Opportunities in risk reduction, 'variabalisation' for Indian IT firms

What is corporate America doing, and thinking of doing, which will mean business opportunity for Indian IT firms, and challenges?

In a land that some say has fallen behind the Koreans and the Japanese in technology innovation and adoption, business innovation still seems to be on all the time.

From merely getting the Chinese to build everything for it, to asking Indian IT firms to "take control of more complex processes", corporate America is "increasingly willing to let go of management of projects", says Phaneesh Murthy, chief executive officer of iGate Global Solutions.

This is all about risk reduction, and the next step is "variabalisation", which means, asking the entire supply chain to be nimble footed like never before.

iGATE Global, a Bangalore based IT services exporter, mostly owned by an American parent iGATE Corp., didn't do all that well in the three months to June this year. But Murthy is excited about what can be, and perhaps will be.

"Large enterprises are increasingly asking vendors, including Indian IT firms, to take on higher goals, and fill in the gaps yourself". They do this by using incredibly robust control systems: They don't lose control of their businesses, but just about everything else.

Take Flextronics, which started out as a contract manufacturer of electronics goods. It now offers its own design capabilities. So, "if you are Sony, you could go and say, these are my specs, build it". Nike is a virtual business, for all practical purposes. It focuses on core R&D and solid branding, while others provide everything else.

Dell, the world's largest online computer seller, now has much of its design and manufacturing done in Taiwan.

"Enterprises no longer care where they get their services or goods, so long as it matches what they want: If you are an Indian firm offering consultancy, then sure, if you are better we use you".

Great, but isn't this the direction things were moving in for awhile? Yes, but here's the next step: If consulting with you doesn't make me money, I don't pay you. Consider Wal Mart's vendor management inventory -- if a consumer does'nt by a shampoo or a food mix, then Kraft and P&G won't get paid for those supplies. "But, if more are bought, then they get paid faster and better."

Here's where variabalisation comes in: A garment factory will invest in white fabric and production capacities, but will decide on styles and prints at the very last minute. The opportunity for an Indian IT firm then is to build those software applications that can enable this.

The challenge is, if a different kind of application is to be built, having the means to do that, and still make a profit. The logical inference then is that temp staff will increase, Murthy says. It isn't happening yet, but, "once the market matures, we will start doing it because the people to do this will also be available: not everyone may want to work throughout the year. In the mature market, they will have enough work to do this."

Earlier this month, Kapil Dev Singh, country manager at IDC India said IT services vendors need to keep costs "variable" for some time to come. Even though services are driving the growth of the Indian IT industry, committing to a specific line of service, by hiring permanent staff, may be a bad idea, Singh said.

"We are now close to the peak growth rate" and International Data Corp, the US based IT market research firm that owns IDC India, expects the IT industry's growth rate to peak this year, he said.

This called for a "variabalisation" of costs, and one way of doing this was to hire more "temp staff". As a result, the business of providing temporary staff to the large IT firms itself will see a surge, he said.