Indian Service Providers Archives - Page 5 Of 5

A Detailed Look at How the U.S. Immigration Reform Will Impact Indian Service Providers and Their Customers | Sherpas in Blue Shirts

May 28, 2013

In this second post in our blog series on impacts from U.S. immigration reform, we explore the likely outcomes that will affect the Indian heritage providers and their customers. As explained in our first post, Critical Impacts on the Global Services Industry Due to Upcoming Immigration Reform, the large Indian providers are the most aggressive users of H-1B visas and, therefore, are the biggest target for negative impacts from several onerous provisions in the proposed legislation.

Targets of the legislation

Recapping our analysis in our first post, we do not believe multinational providers (MNCs) such as Accenture or IBM nor the Global In-house Centers (GICs) will experience adverse impacts; in fact, they may receive some competitive advantage because of the visa reform tied into the immigration reform.

Technology firms such as Microsoft and the large Indian providers will experience the biggest impacts. However, while the tech companies will gain increased availability of H-1B visas, the Indian firms will suffer a hit to their operational costs in addition to having to depend on fewer visas for their U.S. workforces.

Through two lenses, or scenarios, we analyzed the impacts of the impact to Indian providers with current aggressive use of H-1Bs. The scenarios in our analysis are very difficult to calculate and are based on several current assumptions regarding the proposed legislation, but this is our best analysis at this time.

Case in point: likely financial impacts to Cognizant from H-1B visa reform

We used Cognizant in the scenario analyses because, as far as we can see, they have the highest proportion of H-1B use (85 percent) in their U.S. population of employees. This is far above the proposed thresholds that the reform will mandate.

In the first scenario — with only the most modest impacts from the reform provisions — the unmitigated hit to Cognizant’s earnings (not costs) would be in the range of 21-22 percent (see Exhibit 1).

Exhibit 2 details the impact if the legislation passes with the current most problematic language in the most onerous provisions intact. In this scenario, the unmitigated hit to Cognizant’s earnings could rise to 31 percent.

Source: Bernstein research

Clearly, the impact will be significant in both scenarios. The visa reform provisions will impact other Indian firms in a similar manner as Cognizant but to a lesser degree.

How will the H-1B visa reform provisions affect customers of the Indian providers?

To alleviate the impact of diminished margins, we can assume that the Indian service providers may want to try to pass the increased costs through to customers. However, when we view this possible tactic in light of the current global services market, we believe they would not succeed in cushioning their impact by using this tactic.

The industry has clearly moved into a more mature phase. Competitive intensity in the market has been rising and service provider margins have been falling. (This is particularly evident if we take into account the impact of the pronounced rupee depreciation over the last few years.) A look at the competitive dynamics reveals the following:

Global services customers are not just adding new work that has not been offshored. Increasingly, work that was already offshored is coming up for bid. As the outsourcing titans tussle for that work, market share is shifting. Frankly, deals are not as sticky as they used to be. Large enterprises that use outsourcing services are now more comfortable with it and are willing to allow that work to shift to new players.
The MNCs, which have been been taking share away from the Indian firms for the last 10 years, have lowered their cost base and have implemented robust offshore delivery abilities. MNCs are now close to parity with the Indian service providers. The Indian firms have been operating at an advantage because of their lower cost base for U.S. workforce using H-1B visas, but structural changes in the H-1B visa laws will level the playing field. As a result, the MNCs will be even closer to parity and stronger competitive forces against the Indian heritage firms.

In these competitive dynamics, we think it is reasonable to believe that the Indian firms will have little, if any, success of passing the visa reform costs on to their customers. Customers are ready to switch providers, and providers are available at the same price point as the Indians firms’ current price point.

Furthermore, the margins that the Indian players currently enjoy would still be significant after the adjustment due to visa reform.

Therefore, we believe the impacts to the Indian service provider’s margins will have little effect on customers and may, in fact, be a silver lining for them. While it’s conceivable that the Indian providers would try to pass the cost increases through to their customers, we strongly believe the competitive dynamics in the current market will render that strategy unsuccessful. Instead, we believe these firms will most likely take a hit to their earnings.

Thus, this outsourcing model will remain intact for those companies that want to leverage it and the legislation will not cause prices to rise significantly.

Will lower margins reduce service providers’ willingness to invest in services capabilities and innovation? At this time, we believe that reduced margins will not motivate the providers to reduce investments and thus lower the quality of services to customers. Our belief is anchored in history with the Indian players’ strong demonstration of successfully navigating wage inflation impacts in India as well as other market changes that impact their margins. Furthermore, we estimate that it will require several years for the the changes in visa law to fully take effect; so the Indian providers will have plenty of time to adjust.

In fact, we believe their service quality may improve. Why? Because pressure on their margins, especially in today’s highly competitive market, will motivate them to create more attractive offerings (such as SaaS or BPaaS offerings) and develop greater differentiation through increased value in order to secure increased pricing. We see that the market’s competitive intensity will likely remove any constraints for investing in customers, innovation or intellectual property in order to sustain their margins.

In addition, paying higher wages and increasing the use of U.S. citizens in the Indian players’ workforce could in many cases contribute to greater client intimacy.

In our next post in this blog series on H-1B visa reform tied to impending immigration reform, we’ll provide some guidance on mitigation strategies available to the service providers that will be hit the hardest by the new law.

Check out Peter’s other blogs on immigration reform here and here.

Critical Impacts on the Global Services Industry Due to Upcoming Immigration Reform | Sherpas in Blue Shirts

May 22, 2013

We’ve reached an interesting point in the use of H-1B work visas in the global services industry. Despite many years of debating the necessity to change U.S. visa policies, visa reform failed to get traction. However, the situation has changed with the sweeping U.S. immigration bill. H-1B visa reform is by necessity part of this proposed legislation.

Assessing the probability of immigration reform passing is difficult. However, we believe that Wall Street in its valuation of Indian stocks is currently factoring in a 50 percent probability that the immigration bill will pass.

The U.S. Senate introduced a bipartisan plan to the Judiciary Committee in April with a vote planned for late June or early July. On May 16, a bipartisan group from the U.S. House of Representatives reached an “agreement in principle” and is currently planning to introduce legislation early in June.

If the legislation passes Congress with the visa reform provisions intact, or close to the current form introduced by the Senate, the legislation will result in a much-wanted increase in H-1B visas but will also plunge the global services industry into business model changes because of some onerous provisions in the bill.

We’ve been working with a group of industry experts on the issues involved in the proposed legislation. In this blog post we explore the hard truths of the fundamental provisions and their critical impact on the services industry. We draw heavily on an analysis presented by Rod Bourgeois of Bernstein Research at his 10th annual equity analyst conference and worked with him on this material. We sincerely thank Rod and as well as Jeff Lande of The Lande Group both of whom have been instrumental in helping to develop the thinking in this analysis.

Let’s look at key aspects and implications of the reform provisions and how those fundamentals will impact service providers and their customers.

Who will be affected by the visa reform provisions?

The impacts — both negative and positive — from the visa reform will affect the India-based outsourcing providers, technology companies (such as Microsoft), MNCs (multinational providers such as Accenture and IBM), Global In-house Centers (GICs), sometimes called “captives,” and customers. I’ll discuss the impacts to MNCs, GICs and customers later in this blog.

The two major constituent groups that are most impacted are the Indian outsourcing firms and the technology companies. Historically, these groups were nearly identical in their perspective on H-1B visa: both wanted the “pie” of visas to increase, as providers exhausted the quotas within a week or two after issuance.

But today, getting a larger slice of the visa pie is also of paramount importance to the tech firms. To achieve this they have an interest in restricting access to that pie by other large consumers of H-1Bs (mainly the Indian firms).

In addition, there is a growing sense on Capitol Hill that, although they are operating within the current law, the Indian service providers exploit the H-1B structure to achieve a competitive advantage by paying lower wages than they otherwise would have to pay in the United States.

What will the legislation do?

Objectives. The legislation specifically targets service providers that have a high proportion of H-1B visa holders in their U.S. workforces. The primary objectives are wrapped in the “outplacement” provision, which aims to:

“Crack down” on large Indian outsourcers that Senator Durbin contends are snatching U.S. jobs from Americans.
Deter the practice of “benching” by staffing firms that place visa holders as temporary staff at below-market wages in client locations (a practice that Congress is not attributing to large Indian outsourcing providers).

Threshhold of H-1B use by providers. The legislation also establishes a threshold for the use of H-1B visa holders serving U.S. clients, with the threshold ratcheting downward as follows:

Year one: 70% H-1Bs in a provider’s U.S. workforce
Year two: 60%
Year three: 50%

Providers operating with a larger ratio of H-1Bs than the allowed threshold will not be allowed any new H-1B visas.

Heightened wages. The legislation includes a provision that effectively will make the providers aggressively using visa holders pay their H-1B employees approximately 20 percent more than they currently pay. This likely will necessitate raising wages for other employees too.

H-1Bs on site in client locations. We believe the most onerous provision of the legislation is a clause prohibiting providers from placing H-1B visa holders on clients’ sites if the provider’s overall U.S. workforce includes more than 15 percent H-1B visa holders.

In picturing the impact to Indian providers, think of Cognizant. We believe their current U.S. staff includes more than 85 percent H-1B visa holders.

Increased H-1B application fee. A consequence of the reform legislation effort will substantially raise the H-1B application fee to $10,000 for employers with 50 or more employees of which more than 50 percent are H-1B or L-1 employees. This sting especially will significantly affect the Indian outsourcing providers as they currently pay $4,325 per visa application.

It’s clear that the service providers that are currently major users of H-1B visas will see the most impact on their business from the visa reform. Who are they? Exhibit 1 shows the 13 top H-1B visa recipients based on their inventories in FY2011-FY2012.

Bottom line

If Congress enacts the legislation in or close to its current state being considered by the Senate, service providers that heavily depend on H-1B visas as part of their business model will need to change their U.S. operating business model in order to accommodate the legislative mandates. It will become significantly more costly for providers whose models depend on the H-1B visas.

Complying with the mandates will require providers to lower their number of H-1B employees as well as pay them higher wages. We believe this will raise their costs to the equivalent of reducing their net margins by 20-30 percent if they don’t employ mitigation strategies.

Moreover, the legislation will result in a larger pie of H-1B visas available and thus will be beneficial to firms that have wanted more visas but availability ran out. But the Indian providers (who currently hold the largest slices of that pie) will not be able to participate as aggressively in the new larger pie.

How will the legislation impact MNCs and GICs?

From an outsourcing perspective, we don’t believe the proposed legislation will have any negative effect on MNCs because companies such as Accenture, IBM, and others already are below the 15 percent threshold. Their overall U.S. business models do not depend on H-1Bs (although they do certainly leverage them in their outsourcing businesses), and they have a relatively small proportion of H-1Bs in their workforce.

Indeed, we believe the visa reform legislation could have a positive effect on MNCs because it will raise the operating costs of their Indian competitors and thus could result in a modest advantage of leveling the playing field.

Likewise, we don’t believe the legislation will negatively affect the GICs. Their parent organizations already have large onshore employee population and will easily fall below the 15 percent threshold for H-1Bs. In fact, it may become more attractive to move work to GICs once Congress passes the legislation because the Indian service providers are constrained in their operating models (i.e., offshore internally vs. through third-parties).

As discussed already, the large Indian outsourcing firms will take the biggest hit. While a few Indian heritage providers, particularly on the BPO side, may fall below the threshold ratios, overall we don’t believe the legislation will have a negative impact on this class of Indian providers.

Applicability issues

We won’t know the full impact to service providers until the legislation is adopted. But if Congress passes it with provisions close to the bill’s current form, the impact to the global services industry will be far reaching.

It’s important to note that the language in some clauses of the current form of the legislation lack clarity and some clauses currently lack Congressional consensus on how to apply the provisions. We believe the most significant of these areas are as follows:

Location. The outplacement provision’s current language is as follows: “An H-1B dependent employer may not place, outsource, lease, or otherwise contract for the services or placement of an H-1B nonimmigrant employee.” Some believe this language only restricts the Indian providers’ ability to place visa holders on site at clients’ offices. But our analysis is that Senator Durbin’s intent by the language in the provision is broader and intends to restrict the ability to “contract for” H-1B visa holders to serve clients. Obviously, this would significantly undermine the Indian firms’ current business model.
Triggering ratio of H-1Bs. What will be the triggering ratio of visa holders to U.S. employees in the outplacement provision? While some assume it will be the same as for other visa-related provisions (50 percent), we believe the current language calls for a triggering ratio of 15 percent. Again the hit is hardest to Indian firms.
Applicability to new or existing visas. The current lack of clarity in the legislation brings question to when the heightened wage requirements will apply to new or existing visa holders. If the outplacement provision were to apply only to new H-1B visas — which expire after three years — the provision would be phased in over three years. The outcomes of this scenario include:
- A service provider’s visa holders would be precluded from serving U.S. clients until the provider reduces its ratio of H-1B visa holders to U.S. employees.
- The provider would be restricted from leveraging new H-1B visas during the three-year period.
- The end-state annualized expense impact is that all H-1B visa employees would be paid roughly 20 percent higher wages.
Everest Group believes the provision is most likely to apply only to new visa holders. Even so, we don’t believe that this will reduce the amount of the margin impact on Indian firms due to heightened wage requirements.

This is just the first in a series of blog posts exploring the multi-faceted impacts from the proposed legislation. In future blogs over the next two weeks, we’ll provide more detailed analysis and guidance on the impact to the Indian heritage firms and the possible mitigation actions providers can employ to protect their business. We’ll also discuss in detail how the outcomes will likely impact customers. Everest Group is also preparing to publish a more in-depth analysis in a viewpoint for our research subscribers.

Check out Peter’s other blogs on immigration reform here and here.

Which WITCH? Switches in the Indian IT Majors’ Rankings Line-up | Sherpas in Blue Shirts

June 21, 2012

Although five years ago it was difficult to differentiate among the WITCH (Wipro, Infosys, TCS, Cognizant, and HCL) providers, Everest Group last year identified a variety of clearly emerging and meaningful distinctions in its May 2011 examination of the top five Indian IT providers.

Our just released second annual analysis, Report Card for the Indian IT Majors: Pecking Order Analysis of the “WITCH” Group, found that the top ranked provider in each of the dimensions we evaluated – financial performance, industry vertical performance, and geographic performance – remained the same, but the rankings among the five have shifted. While the rankings are not necessarily the most effective gauge of current capability or future success, the position shifts tell important, company-specific stories.

So which of the WITCHes is where in our 2012 (April 2011 through March 2012) analysis? Let’s take a quick look.

Financial Performance

TCS retained the top spot in terms of total revenue, exceeding US$10 billion for the 12 months ending March 31, 2012. It also widened the enterprise revenue gap with #2 Infosys by ~ US$1 billion, as compared to last year (the total gap is now over US$3 billion). Cognizant’s 29% revenue growth is significantly higher than that of the other Indian IT majors, and the company, which overtook Wipro on enterprise revenue rankings last year, seems to be on track to overtake Infosys to become the second largest WITCH major. On a quarterly run rate basis, this may happen as soon as the coming quarter.

Infosys continues to be the most profitable. Note: We don’t believe that being the most profitable translates to being the most successful. Sustainable growth and success is rooted in a prudent balance of short-term profitability and longer-term investment priorities.

Industry Vertical Performance

In BFSI, TCS retained its #1 ranking with more than US$4 billion in revenues, Cognizant overtook Infosys’ #2 place at the table, and HCL is showing good momentum. But it’s also important to note here that the Indian IT majors stack up differently in the BFSI sub-verticals. For example, TCS and Cognizant are the leaders in the insurance applications outsourcing space, while Wipro marginally edged out Infosys on recent insurance industry wins, growth, client quality, and investments in domain solutions and intellectual property.

Cognizant again topped the leader board in the healthcare and life sciences space with a practice that is nearly three times the size of second-placed Wipro’s. And although Infosys’ healthcare practice is fourth in terms of revenue (US$385 million), it is also the fastest growing among the WITCH group, with 42% year on year growth. TCS’ rapid growth rate in healthcare indicates that there may be a rank change with Wipro in coming quarters.

In energy and utilities, Wipro not only retained its #1 position but also significantly increased the gap between itself and #2 Infosys, in large part due to its acquisition of SAIC’s oil and gas services business in early 2011. Interestingly, we see TCS inching closer to Infosys in this space.

Geographic Performance

While TCS won the top spot in both North America and Europe, it’s an interesting mixed bag among the other WITCH players in the two regions. Cognizant has overtaken Infosys in North America, rising to the ranks of #2, and now only lags TCS’ North American revenue by $325 million. In Europe, all providers except Cognizant achieved higher growth than in North America, with Wipro and Infosys coming in second and third, respectively.

To read a detailed analysis of the what’s and why’s of our WITCH group rankings, please download the complimentary report at: Report Card for the Indian IT Majors: Pecking Order Analysis of the “WITCH” Group.

Wipro to Sell Infocrossing’s Data Centers – About Time! | Sherpas in Blue Shirts

September 29, 2011

The news media a couple of days ago reported – not entirely unexpectedly – that Wipro is in talks to sell the U.S.-based data center assets it acquired when it purchased Infocrossing for US$600 million in 2007. Interestingly, the business was referred to as “non-core.”

The message the acquisition at that time sent to the market was that buyers are more comfortable in outsourcing end-to-end infrastructure to providers with their own data centers.

But the infrastructure outsourcing (IO) market has changed quite a bit in the past four years. Indeed, our Decline of Traditional Infrastructure Outsourcing research highlights the challenges in traditional IO and discusses the fundamental shift wherein newer and nimbler models such as RIMO and other next generation infrastructure services are outpacing and outsmarting the conventional IO strategy. With this news, it appears Wipro’s management agrees that the dynamics of IO have changed and that it has become largely immaterial whether or not offshore providers own a data center. And coupled with industry developments in which Indian IT providers are partnering with local data center providers to win IO deals against MNCs, Wipro seems to understand the broader strategic fit of these assets.

Other Everest Group research (e.g., Remote Infrastructure Management – “RIMO Strategy – Stick to the Basics, but Fine-tune Too”) has emphasized that Indian providers should focus on their core competencies of simpler engagements, global sourcing, resource management, flexibility, and asset-light strategy as the core of their IO services. This is not to say they should not move up the value ladder, just that they should not fundamentally alter the DNA of their infrastructure business.

Will this change the basic nature of the outsourcing deals in which Wipro can participate? Not really. Wipro saw early gains leveraging Infocrossing and, subsequently, carved out its place among traditional IO providers. After exploiting Infocrossing’s potential in traditional IO by providing integrated infrastructure services, Wipro is divesting out of the non-core assets, and that makes real sense. It appears Wipro has realized that the value proposition of Indian infrastructure service providers is different from that of typical MNCs and, therefore, is realigning its strategy.

While it does impact its business in terms of offering large end-to-end complex IO deals, we need to be careful in generalizing this as a hindrance toward its growth. Indian providers should walk away from deals that require them to perform tasks that are not in sync with their core DNA, rather than attempt a dangerous straddling strategy. Therefore, although Wipro may no longer be willing to offer hosted IO, we believe it is better off focusing on typical offshore infrastructure offerings augmented with its integrated infrastructure services through Infocrossing.

Will this impact Wipro’s cloud play? Not really. Most of the Indian providers are targeting cloud IT service/ orchestration/platform BPO to drive their cloud revenue than offering their own, in-house hosted cloud solutions. Moreover, if Wipro plans to develop its own data centers specifically for in-house cloud solutions, nothing stops it from doing so (e.g., Infosys earlier offered its SaaS-based iEngage platform through partner data centers and is now offering the solution in its own data centers as well).

Overall, divesting Infocrossing’s non-core assets could be a great help to Wipro, as the growth of its infrastructure business has lagged its Indian peers. We can count on Wipro’s management to ensure that the strategic advantage Infocrossing brings, especially in key verticals, such as healthcare, will continue. This will make more management and operational bandwidth available to focus on the core capabilities needed in infrastructure services that are fine-tuned with the general strengths of Indian infrastructure service providers.

Changes are Afoot in the Canadian Infrastructure Outsourcing Marketplace | Sherpas in Blue Shirts

September 19, 2011

HP’s 2008 acquisition of EDS reduced an already small number of large infrastructure outsourcing (IO) service providers with a significant footprint in Canada. While for a time that meant buyers in Canada who were uncomfortable entering into agreements with IO providers with lesser presence in Canada had a smaller pool to choose from, the landscape is quickly changing.

First, the HP-EDS acquisition was quickly followed in 2009 by that of ACS by Xerox and Perot by Dell. Both Xerox and Dell have capabilities and resources on the ground in Canada they can utilize to increase ACS’ and Perot’s presence in the country’s IO space. Additionally, Canada appears to have caught the attention of offshore providers over the last few years, with many of the Tier 1 Indian providers making headway and developing Canadian practices with strong delivery capabilities. Also increasing competition in the IO space are providers that are leveraging emerging technologies to replace traditional IO deals.

What does this mean to the service provider community? The big Tier 1 multinational firms with strong footholds in Canada need to beware. Competition is coming from expected places, such as from major players that in the past have not focused their attention on Canada, as well as less expected up-and-comers that are gaining ground in using cloud offerings, for example in development and testing environments. The Indian players, continuing their push into the Canadian marketplace, must become better focused in order to effectively compete with the large multinationals that already have a strong track record, strong relationships, and a greater presence.

What does this mean to the buyers of IO services? Many more options. Take, for example, midrange services. They can use a large Tier 1 ITO provider and go the soup to nuts solution route. They can split the physical aspects of the data centre and servers from the services and leverage an offshore provider for remote infrastructure management outsourcing. They can use a cloud solution offered by anyone from a large Tier 1 provider to a niche vendor. As the market has matured and IO services buyers have gained experience, the risk around leveraging a new set of providers and emerging technologies has decreased, which equates to additional option advantages for Canadian buyers.

This increasingly competitive environment challenges service providers to clearly articulate the value that their solution, their proposal, and their company bring to their clients. But buyers aren’t off the hook. They must ensure that their sourcing process allows for the consideration of providers with very different capabilities and value propositions than those to which they have become accustomed.

Growing Renewals in Asia: Time to Plan Ahead? | Sherpas in Blue Shirts

May 9, 2011

As Indian service providers announce their results for the year, one can’t but be amazed by their spectacular growth. For fiscal 2011, TCS’s annual earnings grew by 29 percent year over year (YoY), and Wipro’s IT services revenue grew by 19 percent YoY. While North America and Western Europe have traditionally fueled growth for the Indian heritage service providers, the focus is increasingly turning to Asia to capitalize on the growing economic shift.

In this context, the next several years are set to be quite interesting for the Asian markets, as we estimate that more than 500 first generation ITO and BPO contracts, worth US$25-30 billion, are up for renewal in Asia (Middle East, India and South East Asia) through 2014.

As we ran an analysis of potential renewals through our deal databases, some interesting trends emerged:

India, Malaysia, Singapore, Saudi Arabia, and Israel, in that order, have the largest renewal opportunities; and India is the largest market by far, possessing 50+ percent of the potential renewals by value.
In India, a large number of early stage telecommunications deals are coming up for renewal; in the rest of the region, financial services will likely dominate renewal activity.
IT contracts will likely contribute nearly 80 percent of these renewals, with infrastructure being the most significant component.
Clearly, large buyer enterprises (Forbes 1000 firms or private firms with revenues of over US$5 billion) will dominate these deals, except in Middle East Asia, where there is a greater presence of small-to-medium sized contracts.

What makes renewals unique in the Asian market?

First, over the last decade, Asia has undergone a much more rapid change in service provider capabilities than developed markets. Today, most global IT-BPO providers have sizeable Asian market practices, and have brought global offerings to service regional buyers; a decade ago, it was just a select few.

Second, buyer maturity in the region has increased significantly. Asian buyers today have had multiple deal experiences with providers, and consequently understand sourcing and governance in far greater depth than in the early 2000s. Today, transformational deals are not unheard of, and sophisticated service management frameworks are the norm, not the exception.

Third, consider changes in the global context that also affect the environment in Asia: the growing adoption of virtualization; the emergence of the Cloud; enterprise-scope BPO services; and consolidations in the provider landscape.

Together, all these factors make the case for a careful look at contractual parameters as end-of-engagement terms approach. Typical end-of-term alternatives include:

Renew: Resign the existing contract with minimal changes.
Renegotiate: Modify a limited number of elements of the contract.
Restructure: Rethink the structure of key contract provisions and key business terms.
Recompete: Terminate the existing contract and enter into a fresh competitive bid process.
Repatriate: Terminate the current contract and bring previously outsourced services back in-house.

As Asian buyers consider these options, they need to carefully evaluate market capabilities (given significant market changes), and take a closer look at deal robustness to ensure that market best-in-class service management/contractual frameworks are incorporated. This implies that restructuring and recompeting are very real options in the Asian context.

Everest Group’s experience indicates that end-of-term evaluations take nearly six months in typical global deals. Given added complexities in regional deals, buyers would be wise to begin their evaluations up to a year in advance.

Historically, it is not uncommon to see buyers continue with their incumbent service providers. While some fail to leverage the market effectively, others get bogged down with challenges of repatriation or risks of changing service providers (such as business continuity risks, contractual lacunae for transition-out or incumbent provider hold-up). However, heightened competition, changing service provider landscape, newer delivery models (e.g., cloud) and increasing maturity in the Asian and Middle Eastern markets could well change this going forward.

Wipro’s Change in Leadership – a Sign of a Larger Industry-wide Problem? | Sherpas in Blue Shirts

February 10, 2011

When Wipro Technologies announced the stepping-down of its two joint CEOs, it cited needs for growth and a simpler organizational structure as the primary reasons. Perhaps. But rather than speculate on the validity of these statements, I believe the move is a very clear sign of the inherent paradox in the offshore linear business model.

Let’s look at the facts. In the pursuit of growth, offshore providers’ headcount has skyrocketed. The bait they have frequently used to attract and retain people is an onsite trip, often for an extended time, to the client’s operations. However, given the inherent bent of these providers to offshore more services and a limited ability to send people onsite, providers now commonly lure existing staff with opportunities to progress into team lead or management roles.

However, with employee bases expanding above 100,000 for large Indian providers, and approximately 90 percent of the workforce in India at any given point of time, the opportunity to establish different management titles and growth paths is limited. Nevertheless, because Indian employees cherish management or lead positions, however immaterial they may be, they are frequently promoted into these roles after three years within the organization.

But the providers can’t play this game for long. Employees will quickly realize the great wall of inertia they are facing in terms of a career path and growth. Additionally, this strategy results in a significantly complex management structure, especially on the delivery side.

Therefore, despite having a reasonably agile business organization, the providers are finding it tough to meet the need for flexibility and agility in the new environment. They continue reorganizing their business units and changing business leaders, without acknowledging that a bloated delivery management organization and a lean business management organization cannot co-exist. To be lean and agile, service providers must be so on all fronts.

What strategy do you think Indian providers can leverage to tackle this paradox? How can they make their delivery and their business organizations more lean and agile, while also offering sufficient incentive for employees to remain?

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Tag: Indian service providers