Imagine a Google originating from India. A very fast-growing, innovative tech
company, founded just a few years ago by young IITians, creating wealth by leaps
and bounds with only 1,400 personnel on its rolls, its annualized revenues
growing six fold to $900 mn with profitability of more than a third of revenues.
Wish such a company were within the realm of reality in India.
Sadly, the biggest tech company in India has taken more than three decades
with about 25,000 IT professionals to reach a similar position in revenues.
Other Indian software "giants" are no younger and have not seen great
per capita revenues, either. Will Indian corporates ever be able to realize this
dream of high growth gradient and productivity?
At present, the Indian IT industry is banking too much upon the low-end
services market, which is not a healthy sign. Competing on low wages alone would
not help for long. For, there might emerge another place in the world that would
be cheaper, and another company that would be able to do the job as well.
Therefore, strategies need to be extended beyond the low-cost one to developing
unique capabilities that will give sustainable competitive advantage. While
India cannot afford to miss cashing in on the current wave of outsourcing
services, it must make sure that low-end services do not become the industry’s
Achilles heel in the long run.
|At present, the Indian IT industry is banking too much upon the low-end services market, which is not a healthy sign. Competing on low wages alone would not help for long|
Big corporates in North America and Europe will need to outsource from India
and other developing countries to keep themselves competitive. There is little
doubt that this phenomenon will keep the cash registers ringing for a number of
companies here, at least for some time. But did you know that in order to
achieve $87 bn (Nasscom-McKinsey) target for software and services by 2008,
India would require cumulative imports worth $120 bn for hardware alone between
There is no denying that as a country, we need to export whatever we can in
order to have the purchasing power to finance our imports. But mindless export
of low value or less profitable services will cost us dearly later on. A recent
McKinsey study shows that every dollar of labor cost outsourced offshore creates
over $1.45 of value; 78% of this value is retained in America and only 22% of
the value goes to outsourcing destinations like India. Besides, American
industrial corporations invest a whopping $200 bn annually on research and
development, a figure unthinkable for the Indian industry.
Our business leaders need to start giving due importance to innovation, and
come out with strategies for creating value in the emerging markets. There is no
dearth of opportunities in the high-end software and services market. Look at
what Google has done to the world through its innovative thinking, despite being
a late entrant to the market of search engines. Such is its might today that if
your company cannot be "googled", it virtually ceases to exist! Very
soon you shall have to pay to this innovative organization (if you aren’t
paying yet) for your existence on the planet earth.
Without creating original technology and moving up the IT value chain, no
company in India will be able to scale the heights some American companies have
reached-no matter how many software services and BPO jobs we are able to
attract. We are losing the strategic advantage and bargaining power that
internal R&D can provide. India ought to invest thoughtfully on creation of
intellectual property to secure its IT future.
Very few Indian companies have invested in core R&D to create unique
products and services for the global markets and stand a chance of demonstrating
hockey-stick growth. Spearheaded by a missionary zeal and original and
innovative thinking, founders of companies such as iFlex Solutions, Ramco
Systems and Newgen Software, have lately started seeing the benefits of their
approach. Whereas, in the US, Google is just one of the many companies, like
Sun, Apple, Compaq (later acquired by HP), that have shown sharp growth rates
and high productivity in the past. Maybe it’s time to start thinking
The author is managing director, NewGen Software Technologies firstname.lastname@example.org