The Indian IT players started looking at the German market seriously somewhere in the 1999-2000 period primarily due to 4 reasons. Firstly they had achieved some sort of a respectable size due to the business in the North American and UK markets with the added boost of large Y2K projects. Hence they had the financial means to enter more complex (but large) markets like Germany, France or Japan. Secondly, de-risking their dependency on the US markets (up to 90% in some cases) was vital not just because of the size and currency, but also facts like visa tightening, business friendly Clinton era coming to an end, etc. Thirdly Germany has started facing labor shortages, especially in the IT area (ref: Chancellor Schroeder’s famous Green card scheme) and finally because some US companies, after being satisfied with off-shoring experience, started to request their Indian suppliers to start looking at their subsidiaries in Europe, and hence a formal entry into the German market was a logical next step.
The German industry on the other hand was unprepared for this phenomenon. Outsourcing meant either giving parts of work to large local players like IBM, Accenture or T-Systems who used to be with clients over several years or giving small niche area projects to nearby located firms who would have a few employees specialized in that area, often led by the company owner who would be typically an ex-employee of the client. Last but not the least were the “systemhauesers” who would be in-house but independent IT firms of the large clients, with an agenda to be profitable as well as serve other clients too.
The arrival of Indian companies in the 1999-2001 period changed all that. The Indian companies at that time, were not so large as today and were not taken seriously by the market, either by clients or the competitors. They lacked local language skills, marketing and branding initiatives and industry knowledge of its customers. Plus their software delivery systems were based on the American model who did not always work in German projects. Hence there were no early successes.
Growth and Consolidation
However things started to change when the then Chancellor Gerhard Schroeder introduced the Green Card which enabled Indian IT engineers to move to Germany easily. The early adopters of off-shoring from German companies were typically the DAX and other global companies who had to be competitive as well as global in their systems. Another factor which contributed to the growth of the Indian offshorers were the real lack of qualified engineers in Germany. This was especially true for languages like ADABAS, PL1, etc on which many key German systems were built but not enough people available in Germany to maintain them.
Finally the dot com burst, recession, etc, were factors where cost cutting became an important criteria for deciding on Indian players.
From Cost to Quality
Off-shoring as a company was not really new to Germany. Companies like Siemens, Bosch, Deutsche Bank and SAP were doing IT work out of India long before Indian companies started having a significant impact in Germany. However the arrival of the Indian companies changed the scale and scope of the off shoring argument from being a one-off event into something, which would become a permanent mainstream feature of German IT budgets.
The initial Indian argument for off shoring was costs, and it is fair to say that it was a valid argument. The cost of getting a program written or an application built in India was definitely cheaper, even if one took into account additional effort for language hurdles, miscommunication and lack of industry knowledge by the Indian colleagues. However, making something cheaper does not necessarily create a positive image especially when this was seen as controversial industry (outsourcing of jobs to another country). And making cheaper also doesn’t help when you want to go up the value chain.
Hence the Indian companies started investing in the areas of language by training their own people in Deutsch via collaborations with the Goethe Institut in India as well as hiring domain experts and local front line consultants in Germany for their marketing, project managing and selling work.
In this area they did struggle hard to overcome challenges such as attracting the best talent from the market and
facing strict regulations during the immigration process. The above investments added to the already existing high quality processes of Indian companies – CMM, ISO, etc and paved the way for their success in Germany.
To the extent that I recently heard a customer once say – “I went to India for cost, but I stayed for quality”.
Changing the paradigm
From starting with small staff augmentation roles to writing programs to building and running applications, Indian companies have come a long way in the last 10 years in Germany. Initially ignored by the top players, they have forced the leading IT companies reconsider their India strategy and today Accenture, IBM and Cap Gemini are rapidly growing their India presence. The leading German player T-Systems also started an India business, only to fold it up and form an alliance with the No. 3 largest Indian player Cognizant.
Today one can fairly say that presence and success of Indian companies have changed the way the German industry looks at off-shoring and has hence made off-shoring an important part of every large outsourcing project. It is no longer an extraordinary thing to do, but something more mainstream.
While the Indian off-shoring companies have undoubtedly created a new paradigm of doing IT and achieved stellar growth and success, it remains to be seen if they can go beyond the traditional “doing work cheaper at good quality” philosophy to something, which creates more value for its customers. Innovation will be key and how Indian players come up with new paradigms to deliver software services and solutions to the global market will be key.
The emergence of cloud computing and on demand IT solutions are already changing the way IT is being delivered and newer players like Apple and Google (in the corporate area) are changing the rules of the game. Convergence is a theme, which will eventually simplify a lot of the complexities, which exist today in creating interfaces for various data sources. More importantly, the larger Indian players are already touching 200,000 employees each and beyond a certain point, productivity suffers. Hence the growth cannot be linear any more.
Traces of innovation are already happening with a new generation of Indian companies coming up and challenging the old order with more solution based offerings and concepts like pay per use, agile development, visual requirements modeling, etc which deals a blow to the traditional model of adding more people to tackle more complexity.
However, as we speak, the endgame for off shoring is not clear nor is it easy to predict, but what is certain that it will rapidly change in order to keep pace with innovation, productivity demands and simplicity.
The Author: Debjit D. Chaudhuri is a Director at ValueWerk. Prior to founding ValueWerk, Debjit founded and ran the business of Infosys Technologies in Germany for 10 years as the Country Manager. He also played a leading role in developing other continental European markets like Spain, Italy, Holland and the Nordics. Prior to Infosys, Debjit worked in Asia and North America in client management roles for leading IT and finance companies. Debjit is a Rotarian and apart from ValueWerk Debjit is also the founder director of the green social platform www.elpis.com and the Vice President of the German chapter of www.tie.org. he can be reached at email@example.com
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