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Every year, Nasscom reports on the state of the Indian IT services industry. If past is prologue, we will export $60 billion worth of IT-related services by 2010, up from the current figure of $23 billion. Rosy and comforting as that picture is, there are real concerns lurking in the background that cannot be ignored. For one, rising IT labour costs are threatening to erase some of the perceived benefits of offshoring. Second, competition from other BRIC countries (Brazil, Russia, and China) is emerging, creating alternative global destinations for outsourced work. Third, Nasscom has raised alarm that our colleges are producing far too many unemployable graduates, and we cannot naively continue to extrapolate into the future without addressing the supply-side shortfall in human capital.
How can we sustain the explosive growth of the IT services industry? The answer lies in transcending our current comfort zone. The good news is that it has been done before. For example, through the early nineties, our IT services firms moved low cost labour from India to high cost geographies to perform mundane technical tasks. Starting in the mid-to-late nineties, the industry started transforming itself and, in a reversal of earlier trends, began moving technical work of low-to-moderate complexity from high cost geographies to India.
As it turned out, moving work from the West to the East was a lot harder than moving people in the opposite direction. In response, the industry invented the global delivery model, a catch phrase for managing routine, bread-and-butter IT projects and programs sitting far from the customers, with high quality, at a low cost, and with exceptional profitability.
It is fair to say though that as costs rise and competition emerges in the global outsourcing landscape, the global delivery model will be necessary but not sufficient. In a sense, the next phase of transformation has already begun, and is most manifest in the clamour of our IT services firms to move up the value chain. One clear way for our IT firms to move up the value chain and distinguish themselves is to build full-service centres of excellence (COE) for their customers.
Consider the hypothetical example of an IT firm that provides services to the billing systems division of a global telecommunications company. As per conventional wisdom, it would be customary for the billing systems division to retain the specification, design and construction of its mission-critical software in-house, while outsourcing the testing and routine maintenance aspects to the IT services firm offshore.
In a COE model, however, the IT services firm becomes a partner in innovation and IP creation during specification, design, and construction as well, by assembling locally the right combination of business analysts, software engineers, and telecommunication billing experts to work with their customer-side counterparts.
In summary, we need to focus on creating COEs for our customers, so that high quality innovation too can be delivered at a reasonable cost using an offshore model.
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