Indian technology firms

Seeking to avoid a mid-life crisis

India’s most dynamic, but no longer so youthful, industry tries to reinvent itself

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ReaderPS in reply to Inshai

"...could do better by feeding the masses"
That's exactly what they are already doing.
Do you not realize that these IT companies have helped rise millions of young people and their families from lower income group to middle class?
This in turn has generated massive number of direct and indirect employment. A lot is to be done, but they are doing it.


I am a part of the IT industry in India and can say with conviction that the big three firms named here will drop their profitability at least for the next couple of years. One of these firms is still to honor the placement offers made to many fresh engineering graduates in Bangalore and in my own organisation is experiencing a flood of candidates looking for jobs...

I also know of several employees with 10-15 years experience looking for work after having lost their fancy jobs.

Sonata, another IT company has reported reported disastrous quarterly results(yesterday) and Mind Tree, yet another company has lost out badly.

NASSCOM by the way has never published a gloomy forecast on any part of Indian Company. In the days to come I see it losing credibility too...

The Indian IT companies better reinvent very fast!


Japan’s carmakers were pilloried in America until they shifted some production there, hiring locals and thus creating local loyalty. ?!

They were doing very well and grabbing market share via exports from Japan. Do you remember VRA --- voluntary restraint agreement that US imposed on Japanese automakers and that caused them to shift production to USA? It was not pillory but protectionism.

Indian IT firms may also face similar VRAs.


Here is the core of the problem: Indian companies (all, including IT companies) have followed only two strategies till now:

1. Just copy in India what they do in the West. Examples: highways, electricity, TV, newspapers, malls, dot coms etc.

2. Leverage poverty in India: If it costs X to do something in the West, let's do that X/4.

Indian companies are not familiar with charting new territories or solving real problems -- how companies have grown in the developed world. Look at IBM, they are trying to solve problems and developing new technologies of the next generation. While Infosys, Wipro and TCS are waiting for orders.

Indian companies will have to seriously reinvent themselves from top to bottom to get into the league of top global companies.


"Then came the Y2K bug, in which Indian firms helped save the world from the disaster-that-never-quite-was"

The Y2K Bug was only a 'disaster-that-never-quite-was' because it was fixed. The reason why very few systems failed on 01.01.2000 was because nearly all of them were fixed, at great expense; or replaced, at greater expense, in the years before.

Any process that had planning data in it with a date > 31.12.1999, and an IT system that was non-compliant, would fail. We tested plenty at the time, and they failed.

As the article describes, the Indian IT consulting sector cut its teeth fixing millions of lines of dodgy COBOL for clients of ours, and they didn't waste their money.

Please don't let this fantastic publication repeat the canard that the Guardian came out with a few months ago:

People that still believe the Y2K bug was somehow a con trick played to earn money for the IT sector don't understand technology. Read the comments section of the Guardian article for more details.

"With the history, size and scale of the IT industry in the US and the UK, it's no accident that the 'Millenium Bug' hit us exceptionally hard, and others much less hard.

Does China host the only global climate model outside the US? No. It's at the UK Met Office.

Is Italy the only other country apart from Britain that designs and manufactures large bypass jet engines? No, Rolls-Royce has two US competitors and all three need phenomenal computing power to build those things.

Is Russia the only other country where microprocessors to challenge IBM and Intels in global use are designed? No, that would be the UK.

Does Japan host nearly all the successful Formula 1 teams, where the only thing more powerful than the cars is the computing power needed to design them? I don't think so.

Air traffic control; hotel and airline booking systems; government taxation and benefit systems; healthcare databases. All the global companies in the west built vast IT systems in a time when every byte stored or processed had to be justified. All of them had to guarantee that the Millenium date change would cause them no problem. Some installed new systems; some patched old ones; some did a mix of both. All of them did something. All of them are still with us.

Few of their customers were disturbed by missing orders, incorrect invoices; missing or excess stock. To my knowledge no aeroplanes fell out of the sky. This was not because there was some kind of crazy fool prediction that didn't come about. This was because software engineers are rational people and are occasionally persuasive in convincing their bosses, politicians and the public to invest money in preventing disaster."


India was food producing country in the first place.

Its obsession with IT technology,car manufacturing,luxury goods for the west and rat race with China is like putting the cart before the horse...could do better by feeding the masses.

Cake-Walker in reply to ankur1172

I partially agree with your comment.

Would you call having highways, electricity, newspapers, etc copying the west? Even if it were, is it in anyway bad or wrong?

Is it actually leveraging poverty or other factors such as wage differentials, cost of living, etc that actually enable Indian companies to do the same task in X/4 or even lower? I'd strongly argue that its the latter.

Indian companies have been quite entrepreneurial. Just look at the three companies being discussed here? Havent they showed oodles of that in reaching where they have?

I agree with you that now having reached where they have, doing what they do, they seriously have to reinvent themselves to get to the next league. I believe they are taking baby steps in that direction. We will have to wait and watch whether and when these baby steps turn into giant strides.


I've been dealing with Indian (software) outsourcing for quite a few years. I've been over a couple of times.

A few issues that the commentators have not made:

1) The majority (in my experience) of outsourcers - to give it a very broad name - are not technically in India. They are sited in Special Economic Zones (I think thats the Indian term). I believe these zones were set up in the early 90s to earn some hard currency. The SEVs are protected from the majority of India ills - corruption, poor power, nuts labour hiring laws.

2) The rest of the world may have opened to India but India certianly has not opened up to rest of the world. Why cannot the Indian common man have access to the likes of Tesco's + European utilitie companies etc? The Indian middle class, ~ 10% of the country population, skim too much money of the other 90%, providing a very poor service.

3) The Indian legal system. I have been told that the non-Indian people and companies have a fair hearing in the courts. I have yet to see it in practice. This assumes that a case is actually held in, oh, 10 years times.

ankur1172 in reply to Cake-Walker

Following those two strategies (copying West and leveraging poverty (arbitrage based on wage differential is just a nice name for this strategy)) are not bad things to do. But my point is that even the biggest and the most respected companies in India have done little else other than looking up to the West at the fundamental level.

Who did the Western companies look up to? That is the question that these IT companies and others need to ask themselves.

In our daily life, we use computer+internet, planes, cars, microwave owen, mobile phones, healthcare, etc. For almost none of these can Indians take credit. We (Indians) have contributed almost nothing to this modern age.

While this is not too bad, the time has come when our top companies get serious about building something for the next 25 years for the world. There are enough problems to be solved still -- efficient smart transport, energy, water, ...


A very nice article. I want to give some insight. The midlife crisis isn't due to going through one's 20s. It is due to the kind of aimlessness and less challenging work that one has to do in the software industry these days. There is a very nice article about this that throws more light on the subject. Link:


@Kjay50 isn't wrong. I think that the large Indian companies are going to have to "move up the value chain and innovate to provide solutions that are better than their competitors."

But I believe there is also something more fundamental possibly going on. Our clients are beginning to realise that when they buy 'off-shore' resource in the context of a 'Delivery Factory', which has hitherto been the forte of the big players in this market, they don't necessarily get the end-to-end value they were hoping for. Sometimes it can work out very badly for them. One client is really not happy with how things are working out and are having to work very hard to maintain quality levels.

This is a link to a blog that I have written as part of my role as a UK based senior IT consultant, which I believe is highly relevant to this debate. Many of the links come straight back to the Economist, because there are key learnings here from high value-add manufacturing, which is covered so excellently here, so I hope it doesn't come across as too incestuous:

I have long and deep experience of working with both landed and off-shore resources, and all of the big players in the market. I have huge respect for many of the individuals that I have worked with, but I have real concerns that if the quality issues are not addressed the market will begin to close on what is really a huge opportunity for India.

For me, the commodity skills upon which the Indian IT sector grew so explosively (chiefly fixing millions of lines of dodgy millenium bug code) are no longer so marketable. What clients need is serious insight into their business and an ability to frame IT solutions that can help them differentiate themselves.

I don't see that happening yet.

On a more positive note, we are seeing some real local demand coming through in our oneshore centre in Malaysia. That is Malaysian companies needing help from UK and Malaysian resources, so perhaps the tide of the business will begin turning slowly in the other direction too.


These IT companies are facing several challenges. Billing rates squeeze,increasing difficulty in recruiting quality manpower at home, high rates of turn over and high wage costs are some among a host of others. But, to their credit, it should be mentioned that they are a few who do not do creative accounting and other tricks to boost their market value. Their R&Ds are working overtime to introduce innovative products. As long as there is disparity in wage structures and short supply of skill sets in the west, these companies will continue to show growth.


While Indian (and Chinese) technology firms still highly depend on Western markets for their goods, demand within their own country is becoming a much more viable market each year. This combined with the current complications of exporting goods to a depressed West will likely allow these firms to become much stronger in the late game but may suffer in the immediate future.


I'm not sure if it would be the right assumption that there has been no innovation from Indian IT-business process companies. Yes, I agree that so far, their growth was based on scale and wage arbitrage, but I think these companies always knew that the curve had to taper down at some point. Even within their limited means, these companies have shown innovation in process restructuring and optimization, giving the clients benefits beyond just cost advantage.

Recently, the big 3 and other Indian players have been investing considerable resources in the 'enterprise solutions' space and are trying hard to win the talent war for the cream of management institutes in India. The growth numbers may not look impressive in the consulting / KPO sector yet (especially compared to volume0driven processes), but the growth seems to be a lot more sustainable here.


As long as dominant business is in the "cost-savings" mode, profitability will head south. What's to prevent a team with good leadership to exit from the big 3 and set up shop and compete? Value-chain will imply moving to adding profits to clients through customer benefits rather than just cost efficiencies. As a vendor of services vs that of products , business will eventually shift to lower cost locations. Within India, Infosys pioneered locating in smaller towns and now this could be happening to them also.

Inshai in reply to raj.mumbaikar

Why an agrarian mixed economy would make any country primitive in the 21 Century ?


You can cite your model Nation State(e.g. China,Korea,Japan...) to support your argument without latent heat of confusion on your part.

Its important for these businesses to build themselves up so they have a step up over their competitors. kjay50, the point you brought up about apple is exactly what came to my mind as well. Apple is unfathomably successful and in this stressful economy all over the world, it is one of the only companies with continual growth and tremendous success. This is due, like you said, to innovation. I think India's move into manufacturing and technology is simply more than the country can chew in certain aspects because India was a country that focused on food production and their westernization has proven to be too much at one time. Doing what the western world does is not a bad thing, but they are two different places and trying to be another America is not going to prove successful, as we can see.


I think it's wrong to assume that there have been no innovation from India because the reality is that innovation can also mean optimizing a previous invention. This is in fact what Japan does very well because they greatly improve upon other's inventions.
I would also like to point out how important this is because the Indian companies are facing many challenges that need a reduction in cost due to the high rates of turn over and high wages. Because of this there are many creative innovations being put in place to boost their market value.

respect others please

Let me start by saying that I am a fan of The Economist and have been reading articles from it since forever. Still, I can't help but notice the subtle but strong condescending attitude of the authors when they write about India.

Don't get me wrong. This article brings many valid points and I agree with most of them. But the blanket statements such as "..passable warm bodies from India’s lousy education system" demonstrate the superiority complex and racist attitude of the author.

The education system that you-the author-, sir, are so willing to dismiss, has generated many more smarter and informed graduates than the any other so called "developed countries".

I am an MBA student of the top 5 universities in US and have seen and met the "cream". So, don't dismiss me as a nationalist.

All we ask you is to be respectful of countries that once, were once destroyed- economically and socially- by the "empire" and are trying to make our mark in the world. Or you can choose to be arrogant and let your economies be crushed by ours.

Your choice.



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