Individually and collectively, Tata Consultancy Services, Infosys, Wipro, HCL, Cognizant and others unmistakably revolutionalised the IT services marketplace. Most visibly this was through leveraging India and other offshore locations. Equally importantly was their focus on, and strength in, process and customer service improvements. This forced legacy vendors such as IBM, Capgemini, Accenture et al, to change rapidly to slow their revenue and reputational erosion.
Unfortunately for the Indian based providers, their competitive edge has been eroded by factors including, the replicability of scaling in India, the cost and HR limitations of the model and a can’t beat them, join them, mentality by legacy vendors.
capioIT believes that Indian providers have failed to continue to drive market disruption. In an “as a service” world, growth for IT and business services providers is not through leveraging geographic cost differentials, rather through the automation of services, in the form of the development of services assets and IP based solutions.
As capioIT has noted, the shift by services providers away from the drug of offshore labour arbitrage to IP based solutions has proved difficult to execute on for all services providers. Indian based organisations have not avoided this under-performance. Highlighting this is Infosys who stated a grand ambition in 2012 for asset based services. Unfortunately, noting the proportionate decline in revenues from asset and IP based services, earlier this month it decided to spin off its asset based business into “Edgeverve Systems”. If Infosys was able to execute effectively on market changes, the legacy people based business should have been spun off, not the assets.
One of the real indicators of how much of a legacy the likes of Infosys, Wipro have become is their inability to differentiate in customers eyes in terms of cloud, both from an IaaS and SaaS services perspective. For example, none of the Indian providers have excessively compelling capabilities in salesforce.com service provision and integration. Now they share this challenge with fellow legacy vendors such as CSC, HP et al.
Whilst in general current revenue growth is solid, fundamentally the Indian providers have lost their unique differentiation both individually and collectively. Where do they go from here? Unfortunately for many of them, they are going to have to consider the same outcomes as the legacy services vendors, as they fail to reinvent themselves very quickly they will have to consider mergers as a realistic survival option.
I do not believe that by the end of 2015 all the big five Indian firms will be in their current ownership structure. Whilst it is difficult, and not always helpful to speculate, one can gain pointers from the partnership between CSC and HCL. The complementary nature of this and executive interlock gives to the reasonable conclusion that it is a flagging of a potential merger between the two organisations in the not too distant future.