Offshore Headquartered Players Poised For A Stronger Growth

Sramana Mitra, whom I regard highly, comes out with a provocative article – may be the title is more provocative . While I agree with her on the part of the offshore headquartered industry needing to look more at products and solutions, I disagree with most part of the article and her conclusions. Getting into products business is a moot point – its like saying Singapore airlines should get into aircraft/aircraft parts manufacturing,to be counted as future safe in business! I find most part of her article somewhat biased. In particular –

“India's $30 billion IT/ITES services industry, meanwhile, is slowly and surely losing its competitive advantage. They are complacent. They will not take risks. They have "outsourced" thinking to their customers”

Ask the CIO’s working with the offshore majors to get a true picture. The fact to note is that Indian IT’s rise as a disruptive force in global IT services delivery is now well accepted. Three – four years from now, the Indian IT services and business process outsourcing (BPO) is very likely to touch US$100bn mark in revenues. In the last ten years, every possible forecast has been bet by the industry and the naysayers have had to bite the dust. The coming years are proving to be as promising and transformational as in the past. Just look at the track record -In the last ten years, the Indian headquartered IT will have grown by nearly twelve times, at a 28% Cagr, compared to a 5.3% Cagr for global IT services spending. Within global IT expenditure, the outsourced component will have grown by around 8%, and in-house spending at only 2-3% - both substantially lagging Indian IT’s phenomenal rise.

From its base level, despite expanding scale, the revenue growth has been 30% plus YonY and it appears that this growth more –or-less may be maintainable for the next few years. Very shortly, we may see 1/3rd of global outsourcing of IT services outside of government spending may be serviced by the offshore majors . Estimates suggest that volume share in english speaking countries may reach around 45 to 50% in the same period. In the services segment from smaller service lines, where they are traditionally strong, Indian IT services are moving to larger spaces like IMS & BPO. Its futile to think that all these growth would happen automatically. Answer to Sramana’s point – in this transition opportunities on SaaS and emerging technologies get adequately factored in. Ask the major SaaS players and product players – they will vouch for the critical role that offshore majors are playing. All strategic partner relationships of product players have the offshore majors playing a substantial role therein. No the Indian headquartered players are not missing on any great opportunity – look at the type of deals being closed, the nature of acquisitions being announced; or better ask the hordes of global IT executives wanting to work for the offshore majors- they will tell why the game is changing – fastly, decisively and increasingly looking like forever.

Update : AMR's Philip J. Fersht provides the right perspective on this topic. I can't agree more.

Labels: CIO, Emerging Trends, IT Services, Offshore Players