Is This The End Of India's IT Services Success Story?

I’m currently working on a report entitled “IP-Based Solutions Will Transform The Global IT Services Industry.” In a nutshell, I believe that the business model of IT services firms (consulting firms, systems integrators, and outsourcing firms) will transform from a traditional human capital-intensive model to a software capital-intensive model over the next five years. As I will detail in my report, I believe this transformation will have far-reaching implications on the IT services firms’ organizations, including their sales, marketing, portfolio management, and delivery capabilities.

As I’m based in India, I also see this change as a major disruption for India’s export-oriented IT services industry (AKA “offshore services”). I believe that the growth model for India’s IT/ITeS industry’s in the next 20 years will be much different than it has been for the past 20 years. Software assets — what I also call IP-based solutions — will become critical to the competitiveness of the Indian IT services industry. The recent investments of companies like Infosys, HCL, and NIIT Technologies in such IP-based offerings are strong proof points.

This means a couple of things for the Indian industry:

  • The Indian IT/ITeS industry will create far fewer jobs than in the past. This is what some Indian firms refer to as “non-linear” business models.
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Is Dell Finally Ready To Strengthen Its IT Services Activities?

In an interview with the Economic Times in India, Dell announced yesterday that it was readying a war chest of about US$1 billion for IT services related acquisitions in India. Here is why I think this announcement is important for Dell:

First, Dell needs to continue strengthen its global delivery network and industrialization capabilities. Dell bolstered its IT services market position with the Perot Systems acquisition in 2009. Since then, the company has made clear its development ambitions in India from an offshore perspective — including during the first analyst event they hosted in India in September 2011. The company lags far behind the services behemoths, including IBM, which has more than 100,000 staff in India working for international clients.

The India domestic market is also becoming a top priority for all major tech vendors. Forrester expects this market to grow by 20% in 2012 in local currency (see my recent report on the future of IT services in India). Japanese companies like NTT Data have launched aggressive inorganic growth strategies to tap this booming market (Dimension Data in 2010 — which was at the time part of the top 10 IT services firms in India via its Datacraft subsidiary — and more recently Netmagic Solutions). And Forrester expects more Japanese investments in the coming few months.

While IBM, HP, and Wipro Infotech are leading the IT services market in India, Dell is still marginal in terms of system integration and managed services activities. So it’s high time that Dell strengthens its presence in India.

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