Outsourcing, Consultants, India

Outsourcing consultants have India bias: Merrill Lynch report

02 Sep 2003 | (Survey)

Outsourcing consultants such as Bangalore-based neoIT with headquarter in the US, Gartner and McKinsey, which play the role of catalysts in helping first-time customers moving offshore, are looking to increasingly focus on the Indian market now, as most of the companies are moving offshore and India is often their most preferred destination.

Apart from this, these consultants are focused on the Indian market to facilitate the ‘not-so-mature’ existing customers in using the services of Indian vendors, according to a latest report by Merrill Lynch.

The total offshore market for outsourcing consultants in IT applications is over $10 billion annually in India, and the business process outsourcing (BPO) segment is growing fast.

This is in addition to the total revenues of the Indian information technology sector. However, currently the consultants facilitate less than 10 per cent of the total revenues of the Indian IT sector.

Nevertheless, the contracts being negotiated through such consultants is expanding and according to analysts, close to 50 per cent of the new companies which have moved into India in the recent past and are looking for vendors have been helped by these consultants.

Going forward, these consultants are likely to become increasingly important in order to enhance the India brand, marketing set up and expand the sector’s global client base.

Avinash Vashistha, the chief executive officer of neoIT said, “the portion that will be addressed by the outsourcing consultants will dramatically increase in dollar terms. We expect to double business in the next year and will see an even more substantial increase in 2004. Next year (2003) is a transition year and will see the share increase to 15-20 per cent. neoIT, being the only end-to-end outsourcing consultant, expects to capture most of this rise.”

In the last 12 months, neoIT has facilitated projects worth about $225 million from Indian vendors. Vashistha said, “neoIT expects to facilitate projects worth about $500 million to $1 billion over the next 12 months.”

While the exact size of Gartner’s operations in India is not known, analysts said Gartner Consulting has completed over 400 strategic sourcing engagements globally in the last two years and has about 250 consultants worldwide for the outsourcing consulting practice.

According to the Merrill Lynch report, such outsourcing consultants use their in-depth understanding of the operating costs to negotiate the most appropriate terms for their customers. Thus, the contracts generated through such consultants could have tight pricing and somewhat lower margins than the current industry levels.

However, large vendors such as Infosys and Wipro prefer and continue to deal directly with customers, given their brand value and marketing set up.

So who are the beneficiaries of these consultants? Analysts say only mid-size, niche vendors benefit from the relationship with such consultants in terms of easier access to global markets across verticals, due to the lower sales and marketing costs that these relationships provide.

At a recently held conference call of Mascot Systems where the company announced its second quarter results, Mascot chief executive officer Gerhad Watzinger said that although their 11 new customers have not come in through these outsourcing consultants, but, he added, “yes, I see that it will play a smaller role in the overall business. Also, what I see is that customers that do offshore business, the first-timers consult the Forresters, Gartners about what to do, how to do it, what the process is, who are the players in the market and so on. So there is a lot of consultancy, but whether these consultants are actually involved in the selection process, from what we see right now, will be a smaller percentage of deals that will actually translate into actual business.”

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