I am sure by now all of you know about the Satyam scam and how the companies management was involved in a massive $2 billion scam. But one of the most important thing which this complete scam has brought out is the dwindling margins on the IT Services Business. Satyam as per Raju only operated on a 3% margin. Now this 3% margin can be a reflection of the gross mis-management of Satyam or simply put bitter reality of the services business. Lets leave Infosys, Wipro & TCS aside as I believe that customers might be paying them a premium for who they are which is essentially translating to the high margin.
But the minute you look beyond the top 3 the harsh reality is the only way you can get business for a Software Services or BPO company toady is if you UNDER CUT the quotes provided by the top companies. So on one side I believe Satyam, Patni, Rolta and many medium and small companies in this sector are only surviving by offering their customers ‘discounts’ to get the jobs. On the other side the expenses continue to mount.. its well know the amount of poaching which goes on in the IT companies and how much the Programmers are OVER PAID and are basically playing table tennis while they are on Bench! (read Why Wipro, Infosys and TCS are “The Axis of Evil” for Indian startup space )
In my article I had refereed to a new breed of people called ‘Outbots’ Most IT companies are happy to build routers & software for large US based companies for a flat hourly rate but dont want to take a slightest amount of risk which could have transformed them into a “UT Starcom”, “Huawei” , “Lenovo” but are happy to remain outsourced partners to “Miscrosoft”, “Nokia” and “GE” who are making billions on the technology which is built by our “Outbots”.
Most of the companies think that while I am taking a hit on my margins I will surely make it up somewhere else. The harsh reality is that is not happening. Satyam and I believe many other companies started resorting to creative accounting but unfortunately very few or resorting to the only solution..... i.e get into a product business or get out of the services business.
This is surely a blessing in disguise of Indian startups and product companies and a chance for investors to go away from their darling sweat-shop business.
I had also mentioned that Outbots will eventually self-destruct our software services industry and I think the process has just begin.
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Comments (7)
One of the problems with big companies is the excessive baggage they carry. Changing from a service company into a product company is not easy, in fact this is like changing the DNA of the company.
And neither I think investors are likely to go away from their darlings sweat-shop business. Again its in DNA of investors of having herd mentality. Just few months ago every damn investor in India was ga-ga over ticketing business.
What we need is new breed of investors, who can actually look out of the box and can see the big picture. Similarly we also need is big companies to realize that instead of doing everything themselves and failing at every thing (read Reliance bigadda, big flix), they should nurture the startups. Look at US or Europe, most of innovative products have came from small time startups not from Google, Yahoo or Microsoft.
i’m agree with ankit
All IT, BPO, KPO companies in India must give Stock Options to all its employees to prevent Wage Slavery.
Are we getting scam by this stimulus thing I think the need to slow down and make sure they get it right and stop trying to force it on us
Thanks for sharing this useful info.
Nice info, thanks for sharing....thumbs top to you
Good info....nice