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Evolving OLD Ways

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DQI Bureau
New Update

The year 2001 has been tough. IT budgets that were generously sanctioned in

the past are under close scrutiny and CIOs are under pressure to show return on

investments for every dollar spent on IT. Gartner examines some of the issues

facing Indian IT services vendors and shows ways in which they can sustain

themselves.

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Focus on quality and continuity



The geo-political situation in India has made potential buyers wary of doing

business with vendors from this region. Thereby it has become imperative for

vendors to put in place disaster recovery policies ensuring business continuity

in the face of unpleasant events. It is also necessary to communicate clearly

with potential clients that the reality is not as scary as made out to be.

It is time for Indian IT services vendors to identify ways to deliver value

that can justify the cost of their solutions. It is important that they

demonstrate their ability in providing value for investments made through either

one or all of the following:

  • Improved

    business efficiency — faster pace of operationsl;
  • Reduced

    costs; and
  • Improved

    competitive strengths such as increased agility.
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“Indian IT services vendors need to look out for innovative ways to demonstrate value in their offerings and help clients to look beyond mere issues of pricing and time”

Ravindra

Datar

Client companies would be more open to total IT outsourcing deals once

convinced of vendor capability in managing such arrangements reliably. This is

because any successful total IT outsourcing arrangement can result in

substantial cost savings for the client and at the same time allowing them to

focus on their core business. A case in this point is the recent $ 100 million

deal made by TCS with GE Corp, where TCS will manage GE Corp’s IT requirements

across 30 countries over the next three years. Another example is the joint

venture between Bumiputra Commercial Bank (BCB) of Malaysia and EDS Corp wherein

the entire IT staff of BCB was transferred to EDS, to provide IT solutions to

the banking sector. It is a win-win situation for both EDS and BCB.

Explore the JV route



The offshore model offered by Indian IT services vendors are well known in

the US and European markets. This has led to an increasing number of IT services

companies to set up offshore development centers in India and at par with the

prices offered by Indian IT Services vendors. This represents a significant

challenge for those Indian vendors that have so far relied only on the cost

advantages of the offshore model.

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Indian vendors now need to explore opportunities to form joint ventures (JVs)

with IT services companies in countries they are trying to make a local presence

in, while the other company benefits from the offshore facilities of the Indian

partner. However this does not mean that the local company does all the high-

end work while the Indian partner focuses on low-end work. Indian companies can

use the JVs to establish identity and understand the target markets better. The

Indian partner could also work on high-end work along with the JV partner that

can be passed on to the offshore center. If the JV partner is higher up in the

value chain, this could help the Indian partner pick up new skills and move up

the value chain faster than it would have done on it own.

Indian IT services vendors can also consider acquiring IT services and

product companies in target countries to speed up their efforts in moving up the

value chain. Acquiring a company in the target country would add direct revenues

to the bottom line, and to add technical capabilities and or domain competencies

to the buying company’s portfolio. Also, many non-IT companies that don’t

outsource their IT requirements are setting up their IT facilities in India to

take advantage of the cost & quality mix. Indian IT Services vendors can

consider tapping such potential clients by offering outsourced services and

highlighting the cost and time advantages of outsourcing rather than setting up

captive facilities.

Look beyond the US



The United States has been the largest source of IT services export revenues

for Indian IT services companies. With the shrinking US markets, Indian vendors

are now exploring opportunities in the European, Asia Pacific (including Japan)

and Middle East markets. However, it is important to understand that these

markets are very different from the US markets. While the US market is huge and

largely homogeneous across its geography in terms of language and business

culture, the latter markets differ substantially across geographies. This means

higher costs of marketing and operations since each market would require setting

up smaller business units tailored to meet their unique requirements. Also,

these markets are culturally not as open to outsourcing as the US market and it

would require considerable time and effort to make significant progress. While

acquisition of companies in these markets could be one of the faster ways of

establishing a foothold, but integrating the employees of the acquired companies

with the buying company could present formidable challenges due to significant

cultural differences.

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Build strengths in verticals



Indian IT services vendors should look for opportunities in verticals

hitherto unexplored. While banking and financial services as a vertical has been

the dominant IT buyer followed by the manufacturing sector, retail, distribution

and healthcare are the verticals that are expected to see increasing spending in

IT in the medium to long term. Some leading Indian IT services vendors are in

the process of addressing the emerging bioinformatics market. It would be

prudent of them to build strengths in such emerging vertical markets.

The telecom vertical is also expected to see substantial IT spending in the

medium to long term. Technology as a vertical also offers exciting

opportunities. There are opportunities in hardware design and embedded systems

design. With increased convergence between technologies and increasing consumer

demand for intelligent products, the demand for embedded systems is poised to

rise dramatically.

SME opportunity



Earlier spending on IT to improve business efficiency was mostly restricted

to the large corporations, but tough economic conditions are forcing smaller

companies to consider using IT for business competence. Large US IT companies

might find this market unattractive due to the smaller size of deals, but Indian

IT services vendors can use their success stories with Fortune 1000 companies as

case studies to tap the opportunity in this sector. Though the SME market, even

within the USA is more geographically dispersed and the value of individual

contracts would be much smaller than those of Fortune 500 companies, the SME

sector represents a large potential market in terms of volumes. Indian companies

might want to explore the possibility of developing solutions for the SME sector

and establish a strong position in this segment of the market.

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Explore the BPO option



Many Indian IT services vendors have developed strong process management

skills while building quality processes for software development and IT services

delivery. These process management skills can be easily extended to manage other

business processes using IT as the link. By virtue of the relationships already

in place with large US corporations, Indian IT Services vendors can set up

facilities to provide business process services to these existing clients. The

relationships can start by way of outsourced help desks and further expanded to

other business processes as the client gains more confidence. The vendor in the

meanwhile builds strengths in other processes. Companies like Wipro, Infosys,

HCL and TCS have already moved into this space.

IT services companies can also collaborate with their clients using their own

technical and process skills and their client’s functional skills to set up

companies offering business process services to other companies. While the

changed global economic scenario has resulted in many challenges for the Indian

IT industry, it has also opened up many new opportunities as seen in the

preceding paragraphs. While considering all these, it would also be worthwhile

developing opportunities in the domestic market as well.

Like in the process of biological evolution where only those species survive

that can adapt rapidly to the changing ecological forces, in the business world

too, only companies that can adapt to changing economic forces are the ones that

will survive. And the rest will go extinct like the dinosaurs.

The author is the senior analyst (IT services), Gartner India Research &

Advisory Services



mail@dqindia.com

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