RisingShiningSuperpower
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Modi-ji and his capable ministers must meet this challenge head on. I'm confident that India will retain its competitiveness in the outsourcing industry. Under Modi-ji's brilliant leadership, all difficulties can be overcome. India will be a superpower by 2020!
India’s Outsourcing Firms Change Direction as ‘Cloud’ Moves In - WSJ
India’s Outsourcing Firms Change Direction as ‘Cloud’ Moves In
By
Sean McLain
July 12, 2015 6:43 p.m. ET
NEW DELHI— AstraZeneca PLC is sharply scaling back the business it gives to the Indian outsourcing companies that it has long relied on for tech help.
David Smoley, AstraZeneca’s technology chief, said he expects to cut in half the $750 million the drug maker used to spend annually on outsourcing over the next two years. He said the number of people working on information technology also would drop by 50%.
The changes at AstraZeneca are part of a major shift toward cloud computing, which is starting to bite into the revenue and profits as well as hiring in India’s critical outsourcing industry and poses an existential threat to the players that fail to adapt.
Outsourcing executives are bracing for a big disruption. “It’s like what happened when Amazon arrived,” said C.P. Gurnani, chief executive of Tech Mahindra Ltd. , a large Pune-based outsourcer that specializes in work for telecommunications companies. U.S. bookstore chain Borders closed and Barnes & Noble had to reinvent itself, Mr. Gurnani said.
Mritunjay Singh, operating chief of outsourcer Persistent Systems, predicts a “bloodbath” in which only nimbler companies will survive.
ENLARGE
Outsourcing accounts for around 20% of all of India’s exports of goods and services. The industry employs millions of Indians and has become an important route into the middle class in the world’s second-most populous country.
The impact of the move to cloud computing—where servers and software are accessed via the Internet rather than on local networks or personal computers—is being amplified by other trends, from automated code-writing to increased competition and falling corporate information-technology budgets.
If Tech Mahindra, Infosys Ltd., Tata Consultancy Services Ltd. , WiproLtd. and India’s other big IT outsource companies fail to change, the consequences for India’s economy could be dire.
The value of outsourcing deals signed in 2014 shrank 17% to $120.4 billion from $145.5 billion a year earlier, according to consulting company KPMG LLC.
Indian companies are losing business to firms that have led the way into the cloud, such as International Business Machines Corp., Amazon.com Inc. and Accenture PLC.
With a decline in sales, hiring in India by outsourcers has also slowed significantly. New job growth is projected to hit a five-year low this year, according to India’s National Association of Software and Services Companies. Tata Consultancy Services, India’s largest outsourcer by revenue, added 19,192 jobs in the year ended in March, down from 24,268 over the same period a year earlier, according to the company’s annual reports.
India’s outsourcing giants rose to prominence in the late 1990s because they could deploy armies of engineers at lower salaries than their Western counterparts to build bespoke programs as well as monitor and maintain in-house computer networks cheaply for the world’s biggest companies.
They wrote basic code for databases and enterprise software and handled labor-intensive jobs, such as upgrading their customers’ copies of Microsoft Office, Explorer and other mundane programs.
As more companies ditch their own data centers for cloud storage and replace custom-made software with off-the-shelf cloud versions, the need for coders and technicians has fallen drastically, undercutting India’s low-cost-labor advantage.
“The model of sending things offshore for x dollars is fast going away,” said Upinder Zutshi, CEO of Infinite Computer Solutions Ltd. , a small Bangalore-based IT outsourcer. “I can’t be a plain vanilla service provider based on cheap labor anymore.”
Infinite is investing $20 million to develop proprietary messaging software that it plans to sell to phone companies and is hiring more expensive American workers for its U.S. business. “The transformation is not easy,” said Mr. Zutshi. The move has driven up costs, though sales are flat.
T.K. Kurien, CEO of outsourcing pioneer Wipro, said in the past his company would typically send a team of 100 employees to write, install and provide support for clients’ accounting software. Wipro now does such projects with eight people, he said.
Wipro is planning to slim down its 158,000 workforce and is scrambling to retrain its software engineers so they can do more sophisticated cloud-related coding. Mr. Kurien estimates that around 40% of his employees don’t have the skills they need for cloud computing.
Most companies are focused on cutting costs while trying to retrain workers and invest in cloud technologies.
Cost-cutting has helped preserve healthy profit margins and Indian outsourcers are winning a growing share of big-ticket deals to manage data centers, helping to shore up sales. But analysts say their currently healthy balance sheets mask the fact that they are carrying out the very changes that are making their old business model obsolete.
That is an “economic irony,” said David Tapper, IDC’s head of outsourcing. Indian engineers are moving data to the cloud and helping integrate off-the-shelf cloud applications, “taking away future business running that infrastructure,” he said.
Because cloud servers are accessed through the Internet, they are concentrated in a smaller number of locations, making them easier to monitor. Traditional service providers have one technician for 200 servers, compared to one person for 10,000 cloud servers, according to estimates from outsourcing advisory firm ISG Inc.
AstraZeneca is shifting aggressively to the cloud. “We’re drastically reducing our data centers, server rooms and number of servers. We just don’t need as much,” said Mr. Smoley, the company’s technology chief.
The accelerating hardware shift will certainly ripple through outsourced service providers’ businesses, industry executives say.
“Now you can buy infrastructure with a corporate credit card by renting space in the cloud,” said Malcolm Frank, head of strategy and marketing at outsourcing company Cognizant Technology Solutions Corp. “To presume the services model will remain the same is hopelessly wrong.”
Write to Sean McLain at sean.mclain@wsj.com
India’s Outsourcing Firms Change Direction as ‘Cloud’ Moves In - WSJ
India’s Outsourcing Firms Change Direction as ‘Cloud’ Moves In
By
Sean McLain
July 12, 2015 6:43 p.m. ET
NEW DELHI— AstraZeneca PLC is sharply scaling back the business it gives to the Indian outsourcing companies that it has long relied on for tech help.
David Smoley, AstraZeneca’s technology chief, said he expects to cut in half the $750 million the drug maker used to spend annually on outsourcing over the next two years. He said the number of people working on information technology also would drop by 50%.
The changes at AstraZeneca are part of a major shift toward cloud computing, which is starting to bite into the revenue and profits as well as hiring in India’s critical outsourcing industry and poses an existential threat to the players that fail to adapt.
Outsourcing executives are bracing for a big disruption. “It’s like what happened when Amazon arrived,” said C.P. Gurnani, chief executive of Tech Mahindra Ltd. , a large Pune-based outsourcer that specializes in work for telecommunications companies. U.S. bookstore chain Borders closed and Barnes & Noble had to reinvent itself, Mr. Gurnani said.
Mritunjay Singh, operating chief of outsourcer Persistent Systems, predicts a “bloodbath” in which only nimbler companies will survive.
Outsourcing accounts for around 20% of all of India’s exports of goods and services. The industry employs millions of Indians and has become an important route into the middle class in the world’s second-most populous country.
The impact of the move to cloud computing—where servers and software are accessed via the Internet rather than on local networks or personal computers—is being amplified by other trends, from automated code-writing to increased competition and falling corporate information-technology budgets.
If Tech Mahindra, Infosys Ltd., Tata Consultancy Services Ltd. , WiproLtd. and India’s other big IT outsource companies fail to change, the consequences for India’s economy could be dire.
The value of outsourcing deals signed in 2014 shrank 17% to $120.4 billion from $145.5 billion a year earlier, according to consulting company KPMG LLC.
Indian companies are losing business to firms that have led the way into the cloud, such as International Business Machines Corp., Amazon.com Inc. and Accenture PLC.
With a decline in sales, hiring in India by outsourcers has also slowed significantly. New job growth is projected to hit a five-year low this year, according to India’s National Association of Software and Services Companies. Tata Consultancy Services, India’s largest outsourcer by revenue, added 19,192 jobs in the year ended in March, down from 24,268 over the same period a year earlier, according to the company’s annual reports.
India’s outsourcing giants rose to prominence in the late 1990s because they could deploy armies of engineers at lower salaries than their Western counterparts to build bespoke programs as well as monitor and maintain in-house computer networks cheaply for the world’s biggest companies.
They wrote basic code for databases and enterprise software and handled labor-intensive jobs, such as upgrading their customers’ copies of Microsoft Office, Explorer and other mundane programs.
As more companies ditch their own data centers for cloud storage and replace custom-made software with off-the-shelf cloud versions, the need for coders and technicians has fallen drastically, undercutting India’s low-cost-labor advantage.
“The model of sending things offshore for x dollars is fast going away,” said Upinder Zutshi, CEO of Infinite Computer Solutions Ltd. , a small Bangalore-based IT outsourcer. “I can’t be a plain vanilla service provider based on cheap labor anymore.”
Infinite is investing $20 million to develop proprietary messaging software that it plans to sell to phone companies and is hiring more expensive American workers for its U.S. business. “The transformation is not easy,” said Mr. Zutshi. The move has driven up costs, though sales are flat.
T.K. Kurien, CEO of outsourcing pioneer Wipro, said in the past his company would typically send a team of 100 employees to write, install and provide support for clients’ accounting software. Wipro now does such projects with eight people, he said.
Wipro is planning to slim down its 158,000 workforce and is scrambling to retrain its software engineers so they can do more sophisticated cloud-related coding. Mr. Kurien estimates that around 40% of his employees don’t have the skills they need for cloud computing.
Most companies are focused on cutting costs while trying to retrain workers and invest in cloud technologies.
Cost-cutting has helped preserve healthy profit margins and Indian outsourcers are winning a growing share of big-ticket deals to manage data centers, helping to shore up sales. But analysts say their currently healthy balance sheets mask the fact that they are carrying out the very changes that are making their old business model obsolete.
That is an “economic irony,” said David Tapper, IDC’s head of outsourcing. Indian engineers are moving data to the cloud and helping integrate off-the-shelf cloud applications, “taking away future business running that infrastructure,” he said.
Because cloud servers are accessed through the Internet, they are concentrated in a smaller number of locations, making them easier to monitor. Traditional service providers have one technician for 200 servers, compared to one person for 10,000 cloud servers, according to estimates from outsourcing advisory firm ISG Inc.
AstraZeneca is shifting aggressively to the cloud. “We’re drastically reducing our data centers, server rooms and number of servers. We just don’t need as much,” said Mr. Smoley, the company’s technology chief.
The accelerating hardware shift will certainly ripple through outsourced service providers’ businesses, industry executives say.
“Now you can buy infrastructure with a corporate credit card by renting space in the cloud,” said Malcolm Frank, head of strategy and marketing at outsourcing company Cognizant Technology Solutions Corp. “To presume the services model will remain the same is hopelessly wrong.”
Write to Sean McLain at sean.mclain@wsj.com
