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Could India's IT Glow Be Fading?

The subcontinent's booming information-technology business has done so well that it's awakened the sleeping giant of U.S. competition. A brief history of how Indian IT got where it is today.

14Jun

It wasn't until 1991 — when India began to liberalize its protected economy — that the IT industry really started to gather steam. Foreign businesses saw the potential of India's highly educated, English-speaking workforce and sent coding assignments there, where they could be handled for a fraction of their cost in the West.

At first, the work centered just on writing the proprietary software that companies used to automate internal processes. But as the Indian firms grew larger and honed their project-management skills, the assignments grew more complex.

Plummeting telecom costs during the 1990s made offshoring even cheaper, and soon Western businesses were relying on India not only for writing programs but also for installing such software packages as SAP, providing IT consulting, and even conducting research and development for new products.

Most recently, the Indian companies have added business process outsourcing (BPO) services to their menu of capabilities, and now handle all manner of back-office functions, from staffing customer call centers to analyzing tax returns. As Suresh Senapaty, finance director of Wipro, Senapaty explains: "We want to capture as much of the budget of our clients as possible."

The problem is that Wipro and its peers have done rather too well, according to Pramod Gupta, an analyst at ABN Amro Securities. While India's IT players have enjoyed compound annual growth rates of between 50 percent and 60 percent in the past decade, the IT-services industry itself has grown at a more sedate 5 percent to 6 percent. "The whole Indian IT-services story has been about taking market share," says Gupta.

At first, the big Western multinational IT-services providers didn't mind too much. After all, their Indian competitors were concentrating on relatively low-end, low-value work. During the past three or four years, however, India has moved upmarket into the core businesses of its Western rivals — areas such as designing the architecture of IT systems, and acting as IT and business consultants. (For an in-depth discussion of the challenges India's IT providers face from their Western rivals, see "The View from the East.")

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