Burnt Oak Partners visits outsourcing industry in Bangalore

Burnt Oak Partners visits outsourcing industry in Bangalore

News Flash – 25th January 2016

In November 2015 Burnt Oak Partners visited Bangalore, India, and the campuses of outsourcing powerhouses. BOP were able to observe the rapid changes that have taken place within the outsourcing industry in Bangalore over the last five years, as well as participate in discussions on which transformations lies ahead for the major outsourcing players.

With innovative solutions such as automation and digitalisation, Indian outsourcing companies are moving beyond their traditional value proposition of low-cost engineering capabilities and straight-forward vanilla offerings. With new disruptive technology, Indian outsourcing companies are becoming increasingly involved in clients’ growth models and business optimisation by providing tailored business solutions.

Automation

Automation is at the heart of the Indian outsourcing transformation. With the potential to reduce commoditised costs by 80%, as well as provide significant productivity improvements, automation is set to become one of the most disruptive new technologies across industries. Cognitive computing systems are now able to perform commoditised, routine tasks with little or no human input, at a significantly lower cost and time compared to its human engineer counterpart. Automation also opens up the opportunity of increased onshore presence without immediately diverging from the labour arbitrage advantage encompassed in the traditional Indian IT model.

The entrance of increased automation in industries has raised concerns that lay-offs will follow when roles and services are becoming increasingly automated. The outsourcing industry itself should be no exception to this development, however, we are witnessing the continued growth of indian outsourcing companies, with workforces being re-trained for new innovative service offerings such as digitalisation.

Digital Agenda

Outsourcing companies have ramped up the hiring of a skilled workforce to their expanding digital practises. With digitalisation, companies are able to connect with customers, operating models, products and services in a real-time and much more connected marketplace. Within digitalisation, we see outsourcing companies working in closer proximity with clients’ business models and strategy. The client’s growth opportunities and business optimisation will take over as the value driver of the outsourcing digital offerings,in addition to outsourcing’s cost-saving capability.

Adaption to Cloud Computing

Hypercloud providers such as Amazon, Google and Microsoft have emerged as new players in the traditional IT service landscape, with continued increased capex spending on cloud services among these providers in 2015. To directly compete with these “hypercloud-providers” will be a challenge in a highly competitive market. Development of supplementary cloud-services, such as seamless migration capabilities, and cloud-partnerships might prove most effective for the traditional Indian outsourcing industry.

Supporting emerging Indian start-up ecosystem

2015 saw a significant number of acquisitions by the Indian outsourcing players, such as Infosys’ acquisition of automation provider Panaya, and Wirpo’s acquisitions of Viteos and Drivestream. In addition to M&A activity, we are also viewing increased interest in scouting for domestic investment opportunities among start-ups, rather than only focusing on international hubs such as Silicon Valley. There has been a positive development in the start-up scene in Bangalore, where both industry and government are increasing efforts to support the Indian start-up ecosystem. In January 2016, Indian Prime Minister Narendra Modi introduced “Startup India”, initiatives designed to facilitate processes for the indian start-up scene and international investors alike.

Infosys and Wipro have both established venture cap arms with initial corpus of USD100mm respective USD500mm in order to explore investment opportunities among start-ups. Rather than pursuing full-fledged acquisitions, outsourcing companies are open to embark on minority investments, even in opportunities where a direct competitor is an investor. This sentiment both aims at advancing the Indian ecosystem to a more mature state, as well as fostering the development of innovative IP in niche technology such as open source, big data and SaaS platforms that has the potential to shape the future of Indian IT.