Through the 1990s and much of the 2000s, Indian information technology (IT) services firms grew rapidly—and largely at the cost of US and European competitors. The reasons behind this are well documented—cost, quality, the availability of expertise and the growth of communication networks.
Their success enabled the Indian firms to consider themselves peers of multinational companies (MNCs) such as IBM and Accenture—if not in size, then in terms of expertise and quality of service—and they set out to conquer the world. Most of these firms were content to ignore the Indian market. Earning in dollars and spending in rupees is very different from earning and spending in rupees, and most Indian IT services firms had built models and cost and organizational structures tuned more to the former than the latter.
Illustration: Jayachandran / Mint
To offset the local advantage enjoyed by the Indian companies, several of the MNCs descended on the country and proceeded to build huge campuses employing tens of thousands of Indian coders. The Indian companies were unperturbed: The MNCs didn’t have the models and structures to do this efficiently enough, they argued. But several of the MNCs adapted. And even as the MNCs downsized operations in the US and Europe, the Indian companies felt the need—as they still do—to increase headcount in these very markets. In some cases, this was (and is) because of customer requirements. In others, to combat protectionist tendencies in these Western markets.
One trend that somehow seems to have been ignored in all this is the ease with which the MNCs started serving Indian customers—in India. Maybe it was the fact that they were used to lower profit margins. Or maybe it was something else—such as having or acquiring the models and structures to do so.
The slowdown in US and Europe, however, has now forced Indian IT services firms to start looking at the domestic market. And this time, they are the ones at a disadvantage—because they don’t have what’s needed to succeed. To be sure, these companies are now acquiring the required capabilities and developing the acquired structures and models, but the playing field, to paraphrase an oft-used quote, has been truly levelled—and in a way the Indian IT firms probably didn’t expect.
The world is truly flat.
Who will have the last laugh in IT: Indian firms or MNCs? Tell us at email@example.com