BANGALORE: For Indian software companies, which are recovering from the
global economic slowdown, the next big worry could be customers eating
the best portion of their lunch. Increasingly, multinational clients are
saying they are okay to outsource bread-and-butter work but not the jam
and cream.
What this means is that the country's biggest software firms are facing the threat of losing high-value projects to customers who are setting up inhouse centres in India to ensure they keep tabs on critical work involving the latest technologies.
For example, later this year, Lowe's —the second-biggest US home improvement chain with $53 billion (Rs 3.2 lakh crore) in annual revenue —will shift high-end analytics and ecommerce projects from companies including Cognizant, Wipro and Infosys to a new centre in Bangalore.
Lowe's move, which spends over $1 billion annually on IT, reflects a growing trend of customers shifting their most important work to their own centres, leaving chores such as maintenance to Indian service providers.
"This (the new Lowe's centre) is not going to be a back office," Robert F Hull Jr, the CFO of Lowe's, said in an interview. For Lowe's, the new technology capabilities in Bangalore will mean a competitive edge against rivals such as Home Depot. As more US consumers shift to the web for home improvement solutions, technology has become the new battlefront.
Lowe's, which now gets around 2% of its revenues from online sales, has been closing in on market leader Home Depot. The new centre could potentially hire up to 1,000 engineers, and will focus on data analytics and nextgeneration online commerce projects.
Lowe's also plans to engage with retail software startups in India, and could potentially even invest in some of them. Scores of captives were set up in the 1990s as global corporations looked to take advantage of the lower costs of operating in India without relinquishing control of their information technology systems.
Over 800 captive centres in India
There are more than 800 captive centres in the country and more are being added each year. In 2012, captives employed about 5 lakh people and delivered as much as $15 billion (Rs 90,000 crore) worth of work, according to Nasscom data.
While the over-$100-billion Indian software services industry employs around 3 million staff and is forecast to grow at 13-15%, captives are growing at nearly twice that rate.
While this trend may not be very good news for IT services companies, it will open up new opportunities for employees in the software sector to work on cutting-edge technologies directly with global corporations.
Over the past year, Hull met around 38 companies having captives in India and got some of the myths busted. "We even visited some of the universities and were fully convinced that there's going to be no scarcity of talent in the long term," he said. "We are going to manage and develop key capabilities in-house.
The third-party providers can do maintenance and support work far more effectively; they have tens of thousands of people in place." Lowe's has hired Narayan Ram as managing director for India, reporting directly to Hull. Ram, an IT industry veteran who ran Sony's technology centre, said Target, Tesco and Walmart have already set the bar high for Lowe's India.
"We do expect a war for the right talent," Ram said. Lalit Ahuja, a former Indian Navy commander who helped companies such as Target and several others build their captive centres in India said these centre are also beginning to manage service providers such as TCS and Infosys on behalf of their parent organisations.
"In some ways, the captives have broken the 'value' barrier that Indian IT has been aspiring to address for a long time now," said Ahuja whose company ANSR Source is helping Lowe's and several others establish technology centres in India. "There are incredible opportunities for Indian IT to understand the games captives play to operate at the high end of value chain."
Senior executives at some of India's biggest software firms are watching in envy and even praying that these captives remain mere experiments and hopefully fall short of what one called "lofty adventures". "Don't get me wrong — we have seen these waves of captives being feverishly talked about.
But a lot of them eventually get acquired by a large service provider," said a senior executive at one of the top India-based software firms. He was referring to how the technology captives of banks such as UBS and retailers including Supervalu ended up being acquired by Cognizant and TCS, respectively.
What this means is that the country's biggest software firms are facing the threat of losing high-value projects to customers who are setting up inhouse centres in India to ensure they keep tabs on critical work involving the latest technologies.
For example, later this year, Lowe's —the second-biggest US home improvement chain with $53 billion (Rs 3.2 lakh crore) in annual revenue —will shift high-end analytics and ecommerce projects from companies including Cognizant, Wipro and Infosys to a new centre in Bangalore.
Lowe's move, which spends over $1 billion annually on IT, reflects a growing trend of customers shifting their most important work to their own centres, leaving chores such as maintenance to Indian service providers.
"This (the new Lowe's centre) is not going to be a back office," Robert F Hull Jr, the CFO of Lowe's, said in an interview. For Lowe's, the new technology capabilities in Bangalore will mean a competitive edge against rivals such as Home Depot. As more US consumers shift to the web for home improvement solutions, technology has become the new battlefront.
Lowe's, which now gets around 2% of its revenues from online sales, has been closing in on market leader Home Depot. The new centre could potentially hire up to 1,000 engineers, and will focus on data analytics and nextgeneration online commerce projects.
Lowe's also plans to engage with retail software startups in India, and could potentially even invest in some of them. Scores of captives were set up in the 1990s as global corporations looked to take advantage of the lower costs of operating in India without relinquishing control of their information technology systems.
Over 800 captive centres in India
There are more than 800 captive centres in the country and more are being added each year. In 2012, captives employed about 5 lakh people and delivered as much as $15 billion (Rs 90,000 crore) worth of work, according to Nasscom data.
While the over-$100-billion Indian software services industry employs around 3 million staff and is forecast to grow at 13-15%, captives are growing at nearly twice that rate.
While this trend may not be very good news for IT services companies, it will open up new opportunities for employees in the software sector to work on cutting-edge technologies directly with global corporations.
Over the past year, Hull met around 38 companies having captives in India and got some of the myths busted. "We even visited some of the universities and were fully convinced that there's going to be no scarcity of talent in the long term," he said. "We are going to manage and develop key capabilities in-house.
The third-party providers can do maintenance and support work far more effectively; they have tens of thousands of people in place." Lowe's has hired Narayan Ram as managing director for India, reporting directly to Hull. Ram, an IT industry veteran who ran Sony's technology centre, said Target, Tesco and Walmart have already set the bar high for Lowe's India.
"We do expect a war for the right talent," Ram said. Lalit Ahuja, a former Indian Navy commander who helped companies such as Target and several others build their captive centres in India said these centre are also beginning to manage service providers such as TCS and Infosys on behalf of their parent organisations.
"In some ways, the captives have broken the 'value' barrier that Indian IT has been aspiring to address for a long time now," said Ahuja whose company ANSR Source is helping Lowe's and several others establish technology centres in India. "There are incredible opportunities for Indian IT to understand the games captives play to operate at the high end of value chain."
Senior executives at some of India's biggest software firms are watching in envy and even praying that these captives remain mere experiments and hopefully fall short of what one called "lofty adventures". "Don't get me wrong — we have seen these waves of captives being feverishly talked about.
But a lot of them eventually get acquired by a large service provider," said a senior executive at one of the top India-based software firms. He was referring to how the technology captives of banks such as UBS and retailers including Supervalu ended up being acquired by Cognizant and TCS, respectively.
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