The good thing about the Indian IT majors is that they have money, loads of talented people and have developed some exceptional management competencies
Clearly, the erosion of cost advantage, which is itself in part driven by the limited employable talent pool, is the big issue. So far the Indian IT companies have relied on a model in which revenue is linear to headcount. To meet their growth targets and market expectations, they would end up having to grow in size to unrealistic levels. That cannot happen and they know it. Every one of them is trying to find sources of non-linear growth; from products, technology platforms, intellectual property, consulting services, etc. That is the product strategy challenge. On the organizational side, the challenge for these companies is to operate globally using more local employees than Indian expats in the past. Despite operating in locations around the world, our Indian IT majors are still very much Indian companies. This will be a particularly relevant challenge for them as they seek to expand in China. However, my sense though is that it will still be somewhat easier for an Indian IT company to learn how to manage operations in China, than for a Chinese company to build the deep management capabilities needed to take on the Indian IT majors.
The point is to find higher value added activities, which for Indian IT firms mean breaking the tight link between revenues and size. Getting into higher value added and technologically sophisticated outsourcing is an obvious move. They must move from establishing relationships with the Chief Information Officer to the Chief Technology Officer. Instead of managing costs and profitability over relatively short-term contracts, the Indian firms must move to longer-term contracts with associated higher risks. Rather than hiring and training large numbers of people for flexibility so that they can be moved easily between assignments and projects, Indian outsourcing firms need to locate highly specialized people with quality and depth of expertise where India has limited supply.
The good thing about the Indian IT majors is that they have money, loads of talented people and have developed some exceptional management competencies. They now need to think in a bold manner about how to exploit low cost talent locations around the world rather than be arbitraged out of their own game by companies from these locations, find ways to offer higher value added activities, whether it is R&D services or management consulting, through new ventures that do not get stifled within their existing IT services organizations and diversify their customer base outside the US and Europe.