Posts Tagged ‘Indian’

Indian IT at inflection point

November 6th, 2015

For T.K. Kurien, the 57-year-old boss of Wipro Ltd, running India’s third largest software services exporter is becoming more challenging with every passing day.outsourcing17

“There is this huge change…the way clients are buying technology, the impact it is having on the way we have traditionally worked,” Kurien said in a recent interview.

Kurien, who is based out of Bengaluru, spent just 13 of the 90 days in the quarter ended September in India—the most he has spent travelling in a quarter since taking over as Wipro’s chief executive officer (CEO) in February 2011. He spent most of the time in meetings with executives at Wipro’s 1,000-odd clients, trying to understand their technology needs and how the company could help them become more efficient.

Vishal Sikka, boss of Infosys Ltd, Wipro’s cross-city rival in Bengaluru, is more eloquent in his description of the way technology is impacting India’s $146 billion software services industry.

“I believe that the traditional model of IT (information technology) services is dying,” Sikka has said repeatedly in the 15 months since taking over in August 2014 as the first non-founder CEO of Infosys, the 34-year-old firm set up by N.R. Narayana Murthy and six friends in 1981.

“This is the biggest phase of technology disruption I am seeing,” said Natarajan Chandrasekaran, CEO of Mumbai-based Tata Consultancy Services Ltd (TCS).

The change and disruption Kurien, Sikka and Chandrasekaran—who helm companies that together employ more than 650,000 engineers and posted over $30 billion in revenue for the year ended March 2015—are referring to is the way commoditized IT deals are changing.

Historically, engineers at Indian IT vendors traditionally managed the computer infrastructure of clients and wrote codes for some of the largest banks, including Citigroup Inc. and retailers, such as Wal-Mart Stores Inc.

With the advent of cloud computing—in which clients buy computing power and services over the Internet from a third party—almost all IT vendors have rapidly built up their capabilities to offer these shared services or tied up with cloud service providers such as Inc. and Microsoft Corp.

Indian IT vendors have also started deploying small teams to evaluate the potential of some of the disruptive technologies—TCS and Infosys, for example, are looking to build applications around blockchain technology, which is essentially an electronic system currently being used by crypto currencies, including Bitcoin and Ripple, and helps in authenticating transactions.

Sarvesh Sharma/Mint
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These investments come at a time when banks and other financial firms—their customers—are looking at the use of disruptive technology, including blockchain technology, to cut settlement times and lower costs tied to international payments.

At the same time, IT vendors are being forced to bring in elements of disruptive technology in their service offerings, promising to offer greater efficiencies for their clients, and introducing new approaches, including user-centric approach of Design Thinking in their engagements with clients.

Remaking IT firms

IT vendors themselves are cutting their dependence on engineers and increasing their focus on non-linear growth—which means growth in revenue is not linked to growth in the number of employees—by automating a lot of traditional tasks. Finally, most software services exporters realize that not all technology innovations can come from within the organization and they need to partner with start-ups, thereby enabling them to take the technologies of some of these start-ups to their clients.

“We are seeing a big shift in adopting the culture of innovation from Silicon Valley and the rest of the world,” said Ray Wang, founder of Constellation Research, a technology research and advisory firm. “There is a big push to remake the IT services firm as a strategic partner on co-innovation and co-creation.”

“It is becoming a challenge,” laughs Kurien. “How do you balance it all and, at the same time, keep recording higher growth rates?”

Growth in the short-term is not just a challenge for Wipro but even for firms like TCS. Wipro hardly recorded any growth in the first quarter April-June period of this fiscal year and TCS, too, grew at just 3.5% in US dollar terms in the first quarter and 3% in the second quarter period.

This has worried a few analysts, who believe TCS may actually struggle to grow at over 10% in US dollar terms and less than 12-14% in constant currency terms, as projected by software services industry lobby group Nasscom, during the fiscal year ending March 2016.

“We have to live and re-calibrate to what you call is the ‘new normal’ growth rates—growing at 13-15% annually. I don’t think any Indian IT firm is even factoring a 20% annual growth in the next two-three years,” said a senior executive at TCS, who declined to be named as he is not authorized to speak with the media. “But, certainly, as more digital contracts come up, and new investments are being made (by all IT firms), one can again look to clock growth of 15%-plus in three-four years’ time”.

As the Indian IT industry approaches an inflection point, the bosses at these companies are shaking up the way the firms have traditionally operated and make each of their firms future-ready—and, thereby, aim to post higher growth rates in the future—by investing in new-age technologies.

“Infosys, Wipro and others were all behind about three years ago. They suddenly got religion and are working furiously to catch up (with their global peers). They (Indian IT firms) still have to keep the old business going, but the shift to the front end of design and strategy is happening and the Indian IT services firms are now seen as more strategic than where they were three years ago,” said Wang of Constellation Research.

One of the ways the three poster boys of the Indian IT industry are making themselves future-ready is by re-skilling their existing workforce to learn competencies in these new-age technologies. Infosys has already made 54,000 of its existing workforce attend day-long classes in “design thinking”, the user-centric approach which has helped the company win more than $100 million deals and helped its engineer write better codes.

Wipro is in the midst of re-educating its workforce on new languages, while TCS aims to train more than 100,000 of its engineers in this fiscal year in cloud computing, machine learning and other areas of digital technologies.

Renewed optimism

And again, the early results are encouraging. Since Sikka took over in August last year, Infosys is a more confident, 180,000-strong company now than it has been for some time. Rivals are seeing a more aggressive Infosys when IT vendors are making pitches to clients, even if the company is winning new business at the expense of margins.

It was not a surprise when Infosys’s sequential growth outpaced TCS for the second successive quarter in the July-September period; the last time Infosys’s revenue growth was higher than TCS for the first two quarters in a row was in the April-June and July-September quarters of 2008.

This renewed optimism is explained by a series of steps taken by Sikka. Sikka first won the trust of his employees and, eventually, brought down attrition rates. It was no easy task. Infosys was haemorrhaging talent, with one in five employees leaving the company between April and June last year. Now, Infosys has the lowest attrition rate among the Big Three IT firms.

Sikka then put his trusted lieutenants in important roles, went for a management and organizational restructuring earlier this year, and started to marshal his team to win the confidence of clients. It helped that in the April-June period, it recorded 4.5% sequential revenue growth in US dollar terms, and 6% in the second quarter.

Agreed, Infosys has warned of a softer third and fourth quarters. Still, most analysts believe that the investments being made by Sikka should help transform Infosys into a $20 billion next-generation IT services firm by 2020.

Not for nothing, both Sikka and Kurien believe that Infosys and Wipro should see the “first meaningful impact” of automation on the company’s results by the start of fiscal year 2017. This truly would be a big step in Indian IT’s embrace of non-linear growth.

“The catch-up mode India-centric vendors continue to operate in places greater pressure on their abilities to balance innovation and sales growth,” said Bozhidar Hristov, an analyst at US-based technology research firm TBRI. “Recent investments in ‘new’ technologies illustrate their aspirations to depart from their status of low-cost outsourcers.”

At the $15.5 billion TCS, the single biggest challenge ahead of Chandrasekaran is to find ways to generate close to $2.5 billion in new business this year, if the country’s largest software exporter expects to outpace the average growth of 12-14% Nasscom has forecast for the IT services industry in FY16.

It is an onerous task as companies across the world are pressing their IT vendors for cost savings and there is intense pricing pressure for deals that are coming for re-bids.

“TCS clearly has reached a point where generating more business from some of its largest clients is nearing saturation,” said the head of research at a domestic brokerage who spoke on condition of anonymity. “Some of its largest clients bring in more than $700 million in annual revenues. How do you continue growing with such large accounts?”

Client mining

TCS itself is trying different approaches to keep up with higher growth rates. The Mumbai-based firm introduced its artificial intelligence (AI) platform, Ignio, which identifies, diagnoses and learns from issues in the IT infrastructure and automates basic technology work, thereby doing away with the need for engineers.

TCS set up a new business unit called Digitate dedicated to its recently launched Ignio platform and other next-generation products, and believes it has the potential to become a multi-billion-dollar business. The move makes TCS the second IT firm globally to carve out a separate unit focused on products using disruptive technologies; International Business Machines Corp. (IBM) set up IBM Watson, an AI supercomputer system, last year.

“TBRI expects TCS’s Ignio AI platform to impact revenue growth positively in the next 12 months as the platform will play a core role in process automation within the company’s infrastructure services unit. Ignio had a sixfold increase in paid pilot client projects, from three to 18, in the past six months,” said Amy McLaughlin, another analyst at US-based research firm TBRI.

Chandrasekaran for now declined to share by when Digitate can become a billion-dollar business for TCS. However, executives at TCS believe that Digitate should become a $1 billion annual business by 2019-20.

Infosys and Wipro, in addition to investing in these new-age technologies, are also giving a fillip to its client mining or ability to generate more business from their existing clients, through a clutch of measures. This has started showing early benefits. Infosys managed to increase business from its top 10 clients in April-June by 5.7% from the January-March period; during the second quarter, too, the share of business from its top 10 clients was the same as in the first quarter.

Although Wipro’s two largest clients outsourced less work to the IT vendor, the company managed to increase business from its next eight largest clients by 2.8% during the July-September period.

Two of the biggest challenges ahead of Indian IT firms remain in areas where all of them are renewing their focus—re-skilling the existing workforce and how many IT firms are able to monetize their new products and platform offerings.

“Talent management, including both training and re-skilling existing employees, will remain a key investment initiative as the development and delivery of new technologies require different skillsets compared with legacy outsourcing services,” said McLaughlin of TBRI.

As more outsourcing deals have elements of digital technologies, Indian IT vendors need to evolve from back-end outsourcing firms to “thought leaders”, says Wang of Constellation Research. “They have to change how they engage with customers by being proactive in solution design vs reactive, and they can do this by hiring more digital artisans.”

According to Thomas Reuner, managing director of IT outsourcing research at HfS Research, supporting clients in their digital transformation requires broad investments in skills and capabilities.

“Indian providers remain selective, if not coy, following the likes of Accenture (Plc) and IBM in their investment strategies,” said Reuner. “The likes of IBM and Accenture have broader and deeper industrialized vertical assets while Indian providers are more selective in terms of verticals and assets. Hence, there are no simple answers as to the winning strategies. Much will come down to balancing transformational capabilities and commoditized delivery of services. Crucial will be devising new governance and management approaches to help clients in their digital transformation.”


Tough times for Indian IT services industry

October 19th, 2015

First Infosys Ltd underwhelmed investors with a weak forecast for the December and March quarters; then Tata Consultancy Services Ltd (TCS) reported weaker-than-expected earnings for the fifth consecutive quarter. Shares of the two heavyweights fell by about 6% and the CNX IT index fell by 4% last week.outsourcing3

If this wasn’t bad enough, latest market data from Information Services Group (ISG) show that deal activity in the information technology (IT) services space slid in the September quarter. Data from the ISG Outsourcing Index, which measures commercial outsourcing contracts with annual contract value (ACV) of $5 million or more, show 344 contracts were signed in the third quarter, down from the record 448 contracts signed in the second quarter of 2015. ACV in the third quarter came in at $5.6 billion, down 9% versus the second quarter.

John Keppel, president and partner of ISG, said: “After suffering through one of the weakest quarters in recent memory at the start of the year, then rebounding to end the half on a positive note, the market slid back in the third quarter, falling below the $6 billion ACV threshold of market health.”

On a year-on-year basis, the number of contracts awarded grew about 20%, but the total contract value was flat. In other words, the average deal size of contracts is getting smaller.

This trend means competition for large firms will get tougher as clients approach niche firms for specific needs, rather than partner with a few large firms.

ISG said contract counts and ACV for deals valued at less than $40 million both reached record highs in the first nine months. On a year-till-date basis, the number of contracts awarded grew 8%, but the total contract value has declined 11% to $16.8 billion.

Analysts at Nomura Research said in a 15 October note to clients, “We continue to believe macro indicators on demand in the sector (US PMI, private jobs, and client financials) are deteriorating and this will have a moderating impact on 2HFY16 and FY17 growth in the sector. This is apparent in the weaker guidance from Accenture for FY16 and Infosys for 2HFY16, the revenue warning from HCLT, and the moderation in the Street’s growth expectations for TCS. The preliminary ISG 3Q data further corroborate this.”


Breather for Indian IT cos: US Cong lets ‘discriminatory’ outsourcing H-1B fee lapse

October 2nd, 2015

In a breather for Indian IT firms, the “discriminatory” USD 2,000 H-1B fee mostly imposed on them has now lapsed in a Republican-majority US Congress.
The charges, often called outsourcing fee, had forced Indian IT companies in the last few years to pay millions of dollars towards protecting the US-Mexican border from illegal immigration.

Indian firms had described the fee on highly-qualified IT professionals coming to the US on a H-1B visa as “discriminatory.”

The legislation with regard to a USD 2,000 fee on H-1B visas for companies having more than 50 per cent of its employees oversees was adopted by the US Congress in 2010 mainly at the instance of a group of lawmakers led by Senator Charles Schumer.

Passed on August 10, the law contains provision to hike H-1B and L-1 Visa fee per application by USD 2,000 and USD 2,250 respectively for qualifying firm; which mainly targeted Indian IT companies.

The duration of law was extended from four to five years under James Zadroga 9/11 Health and Compensation Act of 2010 to provide healthcare and financial compensation for the firefighters and other ‘First Responders’ who helped out in the aftermath of the 9/11 attack.

In a report released last month, NASSCOM said Indian tech industry contributed an estimated over USD 375 million during this period to the US Treasury including helping America secure its borders.

In a recent interview, NASSCOM president R Chandrashekhar described the fee as unjustified.

“It had nothing to do with the IT industry. It was applied in an inequitable way, which specifically targeted Indian companies,” he said, adding that he would welcome any move to eliminate the fee.

The Congress can still come up with a legislation to reinstall the discriminatory H-1B fee, which lapsed yesterday night, Congressional sources said.

However, Institute of Electrical and Electronics Engineers (IEEE-USA) in a statement criticised the US Congress for the lapse of the H-1B fee.


Business outsourcing: Indian investor challenges Nigeria

October 2nd, 2015

CHAIRMAN of technology company, iSON BPO, Mr. Ramesh Awtaney, has challenged Nigeria to encourage business outsourcing because of its great potential to develop the Nigerian economy.Outsourcing36

Speaking in Lagos, he said outsourcing had been tested in India for decades and found to be a sure economic enabler.

Awtaney said, “what will not work in the Nigerian economy is offshoring. Taking a job from Nigeria to execute in India, which is offshoring, is not a good business plan. Staying in Nigeria to operate support service business, which is outsourcing, is of course a business model that will work in Nigeria, just the way it is working well in India.

What we do at iSON is to develop intellectual property and bring it to the job place and we do not take the job to places where there is already developed intellectual property. What we are saying is that we train local skills and allow them to do the job, rather than taking the job out of Nigeria to places where there are developed skilled manpower.

When we started operations in Nigeria in 2011, we said to ourselves that the combination of outsourcing and offshoring will not work for us in Nigeria because we do not see it as a good business model. We believe in the transformation that outsourcing brings, hence our business in Nigeria is all about outsourcing alone, where we train local skills to do the job in Nigeria. What we are doing is to bring the skills and knowledge of outsourcing from India and develop it in Nigeria, in order to replicate India’s growth in business outsourcing in Nigeria. In doing so, we need to create an outsourcing industry for Nigerians. In our business model, offshoring is completely out of it because we want to give Nigeria the best of service that will impact positively on the country’s economy and on her citizens” he added.

Explaining his company’s contributions in the country’s economy, Awtaney noted that in the last four years iSON has trained Nigerians to do the job in addition to opening call centres in different cities of the country.”

He also said that the company had employed over 4,000 Nigerians with plans to increase the number to over 5,000 by the end of the year.


Indian IT companies gain against global competition

August 21st, 2015

Indian IT continues to extend its share of the global outsourcing market. In the primary half of this yr, they have been vital gainers when it comes to the variety of offers they gained. And the good points have come largely on the expense of European service suppliers.Outsourcing30

Indian IT companies grew their market share (in contracts awarded) to 27.1% within the January-June interval from 23.6% within the first half of final yr. TCS, Infosys, Wipro and Tech Mahindra have been amongst those that gained offers in extra of $ 25 million every.

The share of massive European IT companies – together with Capgemini, T-Systems, British Telecom and Atos – dropped to sixteen.4%, from 22.3%. The agency couldn’t present comparable proportional knowledge for the whole contract worth, however given previous tendencies and the extent of features within the variety of contracts this yr, it might be affordable to imagine that Indian IT has additionally gained within the worth market share.

US companies registered a progress in share to 18.1% from sixteen.7%, as per knowledge from IT outsourcing advisory agency ISG.

The agency couldn’t present comparable proportional knowledge for the entire contract worth, however given previous developments and the extent of features within the variety of contracts this yr, it will be affordable to imagine that Indian IT additionally gained within the worth Times of India


Why Indian IT firms want to shift outsourcing projects from offshore to onshore model

June 15th, 2015

With the advent of automation at the heart of India’s $146-billion information technology industry, the sector’s biggest customers are starting to rethink their strategy around outsourcing and debating whether to shift some outsourcing projects onshore – a development that has the potential to make the offshoring versus onshoring debate irrelevant. Outsourcing15

With automation having the potential of reducing costs by as much as 80% in commoditised service lines such as computer infrastructure management, customers of Indian IT are starting to initiate conversations around whether they can move more projects to onsite locations, without significantly disrupting the traditional offshoring labour arbitrage model of Indian IT in the near term.

“When you have the potential to automate certain projects, what difference does it make whether that project is onshore or offshore? It makes that debate irrelevant,” said a chief information officer of a European bank that outsources projects to one of India’s top three software firms. He requested anonymity as these discussions are private and confidential. The development, if it kicks off consistently, will signal a considerable shift for Indian IT firms such as TCSBSE -0.17 % and Infosys, which have for years thrived on the offshoring model where they built large campuses to house thousands of engineers to help bring down the cost of software development and maintenance.

“After more than a decade of achieving value through the offshore labour arbitrage model, one would think that mature organisations that have built GICs or captives, or organisations with extensive use of third-party outsourcing providers, would be at peace with the model. We expected them to move to a model of arbitrage plus automation,” said Peter Bendor-Samuel, CEO of outsourcing advisory Everest Group, in a blog post last week. “But the level of peace and comfort with offshore arbitrage is much less than we expected, and companies are expressing their desire to use robotics automation to repatriate their work,” he added.

The emergence of robotics automation, as has been widely reported, has the potential to disrupt the traditional “pyramid model” of Indian IT. Recognising the need to gain an edge in the battle for automation, the sector’s top companies such as TCS, US-based Cognizant and InfosysBSE 0.70 % are investing heavily on building tools and platforms that can afford large-scale cost benefits to demanding customers who are tightening technology-spending budgets with each passing year.

For instance, Infosys’ new automation platform has the potential to generate productivity improvements of about 40-50%, Infosys’ head of platforms Abdul Razack said in an interview last week. Similarly others like IPSoft’s cognitive computing system Amelia has the potential to perform routine, commoditised tasks at a fraction of the cost and time it takes a human engineer.

The fact that the cost of automating software services has come down rapidly over the years is also playing its part in this debate. “Previously, about 10-15 years ago, the cost of automation was much much higher – now that those costs have come down, you can afford to keep more projects onshore,” said Sid Pai, Asia-Pacific head at outsourcing advisory firm ISG.

To be sure, this does not mean that customers will move work away from third-party vendors such as TCS and Infosys. What is likely to happen is what is commonly referred to as “rebadging” — the process where third-party vendors take over the assets of a customer and replace personnel with their own staff, experts say.


US government goes tough on Indian IT outsourcing; deals with Disney, Fossil under lens

June 15th, 2015

After reports that the US government is investigating an outsourcing contract involving utility firm Southern California Edison and India’s largest software exporters, Tata Consultancy Services and Infosys, similar pacts signed now or recently are coming under the scanner, people familiar with the matter said.Outsourcing13

The latest contract to be scrutinised is one with Walt Disney, which recently signed a deal with US-based Cognizant Technology Solutions. Other recent deals with companies like Fossil are also being investigated, people familiar with the probes said.

On Sunday, IT industry body Nasscom said an investigation could have long-term ramifications on future contracts between US corporations and Indian IT firms and that it would intensify efforts to resolve the issue. “Undoubtedly (these probes) would have a damaging impact on future business. It is a serious concern,” Nasscom president R Chandrashekhar told ETon Sunday.

“This has the potential of seriously destabilising the way the sector does business…and frankly, we are also dismayed by the way a hostile business environment is being created,” Chandrashekhar said.

Cognizant did not immediately respond to an email seeking comment. Indian IT companies have vehemently denied wrongdoing.

On Sunday, communications and IT minister Ravi Shankar Prasad told PTI the government would intervene in this issue of alleged visa violations if the need arises. He said the government was confident that TCS and InfosysBSE 0.78 % would address the matter.

The US Labor Department plans to investigate whether top outsourcing corporations can use H-1B visa workers to replace fulltime technology workers, according to US media reports last week, citing Senators Dick Durbin and Jeff Sessions.

“A number of US employers, including some large, well-known, publicly traded corporations, have laid off thousands of American workers and replaced them with H-1B visa holders. To add insult to injury, many of the replaced American employees report that they have been forced to train the foreign workers who are taking their jobs,” the senators said.

Southern California Edison laid off about 500 workers, beginning August last year, and replaced them with H-1B visa holders from TCS and Infosys.

India’s $146-billion information technology industry is undergoing the biggest transition in its history amid a rapidly evolving landscape. The sector is struggling to match the explosive growth rates that it enjoyed in the 2000s amid volatile currency fluctuations that hammered profits and margins of all top Indian IT firms in the March quarter.

According to a Computerworld story last week, the Disney ABC Television Group cancelled a plan to farm out about 35 application developer jobs, amid a widespread outcry against outsourcing.

“Disney is also part of the overall investigation —it’s quite worrying for Indian IT firms, since a lot of other contracts that are being signed now are also going to be in the spotlight,” said an analyst with a top US-based research firm.

Experts said the politically charged debate on outsourcing is bound to heat up over the coming months with the US elections on the horizon. Infosys and TCS issued statements on Friday saying they are fully compliant with US immigration and visa laws.

“Infosys is committed to complying with US immigration laws. The US Department of Labor (DOL) regularly selects a percentage of visa and labor condition applications for extra scrutiny in this industry, and we work closely with the DOL to assist them in this activity in the ordinary course of our business. We have received no indication of any broader investigation of Infosys visa practices,” Infosys said. TCS said that the company “maintains rigorous internal controls to ensure we are fully compliant with all regulatory requirements related toUS immigration laws.”


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