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In my view, the offshore business has reached a point where it has a “value add” problem. By that I mean, there is a problem that adequate value is not being added. And in many ways, this is a result of the success of the industry.

In the India 20/20 conference last November at Columbia Business School in New York City - where I was a panelist - fellow panelist [1] Rajesh Hukku , CEO of iFlex Solutions compared the Indian Offshore Model to [2] Bollywood story lines.

He said that there have been for many years, but a handful of story lines in Bollywood; the lost brothers, the rich girl meets poor boy, the rich boy meets poor girl, etc - and that as soon as any one of them became a successful movie, all the other production houses rushed to create a movie with the same story. A few people tried different stories, but more or less everybody stuck to what succeeded. He added that the Indian Offshore Model was the same - there were in essence a handful of story lines.

About 10 years ago the offshore model’s sales story went like this

• We can do it in India where there are abundant resources,
• We can do it faster taking advantage of the time zone differences and running 2/3 shifts in a 24 hour day
• We can do it cheaper because of the cost arbitration, and
• We can do it better with the ISO/CMM/6 Sigma certifications.

The offshore model’s story today is…., you guessed it - almost the same. More services (like BPO, KPO) & service lines (QA, Product Engg, etc) have been added, but the fundamental basis remains the same for most companies. While the top 5-6 companies have been able to climb up the value chain either to business consulting or organizing their services vertically, the bulk of the offshore companies are still hawking the same story.

The offshore model has gained tremendous acceptance, very fast and most companies are scrambling to hire fast enough to deliver their projects. One thought hence could be - we are obviously adding some value; why change what is not broken.

This argument will stand the big players in good steed - the [3] TCS, [4] Infosys, [5] Wipro, [6] Cognizant, etc. They have an established base, a critical mass, a repeat clientele from where they make 90% plus of their yearly revenue. But it will not hold good for the small and medium sized companies, as other companies and countries replicate their current “value”.

The small and medium companies cannot be content with being a clone of the big players. They need to innovate into untested areas and create their own niches and/or open up new markets.

Where are these opportunities? Let us explore that for a moment.

The offshore model has been successful in pulling the rug from under the likes of [7] Accenture, [8] CSC, [9] IBM GS and [10] Sapient, in effect forcing them to make the offshore world an integral part of their service delivery model. However, it has not been able to make a dent in the business models of services companies like [11] Convergys, ADP, State Street Bank and others.

Convergys is a leading telecom billing services company, while ADP is predominantly an employer services company. State Street bank is the premier mutual fund custodian in the US. These companies have deep domain expertise in specific industry segments around which they built proprietary technology around which they wrap their services. This is a value add driven from Intellectual Property and has significant more sustainability. It has sustainability beyond cost arbitration, beyond process certifications, beyond hiring resources.

Significant opportunities exist for partnerships - acquisitions or strategic relationships with companies who have IP in specific industries.

Indian Offshore companies will need to acquire or build IP in specific industry segments areas and then wrap their IT and BPO services around this. It is also important to pick one industry to start with in which the founding or executive team has expertise or experience and then to build the model around that. If successful, you can always branch into new areas. This approach will propel the small and medium offshore companies into their own.

Some companies have started taking this strategy to fruition, but will be tested on perseverance, “real” depth of knowledge and financial commitment to the model. Hang in there, the ADPs, State Streets and the Convergys’ were all small companies too.

About Author:

Sandeep Kaujalgi is the Chairman & CEO of [12] Collabor , an interactive technologies company which builds social and corporate communities through the integration of Telecom, Internet, Media & Entertainment (TIME^SM).

He was the Co-founder & Country Manager of Siemens Nixdorf in India. He has held senior roles in the offshore outsourcing industry including at Infosys, [13] Syntel & [14] Virtusa. He was most recently the President & CEO of i-Vantage.

Sandeep is a strategic advisor to many small and medium outsourcing companies in the US & India. He is a Charter Member of TiE Boston and writes a blog at [15] * You are here.

Views expressed here belong to the author and do not represent those of the ThinkingStreet or the author’s employer.