Ian On The Red Dot

Interesting article from Forbes about the impending death of the current Indian outsourcing model.

Yet, India, for all its glory, is still the world’s back office. India’s tech industry is a “services” industry. The Indians don’t do the thinking. The customers do. India executes.

The two main problems with the current model:

1. Wage increases
2. Lack of technological innovation and product creation.

Having worked for an Indian company for the last 1 and a half years, I can attest that these are two very real problems. My company has been shifting its orientation to be a products company to address both of the above issues. The idea is that developing a product is a fixed cost. The marginal cost is in customization and deployment which is minimal relative to the initial cost of creating the product. Instead of charging for ‘man hours’ to provide the service of developing solutions, the company charges for licenses which scales must better in relation to wage cost.

The company has also implemented branding initiatives so that with the name, a premium can be placed on its products.

The writer for the article linked above is rather harsh in the assertion that the Indians don’t do any thinking. They do. However, the thinking is to provide solutions for specific problems for each client. The experience gained in tackling each problem does not translate to any long term advantage unless the problems faced by all the clients are similar - that is why certain companies like mine only specialize in certain domains. However, it isn’t just enough for the company to specialize in a domain of problems, there needs to be an efficient system in place for the transfer of knowledge between the members of the company and processes need to be established so that subsequent teams can easily solve the problems in the domain based on prior work. Reducing solutions to paint-by-the-numbers implementations can help deal with the issue of wage increases because the number of actual ‘man hours’ needed won’t need to scale exponentially, or even linearly, to the number of projects. I can’t speak for other Indian companies, but I know that is what my company tries to do. And because Indian companies have been in this game longer than the other companies from other countries now providing competitive low-cost labor, if they can crystallize that experience into process innovation, they can survive if not thrive. I do not believe everything a company needs can exist as software-as-a-service. Of course, not all companies will be able to do this. Many will still be stuck in the ‘throw-enough-people-at-a-problem-and-it-will-be-solved’ mentality. These companies will be the ones that die once Indian outsourcing ceases to be the golden ticket it currently is.