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Sudha Kumar

Are you a mid-sized IT company sitting dejected? Here are some opportunities just waiting to be grabbed. Hear the beat?

EVER since the dawn of the new millennium, one industry that has witnessed realignment and paradigm shifts is the global IT industry. Although the shift began with the now historic dotcom bust, I believe that what we are now witnessing is a much larger phenomenon of the industry settling down to a new equilibrium.

From a long-term perspective, the Indian IT industry stands to gain. From a demand viewpoint, the size of the offshoring pie is increasing — larger deals are flowing offshore, and more global buyers have come to India to evaluate and finalise outsourcing relationships. We have seen many examples of this in the last year, including Lehmann Brothers, PeopleSoft, SBC Communications and the World Bank.

The large deals will be shared by the Tier I companies or the scale players; what are the opportunities, therefore, for the rest of the Indian software industry?

Looking for the right guy

US mid-sized companies would be looking for right-sized partners. Recent reports indicate that the SMB segment in the US will lead the recovery of the economy and herein lies the opportunity for mid-tier IT companies. Mid sized corporations (the SMB segment) as they are called, are a great target. However, many of these may have never offshored before, and hence a good amount of education on the concept of offshoring would be necessary.

A more consultative approach to building customer relationships may be called for, given that this segment may be less well-informed on the business benefits of IT than the Fortune 1000 segment. Companies need to first of all become conversant with the business gains of IT. They need to learn how to articulate this to the prospect. Further, they should be able to assess the situation from the eyes of the prospective buyer, address concerns they may have, and educate them on how to build an offshoring relationship. In fact, they should collaborate with the prospect on creating an offshoring roadmap with the objective of winning a pilot and demonstrating proof of concept.

As opposed to this, most companies approach selling in a more tactical way, and end up executing projects (which do not assure continuity) rather than attempting to engage in a longer-term relationship.

This market is also quite fragmented, and localised, so a combination and direct and channel partnerships may be required to reach out to this segment.

Here's one more opportunity

The second opportunity we see is from divisions of Fortune 500 corporations that have never offshored before, who are now willing to be persuaded. While we may look at the larger companies monolithically, we miss the point that larger companies have business divisions, and operations across many countries. In many companies, IT decisions and budgets are decentralised, and this presents an opportunity for mid-sized service providers. For one, many of these companies have not have offshored before, and are reticent to go with larger players. They believe that they require personalised attention, which they do not feel a large company would give them. In fact, we have come across many situations in recent times, where divisions of larger companies have preferred to evaluate mid-sized offshore partners and partner with them.

And some more

Yet another opportunity is to tie up with mid-sized local US IT vendors to provide back-end capabilities. We find that many of these companies are under pressure from their customers to lower costs and are tying up with offshore vendors to achieve this. There are deals that are in the making of this nature, and more will follow. This kind of relationship also has the potential to assume more strategic dimensions, possibly even leading to mergers/acquisitions.

Another trend that is very common now is to provide product realisation services for mid-sized product companies in the US. Here, there are two business models that are prevalent. One is the regular ODC, and the second is the "BOT" model. In the latter option, the buyer retains the option to go on their own after a period of time, when they believe that they have garnered sufficient experience and size to operate independently. So what does the service provider gain? Management fees for setting up and growing the offshore DC for a period of time, as well as valuable experience.

One could also explore becoming a tier-t service provider to tier-one players, emulating the model that prevails in the manufacturing industry.

Lastly, companies that have a focus on one vertical, or a few allied verticals, or on any specialised horizontal (such as business intelligence for example) have managed to hold their own and work alongside the larger players, as they provide services that are special purpose and not easy to replicate.

The question that arises is — if there are so many kinds of opportunities, why are Indian IT companies facing so many problems? The most important reason, in our view, is that most companies have been caught unawares by the shift in market dynamics, and do not have the wherewithal to retool themselves. One of the biggest lacunae we have seen is the lack of understanding of market, and insufficient knowledge with which to carve out a market strategy for growth in this environment. Companies are still not convinced about the need to invest more in sales and marketing. Investment does not necessarily imply more dollars, but hiring good resources, and expending more management bandwidth on such initiatives.

Companies need to think differently, and look at ways to create value propositions that differentiate them in an increasingly crowded market space. They must be willing to collaborate and look at marketing relationships and multi-pronged growth possibilities. Innovative and creative thinking, matched by relentless execution, will characterise the companies that emerge successful through this realignment period.

The author is CEO, Prayag Consulting, a strategic and operational consulting firm focussing on the high-tech industry and can be reached at sudha.kumar@

prayagconsulting.com

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