The leading India-based professional services firms, having established dominance in the offshore low-level programming game, are turning their attention to high-end IT consulting business currently dominated by IBM, Accenture, Deloitte, BearingPoint, and Capgemini. Not content with handling basic code migration and data conversion, Infosys, Tata, Wipro, and Satyam are seeking higher-value system integration, enterprise application implementation, process management, and IT strategy engagements across North America and Europe.
"This has been in the works for a while. The India-based companies have been acquiring firms and hiring extensively for the purpose of moving up the professional services food chain in North America," says Jeffrey Kaplan, managing director of THINKStrategies, a strategic research and consulting firm based in Wellesley, MA. And the Indian firms are having some success here. Although nobody expects the leading North American firms to roll over and play dead, "they definitely should be worried about the increased competition," says Kaplan. If nothing else, it will force down the prices the firms can charge for high-end IT consulting engagements. The one area of consulting that has resisted the Indian assault so far has been high-end management consulting, the sort of work firms like Bain & Company and McKinsey do, at least for now. "The only place they intersect with the India-based firms is when the management consulting involves things like supply chain management," says Kaplan. At that point, IT consulting comes into play in a big way.
To fend off the efforts of Indian firms, the North American firms have relied on the intimacy of their relationships with clients at the highest levels and the depth of their knowledge. That defense, however, may begin to crumble. "The India-based companies are hiring people here with the right Rolodexes," says Kaplan. These people will bring similar relationships and in-depth knowledge to the Indian operations.
The North American professional services firms have started to counterattack by opening offshore development centers of their own in India, China, and elsewhere. These offshore centers eventually will help them compete against the Indian firms for the low-end, coding-intensive offshore outsourcing engagements that have been the mainstay of the Indian firms, but they won't directly address the Indian challenge in North America.
Still, the Indian firms won't necessarily find North America easy pickings. These firms have to overcome significant cultural barriers, avoid internal tension around salary differentials, open up their governance so that they can be truly global rather than parochial players, and try to fit their low-cost business model to a very different set of conditions. "The India-based companies must move beyond the business model they know and understand," says Kaplan.
To that end, they are trying a blended onshore/offshore model. "We are a full-blown consulting firm except for the technology delivery part," insists Stephen Pratt, CEO of Infosys Consulting Inc., a subsidiary of India-based Infosys Technologies Ltd. Infosys Technologies handles the actual technology delivery part. But otherwise, "we help clients here make big changes to their operations through high-quality consulting and then help them implement it," he continues.
That combination, says Pratt, who has become something of a poster boy for senior-level North American consultants jumping to Indian consulting firms, "produces a better model. It puts more senior-level consultants on the job and is less expensive because the technology implementation is done in India and China. What we have done is reduced or even eliminated the fat middle of the consulting pyramid."
The Infosys approach differs somewhat from that of Wipro. "We've created a consulting operation within a large offshore company," says Tim Matlack, a co-founder along with Sanjay Joshi of Wipro Consulting, a business unit within Wipro Ltd., an India-based offshore outsourcing firm. Wipro Consulting is intended to start the offshore process at a much higher level. "Indian firms typically start at the point where the customer says that this is what he needs. Our purpose is to address the business problems before the customer gets to that point. We ask questions about what the customer should be doing," he explains. On the other hand, "we're not doing pure strategy and management consulting like McKinsey," he adds.
Tata Consultancy Services takes yet a different approach. It is building a serious presence in North America, with 50 offices and a headquarters in New York. It also operates 10 global development centers, including a performance-engineering center in Minneapolis and an RFID lab in Chicago, reports Surya Kant, president. It also maintains delivery centers in Europe, Latin America, China, and Australia. "As clients become globalized, they want to work with one partner around the world, not multiple companies. They want to roll out one system worldwide. That is our differentiator," Kant explains.
Satyam Computer Services' Consulting and Enterprise Solutions unit, formerly Satyam Renaissance Consulting Ltd., won recognition as one of the top player in "The Forrester Wave: Indian Vendor Consulting Capabilities, Q4 2005" report released in December. In North America, Satyam maintains 140 to 150 consultants spread across different locations. In addition, it supplements its permanent North American staff with consultants brought in from India and elsewhere, according to G.B. Prabat, director of Consulting and Enterprise Solutions. Satyam's consulting unit focuses primarily on SAP and Oracle projects. Today, the Consulting and Enterprise Solutions unit does $400 million in business, with 60 to 65 percent coming out of North America, Prabat adds.
Despite much talk about applying high-level talent to customers' IT problems, price remains a key part of the India-based firms' appeal. "The costs are always less because the technology implementation is done in India or China," says Pratt. Infosys uses a combination on-site/off-site model that Pratt refers to as 1:1:3 pricing, in which each on-site, high-end consultant is joined with one person from a lower-cost country who does the preliminary work and three low-cost people in an offshore center to handle the low-level technology development. Using this model, Infosys can deliver projects for 35 percent less than competitors while still generating a 26 percent operating margin.
Adds Tata's Kant: "The cost advantage is a given. We invented global delivery of services. We have over 30 years of experience at it. We can do it better and cheaper."
Still, low price is a difficult strategy to sustain when faced with paying top dollar to hire North American consultants and when promising to put such high-priced talent on each engagement. "It is hard to win on cost alone. At this level, price is less of an issue. Customers must be comfortable with the people we put on the team," says Matlack. However, once the project gets rolling, they fire up teams in India to work on it, thereby bringing down the overall cost.
Satyam takes a different approach to pricing. "We are engaging in value-based pricing. Part of our fee is based on the value the project delivers," says Prabat, but this is a small part of its business. Satyam still relies mainly on its on-site/off-site model to ensure lower costs. "Even if a project is 100 percent on-site, we can charge a lower rate. Where the offshore component kicks in, customers can save another 40 to 50 percent," he reports.
Although the India-based firms clearly pose a threat to North American ones, they have not yet won much business on the basis of high-end consulting not tied to their offshore offerings. "We have won a couple of engagements for on-site consulting without an offshore component," says Matlack. Notes Sanjay Joshi, Wipro Consulting co-founder: "Not all engagements turn into larger downstream [offshore] work." However, Wipro management expects that consulting work will lead to downstream work as part of building the Wipro brand, he adds.
It is hard to deliver lower costs if the firms can't leverage their offshore facilities. "Practically all projects have an India component. At the least, 35 to 50 percent of the work can be done in India," says Prabat. In fact, the only part that must be done in North America is scoping the engagement. After that, the amount of India work "varies by project," he notes. Despite the reliance on India resources, the firms to varying degrees are trying to transcend their strictly India roots and act as truly global consulting firms. "The way we run human services here is very Western. Our values are universal," says Pratt.
Although Tata Consultancy Services is an independent company with its own stock listing, Tata remains the largest stockholder and all board members are Indian, says Kant. At Satyam, the story is similar: "We have a mix of local hires of different ethnic backgrounds," says Prabat, although management and staff remain primarily Indian. Still, everyone participates in sales and profit incentives and all staff above the general manager level have profit/loss responsibilities.
Judging from the North American managers of India-based firms, it appears that Thomas Friedman may really be onto something in his latest book, The World Is Flat (Farrar, Straus and Giroux, 2005). In it, Friedman argues that the world has become increasingly connected for better or for worse, whether we like it or not. And if the consulting industry in North America and Europe doesn't yet realize that, it soon will. Competitors, in Friedman's flat world, can pop up anywhere, anytime.
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