Bangalore: Large Indian software service firms such as Infosys Technologies Ltd and HCL Technologies Ltd could generate as much as 50% of their revenue in the next five years from business gains from “solution accelerators,” broadly described as a combination of services and software that could be used on multiple platforms for several customers, leading technology researcher Forrester Research Inc. has said.
Indian information technology and back-office companies are investing to build software that could be reused for specific solutions among different customers in their effort to earn higher margins, as they face pressure on pricing due to increased competition from global rivals such as International Business Machines Corp. (IBM) and Accenture Ltd, that are leveraging talent in low cost countries such as India.
The ‘solution accelerators’ will constitute intellectual property owned by the companies, earning them higher prices as against traditional labour arbitrage model of time and material costs. IBM and Accenture are also investing in building such IP assets to be licensed out to customers.
A study of over a dozen such solutions shows an average saving of 25-30% in implementation time for the client, Forrester said.
But, the research firm said, customers used to pay lower costs factoring the lower wage costs for Indian software companies would resist paying higher price in the short term, but would accept as they see more value. “They came in for lower prices on cost arbitrage. It would be difficult (for customers) to accept the change,” said Sudin Apte, senior analyst and country head (India), for Forrester.
Infosys, HCL and Cognizant Technology Solutions Ltd, a New Jersey, US-headed services company with a large workforce in India, are investing in hiring senior people, several of them onsite nearer to customers in US and Europe to develop automated solutions for customers in manufacturing, retail and high technology businesses. These companies already earn between 5% and 9% of their revenue from “solution accelerators,” said Apte.
National Association of Software and Services Companies (Nasscom), India’s software lobby, in July said, that India’s software and back-office services industry could earn as much as $50 billion or more than Rs2 trillion in the next five years, if companies “innovate” in the way they deliver software services and build products for their global customers.
The $50 billion revenue from innovation could be in addition to the $124 billion revenue the export-driven industry anticipates it would make by 2012, a joint report by Nasscom and the Boston Consulting Group said. Besides competition from global rivals, Indian software companies are under pressure due to appreciation of the rupee against the dollar, the currency the industry bills its majority of customers in, employee attrition, and also to increase the value of their business with clients.