Why India will continued ominating the IT outsource product development market

The Mumbai terror attack of 2008 created a term that is increasingly coming into the lexicon of IT outsourcing, ' India plus one'. Some attribute the origin of that term to Forrester Research , which, following the terror attack and the Satyam scandal, recommended that companies should derisk by spreading their outsourcing operations beyond India, to at least one other country.



India currently dominates the outsourcing market. A survey by Capgemini, in partnership with Harris Interactive, which was released in September this year, found that more than 60% of the US companies surveyed were outsourcing to India. China came in second at 27% and Latin America at 25%. Most estimates indicate that India has well over a 50% share of the total outsourcing market.



But certain reports in the industry point out that such dominance for India will not prevail for long especially for the outsourced product development. Following have been the reasons cited for the change



1.New and better outsourcing models

In 2009 Gartner warned clients to not sign long term outsourcing deals with vendors since soon, with the advent of cloud computing and benefits of SaaS, lowered cost would be possible without actually having to offshore work. Gartner advised IT department to look alternative outsourcing models such as cloud computing or software as a service."Clouds don't need long term contracts to make profits. They've already invested in service delivery for other clients. Also the costs go down over time, in the utility model, year over year."- Gartner report explained



2.New competition

In its reportGartner's 30 Leading Locations for Offshore Services, 2010-2011 , Gartner suggests that although India still retains the numerouno spot, the clear run to the pole position that it had enjoyed throughout these years is in danger.China has moved in closer, while Philippines has proved itself to be beyond being known as second string business process outsourcing destination. In fact Manila, Philippines has secured the 4th position in the list of outsourcing cities, which is topped by Indian giant cities, Delhi, Mumbai and Bangalore. The surprising fact is Manila has leaped over other Indian behemoths Hyderabad, Chennai and Pune. Moreover, lesser known destinations such as Bangladesh, Sri Lanka are offering similar advantages to the clients and that too, with the backing up of their respective government-something that Indian IT industry has not been able to substantiate upon due to prevailing corruption and multi-party politics



3.Disturbance in the country

In addition, Indian offshore providers, in particular, are under significant pressure to cut costs, after the Mumbai terrorist attack, the Satyam scandal, exchange rate fluctuations, wage inflation and high staff attrition levels.



With the facts represented above, the picture looks gloomy for the Indian offshore outsourcing service industry, but the above facts represent only half picture. The truth is India still hold the edge- partly due to the monolithic sizes of the top IT conglomerates, and partly due to the maturity that they bring to the table that is needed to sustained product development which new players might lack.

Facts that work in favor of India



1.Maturity

One thing that makes Indian IT companies stand out of the crowd for offshoring is the level of maturity that they have gained during all these years. With strong on shore presence, best practices in place, domain expertise and solution accelerators, Indian companies promise certainty in delivery for product development. It is a ‘been there, done that’ scenario for the top IT companies from India, while competitors are still trying to make a mark. Additionally mid size IT companies also learn from the experience trickling down from the larger companies, with many executives participating as mentors in startups and mid size companies. In contrast, newer entrants could be marred due to their inexperience in dealing with complex issues such as IP protection and data security because their legal systems have yet to catch up with such challenges and requirements.



2.Value engineering

Indian IT companies have long abstained from projecting themselves from provider of cheaper or low cost IT services but rather of providing value engineering through experience and expertise. Stiff competition within the top 5 has helped them bring out innovation in their process. Companies like Cognizant , Wipro, TCS have well versed R&D and leadership training centers. Mid-size IT companies have also been observed to create expertise in their own niche areas. Such strengthin process and delivery are useful virtues for successful outsourced product development.



3.Long relationships

For most of the Fortune 500 companies, partnership with Indian companies has been in place for more than a decade. Such long period has thrown enough opportunities for each party to understand the other better and develop fostered relationships. Such relationships have resulted in win situation for both sides, since the clients get lowered cost as well as personalized touch to the services, while the companies get assurance of long term engagement.



4.Cost

With the best practices in place, world’s largest talent pool to hire from and accelerated delivery models, Indian IT industry is well poised to fight the price war and even win it, if required. But the IT companies know that competitions can’t be won by lowering the prices, rather the strategy for these companies has been to add more value and create a differentiator through expertise, references, delivery model, process etc.



So we see that the picture is in balance right now, to make out a prediction. The external forces are well been balanced by the positive internal competencies. Conclusively, we can say Indian IT industry is right now in transition. It is a state of dichotomy, through which every successful industry has to pass through. The market leader may lose share in terms of percentage to the other participant in the market, but they gain in volume, since the whole size of the market increases. What really decides the fate of the market leader in such scenario is the strength of the advantages that the leader has created to fend its territory- something which seems Indian IT industry has done well. The dream run has been broken, but a lot of steam still remains……