IT Strategy

Indian IT Outsourcing and Cloud Computing

August 18, 2009 by Raj Sheelvant

Cloud computing is threatening the business model of the Indian IT outsourcing industry as the global recession pushes business to cut costs, according to the chief executive of Infosys Kris Gopalakrishnan. This is reported in Financial Time article titled “IT outsourcers face cloud computing challenge”.  Cloud computing allows software applications and data to reside on web servers rather than on users’ own computers.  As the storage and network costs continue to get cheaper as it relentlessly moves towards $0.00, it challenges the ‘low cost’ IT Outsourcing model used by most of the Indian Outsourcing Companies.  The economic downturn is forcing lot of companies to look for a cloud computing solution seriously and will impact the Indian outsourcers negatively.

Therefore Indian IT Outsourcing companies need to find a newer business model or refine their existing business model.   But the cloud computing which could disrupt existing business model can, in fact, open up new growth opportunities for Infosys and other Indian Outsourcing firms if they can quickly fine tune their business model and integrate cloud computing.  The article notes that currently, Infosys focuses only on the world’s 1,000 leading companies, which have annual revenues of approximately $5bn or more. But cloud computing would allow it to tap the mid-market.  This increased TAM (total available market) for the global outsourcing firms.  As HP and IBM move assertively into services and become strong competitors, Indian IT Outsourcers are being forced into looking at different market segment.  This increased TAM due to cloud computing is one way they can continue to extend their existing business model.   But, in the long run, The Indian IT Outsourcing firms need to do three things to remain in existence.

1. Move up the value chain by providing consulting services and integrating services
2. Geographically diversify away from being US centric
3. Tap opportunities locally as India continues to modernize

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