Preferring Start Ups in India over the Big 10 IT Service Providers
Posted On: December 20, 2016Anyone who has heard anything about the Indian IT outsourcing world has heard of the big 10 IT outsourcers which include high stakes players such as Tata Consultancy Services (TCS), Accenture, Wipro, Cognizant, and Infosys. A recent Business Standard article, Indian IT firms face uphill task for new contracts up for rebid, also reflected on this topic.
Though I have no personal experience working for any of these IT giants, I do have experience working with about 40 plus start ups in India that work in a variety of outsourcing verticals with American clients. I’d like to share based on that six year experience why I feel the large IT firms are losing out in the outsourcing world.
Being a Small Fish in a Big Pond Can Pay Big Dividends
Who can offer more for less seems to be the motto of the day! The large company parties in five star hotels and resorts are soon going to be a thing of the past (some companies have already stopped it). Not only are these huge outsourcers underbidding among themselves, but some of the projects end up, over time, being passed on to smaller startups or longer-running, much smaller companies with more of a local, than global presence.
Top 10 IT service providers of 2019:
- Accenture
- TCS
- Cognizant
- Wipro
- HCL
- Capgemini
- IBM
- Infosys
- DXC Technology Company
- NTT DATA
Credit: Everest Group 2019
Not all these small fish work with small fish in the US. Some of the small fish in India work with big fish in the US. So, how do these small fish land the big fish accounts (such as Walmart, and others)? In one scenario, several colleagues working together at a major Top 10 consultancy get a light bulb moment. They start learning the business from the outside in. They start learning where the gaps are in the large firm’s approach. They craft their exit strategy from the company to start their own start up. Using the connections they made at the large IT consultancy firms, they slowly build a network to catch the eye of someone at one of those large US accounts. Since the smaller firm can offer very competitive pricing, and, the large company in the US may take up the small company on test projects first, slowly building up to larger, more complex or critical projects.
Organizational Structure Tweaks Save Big Bucks
The big consultancies typically have a big onsite presence in the U.S. They may have large buildings, campuses and other resources such as guest houses or permanent houses or accommodations that can eat into the budget the US client eventually may have to absorb [in some fashion] to take the client project. While smaller Indian companies may have a US office and limited resources onsite, in many cases the overall lack of infrastructure in the US does help bring down the overhead costs of taking up some of the smaller Indian companies as clients for outsourcing projects. Typically in smaller companies, fewer people go onsite to the U.S. In some small companies, only the CEO, Vice-CEO and a few sales reps may go onsite, while all the rest of the developers or client-facing team members work 100% remotely from India. This is not always the case, or was not always the case with the larger players who often sent many, if not all, team members to the U.S., even for a short time. While this does save a significant amount of money in visa processing costs, travel costs, and other overhead costs, one can argue in some cases, that not going onsite can damage the project functioning as not as many people working on the project build cross-cultural business context they may need to enhance the project and it’s outcome.
Communication and Cultural Context
This is a problem across the board when an American company is looking to outsource outside of the U.S., be it China, the Philippines, Belarus, Romania, or India. This is even more relevant when talking about the risks of working between the U.S. and India. While one may argue of all the outsourcing markets, India surely is one of the veterans and may have more experience doing outsourced work with US companies more than any other country, the cultural divide still can cause a lot of confusion, challenge and frustration. Some say the administrative burden of doing business in India is so high that it is not as financially attractive as they initially thought it would be (This is especially the case in customer service related positions where the Indian employee needs to interface regularly by phone or email with the client in the U.S.). Some may argue that the larger firms have or had an advantage here as they may be able to attract better, more technically skilled talent that can also speak better English. While this may be true in some situations, there are many smaller firms that can, due to less bureaucratic red tape, take more efforts to provide regular training, brown bag lunches or innovative knowledge sharing sessions to learn new soft and hard skills as well as exchange best practices.
Of course it’s the communication and cultural elements that often bring me in as a consultant to the company to help to understand the issue and close the gap where possible. While these situations are complex and, at times, highly subjective, these also contribute to the bottom line. It is often some of these softer sides of business that make the clients accept lower bids from other companies. Most likely if the U.S. client felt good about the communication and interaction, felt the Indian client understood the client-service provider balance, and provided customer service in a culturally understandable way, American clients may be less likely to underbid. This is my feeling, though I know in all cases this is not always the business reality.
Other Countries on the Horizon
While India still ranks #1 out of 40 countries when it comes to outsourcing destinations worldwide (according to a 2016 UK index conducted by Kearney Global Services), other countries are also inching up the scale. Based on my personal experience working in the part of India I have, I have seen outsourcing projects move from India to countries like Philippines, Indonesia, Chile, Bulgaria, Guatemala, Romania, and Mexico. Even though India ranks high in financial attractiveness, other factors such as time zone closeness, cultural understanding, lower wages and other overhead costs factor into why India may lose out to some of these other locations.
In this article, I have shared some of the reasons large Indian outsourcers are losing out to smaller companies and start ups in India. While some of the insights are based on research, backed by reputable resources, most of the reflections are based on my personal experience working with Indians in India as a consultant to the very small companies winning some of these outsourcing bidding wars.
As the world of Indian outsourcing sees an uncertain path ahead, especially when it comes to the foreseeable future with the U.S. and the pending Trump White House, after working in India for six years and getting to know Indians, I feel India is not only here to stay, but will stay with determination. India will not give up easily. Indians are good negotiators and will find a way to keep doing business with Americans, whatever obstacles come their way.
Feel free to share your insights in the comments section below.
Learn about some smaller Indian start ups in Kochi that are eager to work with you on your next mobile app, website launch, or other digital or knowledge based service:
This article is written by Jennifer Kumar (in the video below). Do not republish without permission. Contact Jennifer to help build your India team’s cultural competency with US Clients. Additionally, Jennifer can help connect you to possible outsourced teams and offshore project teams that can help you with your project as she has worked with over 50 companies in India, a majority of them start ups (hopefully, like yours).
Original post: Dec. 20, 2016, updated 7/3/2020
Image credit: pch vector
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