Is the Party Over for Indian Outsourcers?

The title is straight from a "BusinessWeek" article
(http://www.businessweek.com/globalbiz/content/aug2007/gb2007086_988535.htm)

This article basically confirms my personal views on the "disproportionate" perceived strengths of the top 3 Indian outsourcing companies. Having worked for one of the top US outsourcers, and with experience in working for and following the Indian outsourcers, I could not agree more with most of the points made in the article.

Without taking away anything that the top Indian companies have accomplished, they have quite a few vulnerabilities. Of course, the world at large does not seem to realize this and hence you have a big hype atleast in the Indian press, whenever Infosys sneazes or TCS coughs.

The multinationals (IBM,EDS, Accenture, CSC, HP etc.) have built huge capacities in India over the last three to five years. But more importantly they have built client relationships over decades in the markets (US and Europe). Most of these are large outsourcing contracts worth a few hundred million dollars (in some cases billion) over a long term (seven to ten years).

They also offer consuting, system integration, application development and maintenance services that spans across the value chain. They engage with customers at a strategic level.

As the article points out the big Indian companies are still struggling to move up the value chain in terms of having a serious consulting practice, despite their denials. This is just one of the weaknesses of the top tier Indian firms. The others are:

1. An appreciating dollar, coupled with spiralling salaries of Software folks.
2. Shortage of good talent in India.
3. Very little diversity of talent within the Indian forms (as the article points out).
4. Visa challenges in US. The multinationals still have a huge pool in US and Europe even though that might hurt their profits.
5. Currently they manage costs by having a huge number of freshers (40% plus) as part of the overall workforce. How sustainable is this is a question.

Anyway, I am not trying to express any happiness at the vulnerability of the top Indian firms. I just got excited when I read this article in BusinessWeek, as this should help people understand some ground realities with regard to the Indian firms(particularly the press in India).

Can these companies overcome these challenges and beat the IBM's of the world. Certainly yes, but it's a case of "miles to go before they sleep".