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Sunday, August 21, 2005

Indian Top Four & Reigning Leaders As Old Standby's

India headquartered software companies could potentially unseat such giants as EDS, CSC, Capgemini, Unisys, Perot Systems, Accenture and BearingPoint,says a study by Katzenbach Partners LLC (New York). The study finds that the indian big four - Infosys, Wipro, Satyam and TCS will have greater market incentives and capabilities to serve customers consistently and make good on promises during the critical third and fourth years of contracts. Indian firms are motivated to grow and maintain quality, and the marketplace has taken into account the quality of their operations and cash flow. The U.S. and European players are mainly seeking to build value by cutting costs, whereas the India headquartered companies will continue to invest in clients into a contract, when half of all outsourcing deals normally would fall apart. Legacy Outsourcing players may disappoint customers deep into IT Contracts. Richard Schroth, a technology and outsourcing expert & Nathaniel J. Mass, have developed a new corporate performance metric called the Relative Value of Growth(TM) (RVG) and together with Roopa Unnikrishnan, worked on the report and its findings were shared recently. RVG determines the degree to which a company is rewarded - in terms of market capitalization - for growth and/or margin improvement. Companies with high RVGs that are predominantly rewarded by growth tend to be rewarded handsomely for achieving it - and also tend to have strong profit margin A virtuous cycle is seen with Indian outsourcing companies: Strong growth boosts valuation ratios, which, in turn, create reinforcing incentives to grow. Indian companies offer superior operating margins due to low cost of service, strong vertical market focus, high quality, reinvestment in innovation and strict conformance with global standards. The U.S. & European players will not be rewarded by Wall Street for growing and investing - only for streamlining, and that's not good for customers.A company rewarded by margin improvement tends to have an inferior profit margin and may realise less pronounced gains in shareholder value, due mainly to the difficulties of trying for cost improvements to retain long-running customers. In analysing IT and outsourcing firms, the study finds Indian players to have a high relative value of growth rating. They are highly motivated to grow and the marketplace recognizes its quality of their operations, cash flow and prospects. But American and European companies have much lower relative value of growth rating, meaning their main incentive is to build value by cutting costs.

I agree with Dr. Scroth’s view that the US/Europe biggies may talk about economies of scale, experience and commitment to customers, but that's a disconnect when it comes to the basic incentives and the marketplace. Faced with cost pressures, they may be prone to turn over projects to more junior staff, pay less attention to older customers and focus on rationalization, consolidation and even withdrawal from businesses that require greater innovation investment. Meanwhile, Indian companies are evolving into global players by developing international strategies that include recruitment in China and Russia. Major U.S. and European outsourcers must grow and improve profit margins or face mergers, consolidation and loss of market share. The advantage for India headquartered firms amongst other things is that they do not have to unlearn old behaviors or adjust to old systems. Some of the plusses credited to Indian firms include superior operating margins, obsession with quality, reinvestment in innovation, leadership in conformance to global standards and world-class corporate governance. The warning bells for some and welcome signals for more are loud & clear – Seeing the growth, scale-up plans and impressive wins recorded by Indian HQ firms, it is more than obvious that in this changing flat world – India headquartered firms are are very likely to give the glorified titles of Old Stanby’s to the Accentures,EDSs,Cap Geminis,Bearingpoints and the likes of the world.

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