Building Indian IT MNCs

With some Indian IT firms touching the billion-dollar mark in revenues, are they becoming true IT MNCs? Even though Indian IT firms have come a long way, there is still a lot to be done before they can truly transform themselves into global firms. Anand Chatterjee examines some of the strategic moves being taken by Indian IT firms, which will slowly but definitely transform them into MNCs to reckon with

People in developed countries have suddenly woken to the might of Indian IT firms and there has been an increase in the backlash in recent days. We have seen some Indian firms losing big value contracts due to this new jingoism. The cancellation of a contract worth $15 million in Indiana in the US confirms the gravity of the situation. Even though the situation may not have reached an alarming stage no one can guarantee that such movements will not gather momentum in the near future. This is a matter of grave concern to most of us. This backlash is occurring primarily because most Indian firms are not viewed as true multinational firms.

Most Indian firms have an image of firms exploiting the arbitrage opportunities arising out of low salaries and low cost of development in India. Indian IT firms need to revamp this image. With some Indian IT firms touching the coveted billion-dollar mark in revenues, they need to change their strategic positioning and take an innovative approach.

Go global with subsidiaries

With almost 70 percent of the revenues of Indian IT firms coming from foreign markets they have always been global firms in a sense. Most firms have marketing offices in various parts of the globe, but now these firms have realised that they need more than just a marketing office to stabilise their position in foreign markets.

Subsidiaries come as an answer. These firms can either organically build their subsidiaries or can go in for acquisitions. These subsidiaries will come to play a vital role in the years to come as they give a local face to Indian firms and also help them to get into the mainstream global markets. However our firms need to make sure that these subsidiaries don’t simply act as agents and marketing arms. They need to create their own identity.

Act local by hiring foreigners

Think global, act local has been the mantra for firms aspiring to go global. As firms grow they need to hire local people. Some firms have already decided that almost 25 percent of their workforce in foreign locations would be made up of locals. Hiring foreigners in foreign locations will make these firms more acceptable in the respective markets. But there is a caveat—as firms add more foreigners to their workforce they need to be aware of the HR problems that arise with a multicultural workforce. A typical reason for such problems could be that most Indians eagerly look forward to lucrative foreign assignments. These assignments could be that of a developer or even that of an account manager or a regional manager. If these positions are offered to foreigners then Indians could start viewing them as a threat.

Cover the value span

The segment of the software industry in which most of software firms are active is slowly becoming commoditised. Margins are dropping and there are very few differentiating factors between players, too many players are active and the market is volume-driven. Under such circumstances it is imperative that firms differentiate themselves by clubbing value-added services rather than just providing plain vanilla solutions. In spite of the best efforts put in by Indian IT organisations to do so, they have been finding it very difficult to break into the higher end of the value chain.

Experience has shown that foreign clients are reluctant to give high-end jobs to Indian firms. By having local subsidiaries and by employing foreigners our firms can definitely break the inhibitions of foreign clients and climb up the value chain. As some Indian firms like Wipro have done, other Indian firms should also go in for the acquisition route to acquire specialist and niche firms, which will complement their capabilities and help them to bridge missing skill sets.

Productising of software solutions is also a good way to create a brand and move up the chain. But the software product market is a different ball game altogether with huge investments required right at the initial stage itself for development and marketing. As the firms go up the value chain improved billings rates will rev up revenue per employee. It has also been found that clients increasingly prefer to work along with partners who can provide them the whole span of services. Clients prefer to build up a long and healthy relationship.

Change employee skill sets

Indians have proved their mettle in the IT industry as software programmers, but their reputation comes to naught when it comes to soft skills. As IT firms move up the value chain they need to lay more stress on communication, interpersonal skills and people management skills. These become very important when it comes to interacting with foreign clients. Also, IT firms need to employ people having industry experience. Often clients are put off by the academic domain knowledge of Indian experts, who may not have functional expertise. It is also felt in some quarters that foreign clients are not very comfortable when it comes to project management skills of Indians. Of late there has been a tendency on the part of clients to keep a tight control on project management.

Explore less explored markets

Indian IT firms need to break away from their fascination with the US and European markets. They need to explore more of the South American market and also markets in Africa. This will reduce their dependency on the US and European markets and will make them more capable when it comes to handling business risks.

Over the past few years some Indian IT firms have been able to strengthen their position and have proved their prowess in the industry. They have been able to reap the dividends of the strategic initiatives they have been implementing. For example, FLEXCUBE by i-flex is a best-selling banking software in the world and IBM has identified Wipro as one of their important competitors globally. So, Indian IT firms have definitely traversed a long way, but before they can bask in that glory there’s much they have to still do before they call themselves true MNCs.

The author works as a consultant with PricewaterhouseCoopers in the Technology Advisory Services division. He can be contacted at anand.chatterjee@in.pwc.com. The views expressed in the article do not necessarily represent the views of PricewaterhouseCoopers.