The flip side of GDM

It is indeed an honor to be part of an industry which is setting global
standards. I am talking of the Global Delivery Model (GDM), which Indian
companies have successfully developed, and which are now being replicated by
global IT majors like IBM, CSC, EDS, et al. What started out as a price
arbitrage model, (remember, the usual comparison? Indian software professional's
salary to that of one in the US), is now changing the architecture of the global
software industry. Thanks to this, a few Indian companies have crossed the $1 bn
mark, and are moving to the next level. Global IT vendors have also adopted a
similar model in a big way. IBM, for instance, has over 15,000 people in India,
and others are ramping up quickly. Obviously, the price arbitrage will not exist
in the next couple of years as Indian software companies compete with global
players.

I
am worried. Indian companies are talking of 'SCALE' without moving up the
now proverbial 'value chain'. At what level will it stop? Let me play the
Devil's advocate here. At current per employee revenue of sub $50 K, Indian
companies have a long way to go in matching up with their global counterparts'
per employee revenue rates-at over $150 K. Given that we have played on the
'cost saving' for so long, it is unlikely that Indian companies will move
beyond the sub $50 K rate for a long while, and global companies rates' will
fall much below the sub $150 K. What does this mean? One: For an Indian company
to reach, say, the revenues of IBM Services at $45 bn currently, it would take
over 10,00,000 employee, roughly. IBM is doing that with less than 200,000. Of
course, managing such huge employee numbers would be any HR manager's and
company's worst nightmare. Two: Margins pressures. As Indian companies explore
near-shore destinations and employ people who will be based in foreign markets,
costs are expected to increase. At the same time, the cost for global players is
expected to reduce as they keep increasing their headcount in India. Of course,
the ratio might differ, but logic dictates that global players will certainly
save on cost.

While some industry captains may say that it will be tough for global players
to replicate the GDM model because of their legacy, and that it'll be much
easier for Indian companies as they had started from scratch, a look at the
global pink slip culture, and the quick headcount increase by global players,
may suggest otherwise. And this will become a major cause for concern for Indian
players in the future.

I am also worried that, sooner or later, software captives will start looking
for business beyond their parent company, and then they will compete on the same
footing as their Indian brethrens. Just like GECIS is doing now.

I think that a majority of Indian players have been busy with managing
growth. And this will continue for some more time. But it is time that we
rethink, else, while the Indian IT industry will continue to bring in dollars,
we might fail to see many more Indian software companies going past the billion
dollar mark.

Yograj Varma,
Associate Editor