Indian IT services industry heading for a churn

Prashanth Hebbar

MUMBAI: Indian IT services industry is witnessing a Darwinian situation that threatens to wipe out much of the tier 2 and lower rung players if they do not find the right niche.

"You cannot be a generalist and not be among the top 10 of the tier 1. Such companies will face the threat of going out of business," said Avinash Vashisht, CEO of neoIT. "The tier 1 companies can be generalists and get away due to their sheer size but SMEs have to find a niche to survive," he added.

In the post tech slowdown and 9/11 situation, customers world wide are being more cost conscious and they are looking at outsourcing as a compulsory cost cutting exercise. India stands a good chance of garnering much of the over $ 100 billion outsourcing contracts estimated by 2008.

The flip side to this boom is customers are also getting very fussy about the companies they would partner with. "In neoIT we have stopped working with companies that are below 50 people as a principle," said Vashisht. "Customers can now make out that there are more capable companies beyond the top 5 Indian IT companies. I guess their preference would go upto the top 10 companies." "They will not look beyond the top 10 unless they are looking for a niche player," said Vashisht summing up his argument.

What is the future then for SMEs in the changing global arena? "If an SME dreams of becoming the next Wipro or Infosys then it should forget it. The time is just not ripe for such visions. They will do better if they focus on one area and develop solid expertise in the area," Vashisht said.

Expressing a similar sentiment but in a different context (in the context of landing large contracts), Gartner research director Rita Terdiman said, "If Indian firms need to land large contracts then they need to decide `who they want to be.’" "Focus on a niche area and deliver quality and the business will flow on its own."

The message that is going out to the SMEs in the Indian IT services industry is somewhat similar to what the Core Competency Guru, CK Prahlad advised the industry in general in mid-90s. It is: Own a niche segment, build competency in that segment and aim at becoming player number 1 or 2 in order to dream of surviving the future let alone growing.