|Rediff India Abroad Home | All the sections|
Can Accenture beat its Indian rivals?
Surajeet Das Gupta | November 02, 2005
Mastery of the "global delivery model" calls for tigerish instincts. But in the hotly contested world of information technology services, there is nothing particularly Indian or even Asian about these instincts. At least not any more. For evidence, look at what the world's largest IT services company, Accenture, is doing to ramp itself up for the future.
The first factor in its favour is that its effort to blunt the edge of its Indian rivals is not exactly rattling anyone in Bangalore. Far from it. Ask Indian IT service firms about the "global delivery model", and they seem quite content in their role as original claimants to this "offshoring" mode of operations. Low-paid code jocks and sundry programmers work their computer keyboards late into the Indian night to deliver software solutions and services for broad daylight application in client locations such as the US.
Indian firms are cheap. They can do jobs at a fifth of the local American cost.
The cost gap remains big. But Accenture, a US-based company with $15 billion in revenue, has not been asleep. It has been hyper-alert if anything. For, in the company's book, a model is a model. No more, no less. And yesterday's need not come good tomorrow.
Indian software companies are watching Accenture's Indian operations closely. And so far, it has been a story of rapid recruitment. Starting virtually from scratch with just some 1,200 Indian employees in March 2003, the multinational has ramped itself up to a staggering 16,000 software professionals at last count. While IBM and Cognizant have similarly large numbers, they started operations much earlier. Infosys, TCS and Wipro each have over 40,000 people, but their workforces have been even longer in the making.
Accenture is making people giddy just watching it. Kris Wadia, Accenture partner and a prime mover of its offshoring offensive, has an explanation. "After the US," he says, "India will be the second largest geography that we will operate in. And India is a strategic node in our global delivery network."
By the look of it, that may be an understatement. To be sure, it's not a small, creaky woodcart that has trundled into the world's most famous low-cost software alley. It's a huge thing, and it works with noiseless efficiency. Suddenly, 13 per cent of Accenture's global workforce is in India, a country that accounts for two-thirds of the 24,000 people it has recently hired in low-cost centres, people in the Philippines and China making up most of the rest. And the numbers are still startling observers. Analysts reckon that the company is taking 1,500 new professionals every month.
At first glance, what they're doing in India is obvious: leveraging the same resources as its Indian rivals for the same objective. "With this move," says Wadia, "we have the same cost advantage. Indian IT companies will find their traditional advantage getting whittled down very fast."
The IT services market is feeling the impact already, as Accenture rushes to match its Indian rivals price-for-price, even in small offshoring projects (under $10 million), so far under the exclusive sway of the latter. This is part of Accenture's "defend and extend strategy", which means bidding for all projects that its local counterparts bid for, regardless of size. It is thus a direct engagement.
The drawbridge lowers
The bugles have been sounded, and the battle has begun. Accenture is actively scouting for business from four distinct customer segments. One, firms with software needs too complex to satisfy in-house. Two, government organisations (such as in the US) with outsourcing constraints. Three, firms that want to experiment with a small piece of outsourced work. And four, small legacy pies of large transformational projects that need to be executed.
Accenture claims an advantage in all these segments. This is for assorted reasons of segment specifics, but largely because of prior access to clients in the west, thanks to brand presence, consultancy service penetration and a reputation for quality work.
But is Accenture really all that competitive on price?
On this, opinion is sharply divided. "There is no differential in price today as they also have a large India centre," says Sid Pai, managing director, TPI India, a leading offshoring advisory, "And they can cash in on global relationships that they have built up through the years."
According to industry estimates, foreign IT firms such as Accenture have already dropped prices significantly from the $100-150 per hour range to the $20-40 band that Indian firms operate in. Bah, retort rivals, that's all bunkum. "They are still 60 to 70 per cent more expensive," contends a director at one of India's top four firms, "In new bids they are not even shortlisted, unless they already have a relationship. Why should customers looking for a global delivery model go to them when we are 10 years ahead of them in this game?"
In his analysis, foreign firms' overheads are way too high even in India (on account of operational standards set in high-cost centres), and their local moves only reveal their desperation to lower cost under pressure from clients. This amounts to cannibalisation of onshore business.
A few aggressive bids need not scare Indian players so long as Accenture's cost structure remains uncompetitive. So is Accenture bluffing?
Not at all, according to Wadia. "We are not shifting old business here," he says, "but we are acquiring new business which earlier we weren' t pursuing at all. The cannibalisation of revenue is really negligible."
Other observers still think it's too early to make a call. "Prices have fallen," says Sabyasachi Sathpaty, head of research at neo-IT, another global outsouring advisory, "but the difference will still vary from 15 to 50 per cent. And the bulk of Accenture's business comes from large outsourcing deals where Indian companies don't operate."
Accenture, as Pai points out, has another plus on the price front. It faces less investor pressure back home, with US equity markets content with 11-12 per cent returns, less than half of what Indian markets demand for sustained equity support. That gives Accenture some leeway on margins, and it helps that Wall Street is concerned about retaining an edge. "Accenture can take the price low," adds Pai, "For Infosys, that might be a problem."
For the record, Accenture has told analysts that its low-cost development centres have already resulted in over $200 million worth of new bookings from the US financial services industry.
Equity research firm Bear Stearns, meanwhile, has declared that "the continued momentum of leading IT offshore services vendors (primarily in India) present a threat to Accenture and other more traditional IT services companies."
So, just how much of a threat to Accenture are Indian firms?
Indian firms have been ascending the value curve, no doubt. They have tentatively entered the rarefied domain of IT consulting.
This is about envisioning the future of digitisation. It could involve taking a confident risk position on how a future scenario will unfold, and then working backwards to the software-making implications.
While margins here are some four-five times higher than the typical low-end work even after pricing low (Infosys is a third lower priced than global rivals), the fact is that Indian firms have quite a way to go before their big break. Internationally, it often takes game-changing finesse -- and that crucial element of surprise.
On that score at least, Bear Stearns may have exaggerated the Indian "threat" to Accenture. It might very well be the other way round.
Hot on the ramp
Indian IT firms are more than confident of tackling Accenture on their own turf. But what if, while battling Accenture locally, they miss out on changes in the global game? Global as in globally diverse, rather than just globally existent.
Accenture's global delivery model is much more complex than the two-time zone model that Indian players are accustomed to. As Indian firms get into defence mode, it is ramping itself up with professionals working in over 40 pinpoint locations on the globe, spanning the very time zones -- from Spain and Brazil to Poland and the Philippines -- that Fortune 500 companies see as a vast global market.
At the moment, client relationships are dominated by affinities of language and proximity (the Japanese, for example, prefer Chinese software services), but as globalisation gains pace, Accenture is well placed to make the most of it.
Indian IT companies have set up operations in China, a country with an active space programme that operates in codes much harder for the West to "crack", and are looking at several other low-cost locations, too. Yet, they are hardly "global" in the sense of drawing on a sufficiently diverse base of intellectual resources.
Part of Accenture's appeal as an employer is that it offers jobs in eclectic corners of the world, and a policy of switching personnel around could give its new "global carrier model" the capacity to lead the cutting-edge of software evolution. This could make all the difference at the upper end of the value scale.
"Indian companies do not have any major presence in other countries," laments Pai, "which is a major disadvantage in the model."Unless they find a refreshing new model that achieves much the same effect. Perhaps by turning the particulars of geography irrelevant.