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Indian IT firms go up on value ladder

The Forbes magazine says many MNCs now depend on Indian IT firms for product-software designs, which was once the sole domain of Western firms.

india Updated: Dec 09, 2006 10:50 IST

Indian IT firms, once purely providers of call centre services and payroll processing, are moving up the value ladder faster than anyone had expected.

Many Indian IT companies are offering product design, software design, chip engineering and the kind of corporate asset-deploying advice which was once the sole domain of Western firms like McKinsey and Booz Allen Hamilton, according to Forbes magazine.

"A lot of consulting deals won by the Indians in the last few years have really shocked the industry," said Stephanie Moore, Forrester research analyst.

More and more multinationals are relying on Indian IT firms for fundamental missions. US-based financial services major Citigroup Inc faced a major problem of complications in data processing as a result of its global expansion as it had 59 different versions of banking software across 100 countries.

Hence, it hired an Indian consultant to streamline the processes to a single version. It is estimated that the project, which has so far been implemented in 70 countries, will save the company at least $110 million a year.

Similarly, Northeast Utilities, a US-based company, consolidated three customer information systems into one and six call centres into two, a move expected to save the company $10 million in annual operations and management costs. Indians played a role here too.

American IT giants like IBM and many others who bid for such projects have lost out to Indian IT firms such as I-flex Solutions, Mphasis BFL Group, Infosys Technologies and SlashSupport, says Forbes.

Top five Indian players in consulting like Tata Consultancy Services (TCS), Infosys, Wipro, Satyam and HCL Technologies have averaged 30 percent revenue growth in this fiscal while the largest US players have averaged on meager four percent, according to Datamonitor senior analyst Patrick O'Brien.

The Indian firms view consulting work as a means to maintain their competitive edge in the face of wage inflation in India and the rise of Chinese data processing firms. The labour arbitrage is also not what it used to be.

Wages for project managers in India have increased to 23 percent per year from 2000 to 2004 while salaries for programmers have increased at a rate of 13 percent, according to the McKinsey Global Institute.

In a bid to restrict the spread of Indian IT firms, foreign players are increasingly shifting their operations to India or buying up rival companies.

First Published: Dec 09, 2006 10:50 IST