August 8, 2007

India outsourcing challenges

NewsFactor Network | Is the Party Over for Indian Outsourcers? The article started on a bad note, what sounded like a repeat of what we read all the times, talent shortage, rupee going up, visas cap etc. But then the author hooked me with new information. I don't know that this new information in itself is calling for the demise of India, journalist always have to be dramatic, but they are factors to consider.

For example below is the clear belief that India is stronger for Indians, its industry is the strongest so no real need to worry. When you keep on winning like the big guys are doing I think it is natural for people to start to think your invincible and then things start to get really wrong.

"But while India lacks a formal innovation culture, one would never know from the assumed superiority over foreign rivals. Indian firms are simply unable, culturally, to absorb a Western company. Industry analysts say Indian companies such as Infosys are hierarchical, and have an elitist view of their business and suffer from "conceptual Brahmanism," referring to the group at the upper echelon of the Indian caste system"

So I'm here thinking CMMI was the best thing that ever happened to India as a society. The theory on CMMI is simple - the processes that CMMI certified companies employ are allowing everyone in the org to contribute on equal footing given their position, so whatever your social rank is really, and in a country like India this is an important thing given the historical caste system etc. To read that it's the elite, running the show is like reading Gates daughter is on equal footing as mine in life in North America, no real surprise. Obviously there is a legacy to the caste system you won't get out of quickly, just like powerful families in Europe or North America. What is important is that the opportunities are there now for every one. To read though of the reference to management suffering from "conceptual Brahmanism" is disappointing, because I thought they understood better than us "go where the talent is" ie who cares what family or caste someone is from as long as the brain is all there - it will get my company ahead.

"In fact, IBM is the top choice of India globally. Ambitious Indian corporations such as Bharti Airtel, since 2004, have outsourced roughly $1 billion worth of tech services to firms such as IBM with global expertise."

This is interesting that IBM is winning serious deals in India. Just thinking that Infosys was announcing with grand fanfare a 250M deal - IBM just go for the home run, why work on the smaller deals when they are just as much work to close as the bigger ones I hear them say, and let's kick some butt in India along the way - it's very promising market.

"The future, say industry analysts, lies in doing things the multinational way: embracing innovation, consulting, and geographical expansion. To get there, Indian companies must get over their "25% margin fixation," says Ashish Thadani of Gilford Securities, who covers Indian tech companies listed in New York. "Those continuing high margins mean you are probably underinvesting for the future."

I like the first point made here - focus on embracing new ways, move up the chain, and think geographic. Not everything out to be done from India to be delivered efficiently and the only reason it's still done now, is that it's still viable $$ wise, but sooner or later Indian companies will need to get out into the world. I like the following question "Who stand a better chance of success at globalization an IBM like companies with presence around the world with the need to increase its India foot print, or an Infosys with a huge presence in India"

As for the focus on margin - I like margin, the focus on it, I understand that it can be limiting strategically speaking. The race for the top Indian outsourcer is so fierce with no one willing to give an inch to the other - what could convince them all to start investing in R&D? - they are still growing very fast and faster than any services firm of that size elsewhere in the world.

I think they ought to invest more outside of India, I think multi geographic approach is much better for the end client.

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