Several factors have impacted the industry last year: outsourcing has been hit by reduced arbitrage benefits thanks to the rising rupee; BPOs offering mortgage services have weathered the US sub-prime crisis by redeploying most of their staff; industry growth ratesboth current and projectedhave defied the large base theory that made doomsday predictions of how Indian ITs growth would reduce drastically in inverse proportion to larger operations; the size of the domestic market has increased, and, in a marked departure from the low-value, high-volume perception of Indian IT, companies at home have been active in M&A, making a healthy meal out of several non-Indian companies.
While a challenge has been sounded out of China, India retains the edge in the value game with a push in the direction of KPOs. At the same time, companies, recognising that arbitrage cannot be the sole service differentiator, are looking to develop innovative strategies with a focus on service delivery.
A quick look over the last decade reveals that the Indian IT segment will have grown at a massive 28% CAGR (20002010) as against an increase of 5.3% CAGR in the global IT spend. Thanks to its youthful exuberance, the Indian IT growth rate far outstrips that of the global top five IT majors, which (though lower) stands at a more stable 6.2%. However, this is no time to be complacent. Our own growth rates are set to level off in the futurea sign of a mature industry. In the meantime, we face real challenges including a talent resource crunch, wherein typically high attrition rates are compounded by the un-employability of engineering graduates who lack the basic skills and training that the industry demands; rising wages and the rising rupee (which is expected to gain another 5% in the coming year) which will impact the outsourcing business directly; the face-off between the Indian offices of global giants and home-grown companiesthe former are now offering competitive rates for the same services, and leveraging trust garnered over years alongside the benefits of an outsourcing model.
Given the current outlook (cautiously optimistic) and the season (reflective) lets close our little fireside chat about the year that was and the one(s) that will be and see what we can do about it.
Clearly, beating anyone at their own game is more frustrating than having them play yours. If the rules are not in your favour, start another gameit is for this reason that India rules the outsourcing market. Here are the rules for 2008.
Strategic technologies: In a technology-driven industry, this may seem like overstatement, but it is essential to check in with fundamentals periodically. The hottest technologies for the coming year include green IT, unified communication, business process management, metadata management, mashups, the next version of virtualisation check Gartners entire list.
Value creation is a crucial key in unlocking sustainable growth. There is no percentage in playing a numbers game wherein another location becomes the hottest outsourcing destination thanks to cheaper labour. Moving up the value rung: adding new services; innovating on older ones; and developing new products to serve as global standards is the way forward.
Innovation: If the shoe bites, you will change it, and never mind the great bargain you got on it, so positive innovation is not just good game playit is essential. Innovative business models in particular will be key growth drivers, with multi-service delivery, innovative pricing and full services co-sourcing emerging as long-term options.
Collaborative transformation is a key to developing long-term sustainability with collaboration being the enabler. Take the IT finishing schools that are being used to nurture the talent pool to make it employable by the industry. This is set to evolve from a stopgap arrangement into a permanent solution through a private-public collaborative partnership, wherein the industry works with the education department to restructure curricula.
Harnessing market volatility: Just as time to market for a new product is an all-important factor in the retail industry, similarly, recognising, predicting and latching on to a major market disruption can translate into a competitive advantage.
Empowering employees who are individuals and peoplenot resources. Where will we be if we commoditise our talent in a people-driven industry The day we have a true alignment of employee and business goals, we will be unstoppable. Never before has uncertainty been the cause of so many exiting opportunities and as the Red Queen (Alice in Wonderland) tells us, we have to run faster to remain in the same place. Start running
The writer is CEO, HCL Technologies