September 15, 2003 (Computerworld) -- India is clearly the leader in offshore IT outsourcing today. But wages are rising, the market in India is consolidating around a handful of big vendors, and countries such as China are gearing up to compete as outsourcing centers with even lower costs. So Computerworld asked Kumar Mahadeva, chairman and CEO of Cognizant Technology Solutions Corp., about the future of India Inc. Cognizant is a fast-growing Indian IT outsourcer with U.S. headquarters in Teaneck, N.J.
Will India eventually lose its cost advantage and become too expensive? Eventually, yes. But eventually is probably a long time away yet.
Remember the size of the country and [labor] resource pool. I think India is graduating 180,000 scientists and engineers a year. The offshore segment of the [outsourcing] industry is only absorbing a fraction of that pool.
If you look at the arbitrage [or cost difference] between the U.S. and India, it's remained pretty constant. Although wages in India have risen a little faster than in the U.S., the currency has depreciated somewhat, so the ratio has remained fairly flat.
Bandwidth costs are going down very dramatically, so overall, the cost structure is pretty good.
So the arbitrage is very large for at least the next four or five years. Going beyond that, you may see what we saw in the manufacturing industry -- which started off going to Japan and then to Southeast Asia and now China [for lower costs] -- happening in India [outsourcing] as well.
How's India going to compete with those countries promising lower rates? Today, it's not an issue. The deals we're seeing are becoming much larger and more sophisticated. So in terms of scale and the types of offshore work, the companies that can really [do] that sort of work are all in India today. Even within India, it's narrowing to four or five companies, such as Cognizant, Wipro and Infosys, getting the bulk of the contracts.
So if you see other countries getting in the fray, it's probably because Infosys or Cognizant goes into China, rather than a Chinese company. We'll certainly start up something in China this year. It's just like the contract manufacturing industry moves factories [to cheaper locations] if the costs get high.
Are IBM, EDS and Accenture the big competitors for India Inc.? Yes, they are probably the ones we're most concerned about. We don't see them [as competitors] in the near term, because their capabilities are so far behind the large Indian companies that they're not winning the large deals. But if they get their act together, they could certainly spend the money and catch up.
Is it possible that they could be the prime contractor and then subcontract to your company? We have done some of that, but increasingly they're viewing companies such as Cognizant as competition as opposed to partners. They may subcontract to a smaller company, but they view bigger companies such as Cognizant or Infosys as increasingly a threat to them.
Are the smaller outsourcing companies in India making profits, or are they struggling? Yes [they're struggling], and you'll find that the profit margins are higher for the top five or six companies, and certainly the [revenue] growth rates. Cognizant grew 60% last quarter. If you look at the next tier, they're barely growing.
Why is that next tier barely growing? Because offshore [outsourcing] has become mainstream, the large clients [with big, complex projects] don't see the capabilities in the next tier. Three or four years ago, it was an individual project manager looking for a single project, and it didn't matter whether the [outsourcing vendor] was a small company or a large company. Increasingly, clients are looking for partners with a wider range of capabilities.
"Are you the uber-geek at your job who holds all the pieces of the network and security together? If so,..."
Read more...
"Today, CIO means being more than a competent manager of IT. It should mean Lord of Process, and we should..."
Read more... Read more Management posts or See all Blogs
Mistakes such as putting down co-workers or burning bridges when you resign are surefire ways to darken your career prospects. Here's how to avoid them
Computerworld editors share stories of their first PCs, including some classics and some real clunkers -- then we ask readers to share their early-PC tales.
Download this Computerworld Report, free, compliments of HP. (Source: Computerworld) Data Storage has emerged from the back room to become a key part of regulatory compliance, disaster recovery and strategic tecnhology plans. Learn more in this new this Computerworld report, a $49.95 value, available free for a limited time, compliments of HP.
Download this executive briefing
Transformational Analytics: Virtualizing IT Environments
Download this white paper, free, compliments of CiRBA. (Source: CiRBA) The overwhelming complexity of the modern data center compounds the problem of how to safely virtualize IT environments. This paper provides an in-depth guide to analyzing complex environments for virtualization opportunities, particularly within production environments where stability, service levels and performance are of the upmost performance.
Download this white paper
Long Tail Supplier Collaboration - What's In It For You?
Long Tail Supplier Collaboration - What's In It For You?
Download this webcast, free, compliments of Sterling Commerce
Go to the webcast
White Papers
Read up on the latest ideas and technologies from companies that sell hardware, software and services.
XenServer FREE trial
Citrix XenServer is the simplest and most effective way to virtualize and provision servers. XenServer combines comprehensive server virtualization capabilities with unparalleled scalability, performance, economics, and ease-of-use. Based on the open source Xen hypervisor, XenServer delivers fast performance, easy management, and advanced features such as live migration.
Subscribe to
Computerworld 
or
Other Outsourcing Stories
Download this Computerworld Report, free, compliments of HP.
Download this white paper, free, compliments of CiRBA.
Long Tail Supplier Collaboration - What's In It For You? 
Read up on the latest ideas and technologies from companies that sell hardware, software and services.
Many of today's requirements management tool purchases are misguided: Application development and program management professionals often buy requirements management tools for the wrong reasons and select tools that are out of line with their needs. In this independent report, Forrester advises app dev organizations to be realistic about the problems that a requirements management tool can address, the level of tooling that they require, and their ability to build and maintain tool integrations.
Computerworld