1) Will the howling from nativists in labor unions, lobbying firms, and the U.S. Congress eager to curry favor with those unions persuade President Obama to pursue the devastating protectionist measures he has advocated recently based on his faulty presumption of the existence of something he calls “our jobs”?
2) Will CIOs and CEOs have the vision and the wisdom to leverage this heightened competition not just to pound on suppliers for lower prices but instead to pursue new types of outsourcing engagements that help transform their companies into agile, flexible, and customer-driven organizations?
First, here’s what the Journal had to say about the huge transition major Indian IT services companies have begun to undertake:
Indian technology-outsourcing companies no longer just want to serve their clients’ computing departments—they want to be them.
… They are aggressively pursuing on-site work like managing companies’ entire information-technology departments, networks and help desks. They are looking to run external data centers for customers — a foothold that would help them expand into the hot new area of “cloud computing,” where all of a company’s critical software is hosted remotely. And they are trying to tie all of their services into end-to-end outsourcing packages for clients.
How well the Indian firms manage to upgrade to this more sophisticated work in the next few years could determine whether India’s $58.8 billion-a-year technology services industry — a flagship of the nation’s economic surge in the past decade — will see even brighter days or become a back-office also-ran to more sophisticated tech companies in the West.
So, based on that description, this isn’t some one-off project or a single company looking to extend its reach: this is a broad-based initiative that puts many tens of billions of dollars up for grabs. This is how it’s going to be; this is, in fact, what’s already happening. Here’s why:
Products continue to be enormously important, but services and industry knowledge and expertise have become the levers with which CIOs and other business leaders are transforming the world.IBM (NYSE: IBM)’s and Accenture are long-established powerhouses, HP (NYSE: HPQ) is getting there via its EDS (NYSE: EDS) acquisition 18 months ago, and Dell (Dell) (Perot Systems) and Xerox (NYSE: XRX) (ACS) are looking to raise the value of what they do by coming closer to offering end-to-end services.
In the Journal piece, Siddharth Pai of the well-known outsourcing-advisory firm TPI said, “The Indians still aren’t top of mind when it comes to that high-value work. To bump back up to the 30% growth range they need to transform their businesses.”
And Infosys executive Amitabh Chaudry said that while the challenge of taking on major infrastructure deals and even huge parts of IT organizations is steep, progress is being made. “The mindset required for how to run it and price it is very different. We’re learning along the way.”
One thing that’s beyond question is that the top Indian firms will show massive commitment to making this transition rapidly and effectively. What’s not so clear is whether those companies will have to do so under some competitive restraints that could be imposed by the the Obama administration. The president has talked on a number of occasions about his intention to “protect our jobs,” although he’s been far from clear on just how he would define “our jobs” in a global economy.
IBM has 70% of its employees based outside the U.S.; are those “our jobs”? Oracle has about two-thirds of its workforce outside the U.S., and for Microsoft the number is more than 40%. “Our jobs”? What does that mean anymore?
For the past couple of years, the big Indian IT-services companies have been making some so-so efforts–not exactly aggressive, and not exactly strategic — to open up some facilities around the U.S. for various types of development and support work. Those were undertaken to support their traditional model of doing software work and development projects, rather than full-scale outsourcing mega-projects such as the kinds they’re looking for now.
They’ll need to hire workers based in the U.S. to handle projects based in the U.S., and I doubt the White House will try to interfere with that. I only hope they are allowed to compete level footing with U.S. firms, and are not saddled with any sort of tariff penalties—because those penalties will ultimately be felt by potential customers and prospects who are now eagerly awaiting the full arrival of several more well-heeled and aggressive suppliers from which to choose.
Meanwhile, those CIOs would do well to make this extended competition about much more than just price-arbitrage. While looking for every fair cost advantage is essential, the real value to be gained by the larger pool of competitors is innovation: which of the companies bidding for CIOs’ business have special expertise in your industry? Which have special technological expertise in the area of greatest concern to you? Which have the demonstrated the ability to optimize business processes that will get you closer to your customers, allow you to move at the speed of the markets in which you operate, and redefine your value proposition based on what your customers want instead of just on what you happen to be selling?
The prospect of great new ideas and capabilities pouring into the enterprise IT space has enormous potential, and we can only hope that politicians will resist their recent tendencies to muddle. “Our jobs” will be much safer if the free market is left to fend for itself, if competition is open to all with great ideas and initiative, and customers have full freedom to choose the partners whose capabilities best match their needs.
Source: http://www.informationweek.com/news/global-cio/interviews/showArticle.jhtml?articleID=220600197
