Future strategies of Indian IT firms: the impact of increased offshore operations by MNC

Abstract

The global economic slowdown over the past few years has resulted in companies reducing their IT spending. Consequently, the margins of IT companies have been shrinking forcing them to shift their operations to low cost destinations. This has led to MNCs companies setting up offshore operations in India thus posing a threat to the cost advantage enjoyed by the Indian IT companies. Some of the possible strategies that could be employed by Indian IT companies to counter this trend are as follows-  Enter into the BPO segment.  Increasing involvement in product development  Moving up the value chain- Providing consulting services A number of IT companies have setup their BPO subsidiaries allowing them to sell BPO services to the same clients. But there is a clear difference between the skills required for IT and BPO organization. Entry into the BPO segment would definitely provide volumes and enable an increase in the revenues of Indian IT companies, However as MNCs continue to offshore their operations, entry into BPO by itself does not appear to provide the requisite strategic advantage for the Indian IT companies to counter this threat. Entry into the products domain would be difficult for Indian IT companies since their focus remains to be in services predominantly. They are also involved in a number of verticals ranging from manufacturing to financial services. It is found that most successful products companies have a domain focus and as a diversified player. Hence it successful products companies have a domain focus and as a diversified player. Hence it would be difficult for Indian IT companies to enter the products space and still remain competitive. Focusing on a single domain at this stage would entail assumption of a significant amount of risk and hence may not be a viable option. At this stage moving up the value chain by providing consulting services appears to be a necessity for the Indian It companies to survive and compete with MNCs in the long term. This option appears to be a more natural progression to becoming more term. Competitive since it has synergies with existing clients and the companies have skill sets in various domains to a significant extent. Some steps have been taken by these companies at the operational level which includes acquisitions and hiring of skilled Professionals. There also needs to be an effort at building a brand both at the company and the country level which is very important in a high-value business like consulting. Thus based on the analysis entry into consulting services appears to be the most feasible option for Indian IT companies to counter the threat of offshoring by MNCs.