Opinion from Australia, On the Indian Services Game

(via Karl Rodrigues, former colleague at Intel, ex-Intel Capital, Security Guru)

From an Australian perspective, there appears to be two trends:

1. Cost of Provision – or parity between Australia and India on current levels
2. Differentiation – or perceived lack thereof of service capability or quality

That is, in Cost, it appears that current staffing remuneration in India is on par with equivalent skilled IT resources in Australia. There is, therefore, no compelling reason for Australian companies to seek service from an offshore capability if the same costs apply locally. The only reason to do so would be lack of availability of local resources and hence a requirement to complement existing local teams/projects/modules to ensure project delivery timescales are met.

On Differentiation, I mean the ability for the service provider to differentiate the provision of service from other competitors. Most Indian service companies are now CMM5, ISO9001, BS7799, etc all have black belts, all support global banks, global telco, global manufacturing, global R&D, global product development, all can deliver globally from highly secure local operations. All languages, platforms, frameworks, patterns, architectures, etc are supported. Most are vendor certified or privileged partners of global product companies/integrators. And so on. If this is the case, then where is the differentiation on a service dimension? Reputation? That’s not differentiation – that’s a ‘momentum’.

Perhaps the only differentiation will be through deepness of skills of the individual employees or ‘large’ corporate experience in a particular sector. The former is subject to attrition which is running at all time highs in India and cannot, I believe, be adequately ameliorated by any incorporated knowledge retention or documentation process. The latter is an indication that consolidation in the market is an inevitability – indeed it is gaining ‘momentum’. Again, from an Australian perspective, this will mean that gaining customers will be achieved by global service providers acquiring local Australian established service providers. It will be those with deep pockets which will be mopping up customers in Australia (and in other nations as well for that matter). Indeed, we have seen recent acquisitions in the service game in Australia by large Indian service companies already. A note here is that, perhaps there are a few Australian service companies large enough to acquire Indian service engines. The point is that, service ‘globally’ is getting harder to get into from scratch and is now in the process of being shaken out.

Porter fans will notice the above (cost/differentiation) as grid dimensions – meaning , the only way for Indian companies to get decent service revenue in a target country will be to acquire established local companies. So perhaps, more accurately, the service game may not be over on a global scale driven by a local Indian market per se (however, you could say that this means it is over for all but a few who will be left standing), but it is well and truly over based on its arbitrage heritage in all dimensions of quality, cost and differentiation.

Most of the growth in companies in India will come from the growth within their existing customer base or – what will be seen more frequently – via consolidation. The competitiveness of the Indian offering will erode as Indian pricing increases. The quality of the offering will also erode as more and more internal process is incorporated to counteract increasing attrition.

This means that either India itself will start outsourcing to remain competitive globally (there are examples of this already hidden behind comments of ‘near-shoring’), or will continue to grow based on a growing and healthy Indian domestic market. The question is, will the Indian domestic market be big enough to sustain growth of all service providers into the next decade? Structural change will occur at very fundamental levels across the board in the Indian economy in the coming few years and therefore, if growth is not sustained by the local market, then what impact will that have on the global software and business service market? Now that’s a scary thought. I.e. Extending this (possibly beyond its logical conclusion), if 1) the Indian service companies themselves falter in the next decade due to instability or reduction in the Indian domestic market, and 2) because all global service provision will have some element in India, will this ultimately be like the society (in Douglas Adams book) who died of ear infection because there was no one left to clean the phones?

A final comment is that ‘Software as a Service’ (SaaS) is a utility pricing model which, by its nature, encourages innovation because it can achieve ‘product’ differentiation – this is what Sharad mentioned below and is valid in that entrepreneurs will always revel in this market, however, this is very different from the ‘service’ model. The Service delivery, which is what Shrikant is talking about, is a cost pricing model which quickly commoditizes (i.e. removes differentiation) and can only generate innovation through the micro-processes of delivery….sad to say which is pretty much nutted out all through the value chain today – and can only grow through acquisition and consolidation.

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