this country to be the "software
superpower" of the world.
(©2002 Asia Times
Online Co, Ltd. All rights reserved. Please contact content@atimes.com
for information on our sales and syndication
policies.)
|
| |
|
|
 |
|
