Source | LinkedIn : By Pavan Soni
The short answer is – Yes.
If you still need an explanation, do follow the post and you are welcome to differ with my observations, and share yours. Will be keen to learn more.
The over $100 billion Indian IT services industry, which employs almost a million people and indirectly impacts the livelihood of another four million, has indeed helped bring India to the global map and pump in a sizable foreign exchange. The media, the NASSCOM, the IT fraternity and even our urban society are replete with the positives of the industry.
However, the intent of this particular discourse is to reveal to you the dark side of the Indian IT industry and how it might end up doing more harm than good in the long run. So let me start.
Poor ‘quality of revenue’
While the likes of TCS, Infosys and Wipro flaunt their multi-billion dollar revenues and attractive margins, and campuses, the fact remains that their ‘quality of revenue’ is poor.
Let me start by explaining what I mean by the quality of revenue, if you haven’t already understood. Walmart or Shell makes multiples of more money than P&G or 3M. However, the two large companies make most of their money through trading, and not really creating anything new. Notwithstanding that there might be innovations in supply chain at Walmart or process engineering at Shell, but such innovations are mostly to lower the cost and not add much value. On the other hand, 3M, which makes close to $30 billion in revenues, or P&G, which makes close to $76 billion in revenues, have mostly done so by launching new products. 3M for sure.
TCS of India makes $15 billion with close to 300,000 employees, Wipro makes half of that number with slightly more than half of the employees ($7 billion with 170,000 folks), and Infosys does no different. Their growth is almost linear (read, headcount driven), and hence predictable. The whole business model could be reduced to two notions- cost arbitrage, and task fragmentation. If we remove the cost arbitrage (and strengthen the rupee), and call for a systems view, Indian firms might fail miserably.
The revenue growth is purely headcount driven and by doing more with less. I call this as low-quality of revenue, as compared to a startup which might actually be creating a novel product, but not making money in eight figures. That’s the first factor that is making the industry mediocre.