Over last two decades, the Indian offshore IT industry has grown at such a pace that any projections close to single-digit growth makes the offshore providers sound distinctly nervous. In the current economic environment, there are many industries that would love to have any growth. Then what’s the fuss?
These are certainly curious times for Indian IT services providers. The offshore IT industry has been a well-documented story of phenomenal success that has taken the industry from $10 billion to $100 billion in the space of ten years. However, it appears that it is becoming clear to offshore IT providers that the journey from here on will not be built on traditional services alone. Although the cost and quality story will remain the fundamental tenet, success in offshore IT will need to be augmented by combination of other factors.
If Offshore 1.0 was about bodies and Offshore 2.0 was about scale, Offshore 3.0 needs some new tricks up its sleeve. So, what are these?
Efficiency, expansion, products and a conscious move up the value chain will be the four key pillars of future success for the offshore IT industry.
The offshore IT industry has had a linear growth trajectory with many players finding it difficult to attain significant growth in terms of revenues and profits per employee. As the fight for talent intensifies, efficiency of service delivery will emerge as a key focus. While increasing utilisation is important, increasing and maintaining consistent productivity will gain more focus and attention. As most deals now are fixed price, the offshore IT industry stands to gain substantially by improving its efficiency.
Investing in expansion
Since the offshore industry’s inception, the US has remained the dominant market for Indian IT services providers. Conscious efforts by IT services suppliers over last few years to grow their clients in Europe and Asia Pacific has led to much needed re-balancing of the portfolio. However, the economic challenges in Europe means that offshore providers will need to invest in expanding their footprint out of traditional western markets and domestic growth is expected to play a big role. This was the first year that the domestic growth rate was higher than the export growth rate, a sign of times to come.
The Indian offshore IT industry has virtually ignored products and has solely focused on services. This cannot remain the case if the industry has to meet its growth aspirations. Products are the vehicle of non-linear growth, something that the offshore industry so desperately wants. Improvements in cloud and mobile technologies mean that infrastructure is now available to be exploited by the product companies. Platform and IP-based solutions, with a product-centric approach will play a bigger role going forward. Pure play product companies and providers that exploit their relationships with their key customers to develop industry-leading platforms stand a chance to gain.
Moving up the value chain
Last but not the least, moving up the value chain will be key to the future growth of India's offshore IT industry. The offshore industry recognises that it will need to gain the status of business partner, rather than remaining to be seen as a service provider. Such a shift will open the doors to large-scale transformational opportunities. However, brands are difficult to build and equally difficult to re-position. The industry has some way to go before it is seen in the boardrooms as a business partner. Indian players in the offshore IT market are acutely aware of it and have been investing in domain and consulting skills with mixed success. These efforts will need to be redoubled, but if successful, India's offshore IT companies will be in a great place to offer “right sourcing” value propositions to their clients.
One thing is certain, the Indian offshore IT industry remains in an envious position, where it is busy dealing with the pains of growth rather than the perils of stagnation. Not many can say that in today’s world. And that is reason enough for the offshore industry to remain deservedly excited and optimistic about the future.
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