“Cost arbitrage is not a factor in India, but availability of competency and scale is”

 

The Indian IT outsourcing industry is going through a transformation. At the one end, the big 5 holds its sway taking the larger share of the pie. But tier 2 services companies are also upping their ante and offering range of differentiated services. In an interview with DATAQUEST, Sumit Sood, Vice President - Middle East & Asia, Virtusa Corporation talks about the how tier 2 companies are taking onto market trends and offering significant value. Excerpts 

If you look at the overall IT outsourcing market- what are the key current trends you see? Are CIOs exercising caution in terms of IT spend? What are they investing on in terms of technology?

The end customer demography as well as the enterprise needs to serve that demography are very different in India, just like most emerging / fast growing economies.

Cost arbitrage is not a factor in India, but availability of competency and scale is. This builds up the base case for outsourcing within India. More importantly, the Business & IT teams in Indian enterprises look for innovation - Time to market & ability to handle large volumes are critical. The number of policies an insurer in Europe might be servicing across 10 countries would most likely be lesser than what some of the insurance providers in India service....and service these across a diverse portfolio of buyers where the needs vary from state to state.

The current market conditions are compelling and enterprises are taking a cautious approach towards their technology budgets. But they are keen to spend on emerging technologies such as mobility, data analytics and cloud computing, where they see a lot of business potential.
According to a new report from Forrester, the global IT spending is expected to increase slightly by 2% in 2013.

As you know Tier 2 IT services space is highly cluttered with numerous players in the fray- what are the key differentiators of Virtusa or what is your sweet spot as you stack up with competition?

The depth of services and the unique global perspective we bring to the table is what differentiates us. Especially in the area of high-volume consumer finance, collection and disbursements in insurance, housing finance, business process management and looking beyond work flow. In business intelligence, analysis and reporting - we work not only in silos but bring it together and deliver a basket of solutions that is appealing to our customers. The outsourced market is a very crowded one therefore the only reason that customers work with us is because we help them bridge the gap and bring value proposition to the table. The depth and longevity of these elements can also be assessed from the fact that a bulk of our revenues come from clients who have been with us for 12 months and more.

On your global delivery model?

Our delivery model has been a combination of onsite, near shore and offshore. This was a designed strategy and our value proposition has always been that cost arbitrage is a good byproduct of how we operate but it is not the only reason to work with us.

Increasingly, we are seeing more appetite for leveraging the near shore capability. This is not just limited to the current environment and economic situation in the US; we have seen this across the board and other geographies as well.

There is always a tradeoff. Near shore means there is pressure on margin, from client, from buyer's perspective on being open to a higher price point. In the long term, this will settle down to a smooth rhythm, similar to that of the global delivery model . Currently, industry players will have to think about how to manage their margins more effectively and negotiate better with the client.

Can you give a sense about your offshore/onsite mix and the key verticals, head count and your biggest vertical in terms of revenue?

There are four verticals that we focus on - BFSI, Insurance, Healthcare, Telecom and Media and entertainment. Banking and financials is the largest piece of this. It's fairly spread out even from a geographic viewpoint. The bulk of our revenue comes from North America. The percentage share of Europe and APAC has also been rising continuously over the years. We are now spread across the globe. The market shape and the demands are changing rapidly and will always have an effect on the growth plan of company, but we are evenly spread at this point in time.

On the top 3 priorities

We are very focused on continuing to be at the top end of the transformational engine. While we are there, we need to strengthen our capability in that area. Also, we will continue to be very focused on our employee delight aspect and scale our EU and APAC operations.