I would like to agree with you, but I am not convinced with the conclusion of Forrester, considering:

1. If the share has gone up from 26% to 46%, so has software export from India. (I guess 15B USD+)

2. The top 3 have recruited close to 1lakh new employees among themselves, but the next 3 (sub billion category) and others have not recruited that much. So that may have resulted in more throughput as in services it is about headcount before gettting a project. And in downturn, employee layoff is normal as well.

3. They have mentioned that Sasken, Mindtree to be success stories. But they are also pretty much diversified.

4. Some of them also acquired a number of companies, who are much more focussed in niche areas. And that would have contributed to the bottomline.

I think Forrester has not shown the complete picture.

You could have seen this coming. The flight to scale in the IT Services industry is natural. Large companies have all the benefits of scale – brand name (both in the market and for hiring), sales presence, diversity of skills…and on and on. The advantages that a small company typically has – agility, customer focus, innovation are not rewarded in the IT Services industry. Especially, in a low growth environment, when the larger companies will be hungry and responsive.

I don’t think a mid-sized company with a broad market strategy can succeed any more. It has to be laser focused on a market/technology/delivery model, whatever, that it can dominate.

Your article seems to be prophetic for mid sized companies. (report by Forrester Research on 26th June, 2008)

Main story : Consolidation of Top 3 Indian IT outsourcing companies, share account for 46.4% in Y2008 (up from 26% in Y2004)

http://economictimes.indiatimes.com/Infotech/ITeS/TCS_Infosys_Wipro_run_Indian_IT_show_Forrester/articleshow/3165792.cms

Will really appreciate your thoughts on it.

1. Have less political people and more capable people at the helm.

I have seen a lot of GM/DM/PM coming to services companies from other PSUs of India or some other company where Software is an alien concept.

Believe me, they do not understand software at all. I have talked with a few of them. And they keep on talking it is all business. Yes, it is business, but do you understand the eco-system Sir?

And above all, a person who has never gone through the pain of coding; can understand the pain of coding and create a right kind of environment. As in MS it goes, a developer can manage another developer (not software professional)…and till now Steve Ballmer does not command the kind of respect which Bill Gates does.

2. Do something (with the cash they sit on) with respect to products. Well, it is highly risky business compared to Services. However, the business model is different and the reward is equally good, if you find a sweetspot.

And come on guys, if you will not do, who will.

I guess Infosys has started doing it, calling it as a Product Incubatin Engineering. And they have started from their Finnacle Unit.

-Satya

I do not agree with the scale argument, I think to survive and thrive now you do not need scale but you need productivity. In fact it might come at the price of growth.

Sarvesh

The core strength of Indian firms continues to be in ADM. They have not made meaningful dents in the systems integration market – especially in projects which call for complex program management, industry knowledge or change management. If clients are no longer rolling out large CRM or ERP applications on-premise and are instead accessing them from a remote center via a web interface, it bypasses the role of third party systems integration and applications management vendors altogether. Indian vendors, busy dwelling on their staple model of sending coders across by truckloads, didn’t have the wisdom to invest in R&D to develop SaaS applications of their own or develop domain consulting skills. Those continuing high margins (25-30% margins) meant they are probably under-investing for the future. Didn’t they expect IBM, Accenture and EDS to play catch up in their own turf soon or were they too naïve to mistake the abnormal gains from tax largesses and Rupee depreciation for their competence…?

Most challenging for the Indian players is the pressing need to move up the ladder into business consulting, a domain that companies such as IBM have dominated for decades. Indian firms need to invest heavily to secure a position in this arena and risk some shavings off fat profits at least in the short term. The global vendors knew eventually that’s where the field is level, where they’d smother their Indian competition. Particularly in consulting domain where outcome based billing are the norm and vendors bag deals after guaranteeing ROI to the client, upfront. That calls for intestinal fortitude and deep pockets besides mere self confidence that the global vendors immensely possess.

The future lies in doing things the multinational way: embracing innovation, consulting, and geographical expansion. According to researcher Gartner (IT), over the next two years, Indian companies in the private and state sector, from banks to the railways, are expected to spend an estimated $5 billion on new technology, all of which will need to be serviced. They should look at their own backyard to grow now, as it will help reduce high overseas wages and spiraling visa costs. Automation and low manpower dependence would result in wage rationalization and reduced threat of attrition in IT industry as well, besides freeing up a lot of engineers for mainstream disciplines like Civil, Mechanical and Electrical which are severely constrained by the IT avarice.