IT companies to be labor democracies…!

It's time that India opens her borders wide and ask'em to come in and sweat it out. No need for H1-Bs. Come on in, all are welcome - so long as you've got skill and willing to work like us.

The best of Indian IT firms like Infosys, Wipro, TCS boast of hiring more and more global workforce and mostly display them in their Annual Reports. They make a pretty picture and tempts one to think that they play fair game besides getting the talent mix right. In that context, whenever I hear about outsourcing backlash in the US / Europe, I ask what the hell. Outsourcing ring fences client’s bottomline, renders its processes better (the reason why more global corporations look eastwards). To go one step further, new found prosperity of the east winds its way back to those economies by way of tourist $$ / Euros.

To give a perspective -

“Figures from Visit London show that tourists from India spent £139m last year - up from £107m a year earlier and £78m in 2003. About 212,000 Indians visited London last year, up from 130,000 in 2003” - reports Julia Finch in The Guardian.

“When compared to 2005, international visitor spending by many European countries declined in 2006; total U.S. travel and tourism exports to Europe declined one percent in 2006. However, spending increases from Indian visitors (55%), Chinese visitors (21%), Canadian visitors (16%), and Brazilian visitors (11%) helped propel the industry into record-breaking territory” – reports OTTI, US”.

India earns less than China from overseas, but its tourists give back more than double. We love Disney Land and the London Eye, yeah...!

But Senators Chuck Grassley, R-Iowa and Dick Durbin, D-Ill., would have none of it and have some questions.

I had visited Sen.Grassley’s website which has the full text of questions they raised to oursourcing vendors who cornered the maximum H1-B visas. Between those questions and the awaited reply lie the arguable shade of grey depending on how the game is being played out in the middle – and to be fair to all, to whom those pictures are really meant for.

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Or is it just the anti-India outsourcing lobby at work ?

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The changing IT services landscape

I had great fun watching the live telecast of announcement of financial results by Infosys and TCS. Being a shareholder in both these companies and in a few other promising companies in the Indian IT sector that give 25% plus y-o-y, I have little to complain on their efficient use of my capital.

As a long term investor, I am not bothered by cyclical factors like the weakening $$ or interest rate hardening. Anyway these companies have hedged their $$ exposures in the short term and the impact cost on their margins can only be negligible. Well, in case if the trajectory persists, they may have to re-price their offerings and I am not much worried about their loss of competitive edge since still it would leave their clients with significant cost and efficiency arbitrage. Even the competition has large presence in India, hence the problem is not just theirs. Interest rates matter much less since these are mostly zero debt companies with sufficient cash hoard (apparently to finance acquisitions) at least in the short term.

But something else worries me more.

I often get to hear CIOs often mouthing the word ROI than CFOs. They are looking for solutions more than technology (which is the way it should be). They say they simply can’t afford large scale, highly customized and costly IT implementations and services. Enterprise solutions are becoming all the more modular, pre-integrated, pre-tested pre-assembled and validated at the Vendor’s side before implementation. Not much different from custom orders given to a carpenter. Customers engage multiple vendors to bid on smaller projects that can be easily deployed, managed and measured. The IT partners are also expected to provide best practices, 24x7 service and at times even to give a better insight into the customers’ business model itself – not as a consulting assignment, for free. These ancillaries have become the differentiators in the otherwise commoditized IT services market place.

Add to it the long term threat posed by SaaS to the traditional revenue streams of these IT services companies. 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, won't that bypass the role of third party systems integration and applications management vendors altogether?

Under SaaS, clients use the internet to access remotely-hosted applications, which are delivered on a one-to-many basis. SaaS specialists such as Salesforce.com, NetSuite, and RightNow, which all develop and host web-based CRM and ERP systems are enjoying strong growth, driven by the continued acceleration in speed of WAN bandwidth, and diminishing user concerns over security and reliability.

SaaS will sound familiar to anyone who lived through the Application Service Provider hype of the late 90s. However, the big difference is that ASPs were basically pushing hosted versions of traditional client-server applications on a one-to-one basis, whereas SaaS applications tend to be multi-tenant, are designed for internet delivery from the outset, and many utilize genuine usage-based pricing models.

Some say that the prospect of bandwidth carriers requiring SAAS companies to pay a premium for faster networks could slow the general adoption of SAAS. This is because it will require SAAS companies to rethink how much they are willing to pay to deliver their services, as well as how much to charge customers. But the flip side is that if someone went to a customer and said ”we're going to reduce your access to applications over the Internet because you're not paying us enough”, they would switch providers so fast it would make their head spin. I find it extremely hard to believe there won't be some [carrier] who says, “I’m the one you don’t have to pay for.”

How the small SaaS providers differ from the big consulting organizations is that they are focused on doing lots of short integration projects, whereas an Infosys or a TCS or Accenture wants to send in a truckload of consultants into its clients for 18 or 24 months at a time. If the employees are not on a project, it inflates their bench strength that hits their bottomlines hard.

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I don’t want to put out a `sell’, but many soon will if a quick rethinking of IT service delivery models do not emerge out of the woodwork to meet the ever evolving set of challenges.

A comprehensive perspective can be found here and here.

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