1Q21 belongs to the India-centric IT services vendors
India-centric vendors demand considerable attention at the start of 2021 for three trends cutting across their sales motions, talent strategies, and avenues to new partnerships and intellectual property.
Winning deals the old way
In a return to the old-school tactic of rebadging client employees, India-centric vendors have begun winning larger outsourcing deals, in part because the pendulum has swung back to clients demanding “run-the-business” IT services, which naturally favors outsourcing by low-cost offshore IT services vendors. Using an old-school approach to buy their way into mega-sized contacts or secure renewals may heighten competitive pressures for IT services vendors that lack the same scale in offshore locations or willingness to absorb headcount to open doors for long-tail managed services opportunities. Across the outsourcing space, TBR sees a broad trend of vendor consolidation in contracts up for renewal, further pressuring all competitors to expand contract sizes in any way possible.
The most challenged, but also the vendor group with the biggest opportunity, will be the Big Four. Over the past five-plus years, all four firms, to varying degrees, have expanded their application services capabilities delivered through low-cost locations to better appeal to new buyers. Although firms like Deloitte have experienced some initial success, reaching critical mass will require partnering more strategically with the India-centric vendors, unless the Big Four want to adjust their pricing for more mainstream, almost commoditized IT services.
Developing talent onshore
With attrition diminished by COVID-19, India-centric vendors will continue to push to expand onshore U.S. talent, including in ruralshore locations. By focusing on recent university graduates, the India-centric vendors can access relatively cheap talent, spend less on visas, and market locally based talent as part of their sales pitch. In addition, all IT services vendors could face a tech talent threat from cloud and software majors. While companies such as Google (Nasdaq: GOOGL) and Microsoft (Nasdaq: MSFT) have mostly gone after upper-mid-level and senior-level services talent, strategies could change as those software and cloud vendors expand their services capabilities (for more detail on technology vendors’ expansions in the services realm, see TBR’s September 2020 Digital Transformation: Cross-vendor Analysis).
Turning to open source
Lastly, India-centric vendors, especially those lacking software-specific talent and IP, have begun promoting their value to Microsoft and other cloud and software giants by investing in and developing more talent through open-source consortiums. In contrast to traditional R&D efforts, open-source consortiums can provide less costly and time-consuming avenues to developing IP and possibly unlock new business opportunities through consortium partners. TBR also believes increased participation in open-source consortiums could potentially have long-term impacts on services vendors themselves, including development of software mindsets and associated practices.