The bandwagon is rolling, hop on

THE 2005 STORY

'IBM is recruiting. Hop on,' said a large hoarding mounted on a van as it tours various parts of Bangalore city, reflecting the mad rush to secure talent as the IT outsourcing wave reaches a new high.

To explain this phenomenon, industry experts are debating what has been the definitive shift in the software industry over the past year and trying to gaze ahead for this sector.

The lesson emerging from the experience of 2005 is that India has the opportunity to maintain its dominance in the outsourcing space if it can sustain the massive growth needed in the global-ready high-end workforce to support the scale of services to be delivered. This can be achieved by re-allocating financial resources to the already strong education system.

Said David Peral, co-founder & CEO, Pangea3, a KPO provider,"The major driver to bid out business in the sector remains cost, but the major driver to closing that business is now quality of services and sophistication of service offerings. Lower cost or lower value services are being commoditised quickly, and large transactions are now being closed based on the highest quality vendor."

This value system will gain increased acceptance as the software industry is witnessing a sharp shift from cost arbitrage to value arbitrage where global companies are taking a longer-term, more strategic view as they realise that they need access to both global markets and the best talent to remain competitive.

Said Nandan Nilekani, CEO, Infosys,"Over the years, the scope of global IT sourcing has expanded to include business processes and companies are increasingly realising significant benefits from offshoring, making it a strategic imperative. Going forward, we will see more firms that will become global, and those operating in the global arena will become more diverse, both in size and origin."

This, he said, will increase the demand for resources and competitive pressures will force companies to rethink their sourcing strategies to exploit global resources. "Technology will continue to spur the creation of more global movements, which may also emerge as a robust force in international affairs and with further integration of India, China and other emerging countries into the global economy, a larger and younger talent pool will become available," he said.

In the current business environment, investments for funding business change are more needed than ever. There is a compulsion to achieve higher return on every dollar of investment and clients are looking for more in terms of business alignment, flexibility and predictability- the key enablers of business innovation.

They want to plough back resources into building a new business capability. As a result they are looking for service partners who offer high quality business solutions with predictable execution capability.

Added Mukul Agrawal, country manager, Unisys India,"Companies that already run successful global sourcing programmes are finding more and more business areas where they can leverage global sourcing and are continuing to expand their offshore operations."

Having seen India's "spectacular success", several other developing countries from Asia, Eastern Europe and Latin America are now aggressively promoting global sourcing, which has added to the overall momentum. "These drivers will continue to operate in 2006 with more vigour." The major lever has been the ability of the sector to use technology as an enabler to delivering increasingly sophisticated and previously unseen services, while no longer selling simple technology as the end solution itself.

In short, having mastered technology, sophisticated providers in India now use that technology to simplify the delivery of increasingly challenging and sophisticated services, such as legal services, accounting services and financial and equity research services.

Likewise, the ubiquity of secure facilities and platforms has allowed sellers of high-end services to prove that sophisticated work can be sourced and delivered from India, since security is no longer a hurdle. Solving the technology security issue has allowed new entrants to focus on quality and delivery, while using technology as a medium, but not the message itself.

By the end of 2006, establishing complex capabilities offshore will be seen as diverting critical energy and resources from winning in the marketplace. The industry will see a significant shift of work from captive operations to global outsourcing providers who can deliver product development from start to finish.

Said Ajay Kela, president, Symphony Services: "This trend follows the evolution of globalisation practices. Companies have learned that substantial competitive gains only come from full lifecycle outsourcing, not a piecemeal approach, and India will get a major share of this pie."

Bob Hoekstra, CEO, Philips Software sums up by predicting in a funny vein: "A huge theme park, Disney World India will come up on the outskirts of Bangalore, where citizens can virtually shake hands with Mickey Mouse, who is outsourced to the US. The US is home only to cartoon characters finally!"