It’s not that they are going to lose the race immediately. If they spend the next 5-10 years on their existing business model, then you get to the tipping point with Cloud and SaaS.
My impression is Indian companies are little too hopeful that the last five years will have a complexion on the next five.
It’s not that they are going to lose the race immediately. If they spend the next 5-10 years on their existing business model, then you get to the tipping point with Cloud and SaaS.
My impression is Indian companies are little too hopeful that the last five years will have a complexion on the next five.
Susan Cournoyer, Managing Vice-President at Gartner Research, speaks to us over the phone at least once a year. This time, on her maiden visit to India, eWorld caught up with her in person. Even though we ran a copy on her recently, what she has to say now is intriguing. She feels that established IT services players across the world, taken by surprise by the Indian offshoring machinery, are now getting aggressive. This makes them better prepared to take advantage of trends such as Cloud Computing and Software as a Service (SaaS), than Indian providers are.
She feels Indian vendors have only a year or two to up the ante so that they would remain in the contention when the tipping point occurs in six-eight years. Excerpts:
We get a wide range of estimates for growth in IT spending from the banking and financial services (BFS) industry. Your view?
From our current forecast, with data roped in from all over our company, IT spending in BFS would grow 5 per cent globally over five calendar years ending 2014.
For 2010, and remember it’s still a recovery year, we expect a 2.5 per cent growth in North America. Canada is showing faster growth with the US looking at 1.5 per cent for 2010.
In the last five years, IT Services has been the fastest growing segment. In the next five years, I see software (products) and telecommunication services being the fastest growing segments in the financial sector.
As to IT services, it would tread the middle path, with some segments declining and some growing. Overall, moderate growth, with very slow growth this year.
In the last two to three quarters, the Top Five Indian IT services companies have seen a recovery, largely led by BFSI. Is that sustainable or has it been due to one-time opportunities from mergers and acquisitions (M&A) among US banks?
They are getting a lot of business from M&A activity — Indian vendors have been at the right place at the right time. They have been able to tap the cost-sensitivity in the market. We had that before the downturn too.
On the one hand, Indian firms are well-positioned for the next several years. But on the other, in the same way that Indian global outsourcing disrupted the IT market 5-10 years ago and surprised the global consultancies and IT services firms across the world, cloud computing and SaaS could potentially be disruptive to Indian firms. That is, unless they really take account of these in their business plans. They need to consider that the market may want alternatives to a lot of systems integration and application work.
Big consultancies and SIs at the global and regional level have been through this disruption of global sourcing and new competitors — they are now very aggressive. A lot of them are adjusting their industry models and portfolios to target industries beyond just banking. They are scanning the globe and finding small, innovative companies and linking up with them quickly on the Cloud and SaaS fronts.
Indian companies don’t seem to have this scanning in place and so they are not committed to it. And though global consultancies don’t like the fact that the cloud could commoditise parts of their business, they do appreciate it. They accept it and they are making plans for it, putting together strategies that have goals for them in the Cloud and SaaS environments so that when the market takes off, they are part of it and not blind-sided by it.
They are taking a broad view of market with disruptive forces. My impression is Indian companies are little too hopeful that the last five years will have a complexion on the next five.
If you are not there at the beginning (as a technology evolves) it’s very hard to play catch-up. It’s better to make investments in new opportunities rather than to be blind-sided by the market.
Irrespective of who takes the cake, wouldn’t India, and possibly China, continue to remain dominant delivery destinations?
Financial institutions globally want to go beyond India for sourcing, to reduce risk. It’s almost like Indian companies unleashed this willingness to go global. One would think that China would be disruptive in terms of labour. It could be disruptive in terms of business model innovation — it’s just starting to become visible. An example is Alipay — an online business-to-business payment service — appears to be doing a lot of business.
There is a large business in b2b payments in China. This is essentially business process utility. Estimates for Cloud payments are at $3.3 billion globally, growing at 10.5 per cent. They weren’t (first) labelled Cloud — but now they fit into the description. So it’s growing right under our noses.
What kind of time would you give Indian companies before they have to get their act together?
They are not left behind. They are still doing a lot of work that they have been doing. Full credit to them for building industry practices and segmented solutions.
But as a colleague said — when a company grows fast, it is very visible. But when it declines, it is slower. It’s not that they are going to lose the race immediately. If they spend the next 5-10 years on their existing business model, then you get to the tipping point with Cloud and SaaS.
Five years out, it would become visible as to who is losing. They do have enough time (but there could be a tech revolution coming).
The average time between major upsets in the market is about 6-8 years. But you don’t want to wait that long. You have a year or two to invest so that 6-8 years from now, you don’t lose out.
SMEs were originally expected to take to the Cloud very quickly but only the large companies have done so, so far, even with private clouds.
That is true. Large and small companies are active while medium-sized ones almost seem like they are going through adolescence and they don’t want to outsource. Everything is to be done with a sense of high independence. If you set them aside, the large banks and investment companies are heavily into the Cloud and Virtualisation — they are also interested in infrastructure utilities (IU). For instance, in a recent survey we did, 14 per cent of respondents in North America said they have used IU at some time but 34 per cent want to use it in the next two years. Large banks use SaaS and the cloud because it improves their time to market. Small banks, with the cloud, now have access to new functions such as trade finance. (Mid-sized banks would be those with $10-40 billion worth of assets — small ones would be below that range while large would be above.)
In Europe, large financial institutions haven’t really opened up to IT outsourcing or offshoring. Could any activity there mean opportunities for India?
There are some die hard hold-outs that won’t outsource — both in the US and in Europe. I know that a one-of-the-top-ten institutions in the US made the leap during the financial crisis — that spurred them. However, there are some that still won’t do it. If you think of it, in all markets, we do want some banks to hold out, so that they can find some innovative, alternative solutions.
Given the conservative nature of European banks, while there will be opportunities from a few of the hold-outs, it won’t be a new, greenfield opportunity.
Source:http://www.thehindubusinessline.com/ew/2010/06/28/stories/2010062850050100.htm
