How do you see the offshore outsourcing market evolving? What kinds of vendor companies are going to be successful going forward?
I think there will be two major types of vendors playing in this field. You will have the Tier 1, full-service IT services companies that offer a wide mix of application services, and other companies that may expand into IT infrastructure, IT outsourcing, remote systems management, business processes outsourcing and product development. There will be some top 10 or 20 companies in this space in terms of revenue, and I think two or three will end up being global. There will also be a very larger number of smaller niche firms — niche by technology, vertical industry and processes, for example call centers. The players in niche markets are yet to be known. There are many hundreds of these companies in India, and you are going to see consolidation and bankruptcies, but the smaller players will have to differentiate themselves by the niche they are in.

Do these smaller companies make up a significant market share?
Sure. If you look at outsourcing, there are the big three — IBM Global, EDS and CSC. Then there are smaller, full-service companies such as Affiliated Computer Services, and there are probably a dozen of those. Then there are the niche guys.

How do you perceive the competition between the Indian firms and firms in the United States in terms of getting deals?
I would say that if you are talking about the big five or six Indian firms, they probably compete more with big U.S. firms than they do with the smaller, niche Indian vendors. You see deals where customers will look at three of 30 Indian firms, or you will see deals involving Accenture, Cap Gemini, CSC, Wipro or Tata. So they are not generally competing with their Indian brethren.

Do you think the U.S. firms are well positioned against them?
The U.S. firms are all developing offshore capability. The issue is how do they do it. They can either do it by going off shore themselves and developing a stand-alone facility, where they hire people. For example there is IBM India, which is recognized as one of the top 20 IT services firms in India. The second way is to do an acquisition. So, for example Keane just did an acquisition of Signal Tree. CSC just formed alliances with five Indian and one Mexican company. The final way of doing this is to buy a part ownership of an Indian firm.

From the customer perspective, what do U.S. corporate clients want in terms of offshore outsourcing companies?
Well, what they want is what they want from U.S. companies, except that they want it cheaper. Right now with this economic climate, reducing total cost of ownership or increasing ROI is really one of the top projects on IT executives’ minds. That means that service delivery has to be good, customer relationship has to be good and quality has to be good. All the Indian firms have to offer, really, is lower price and good quality.

Can Indian outsourcing firms bring to the table capabilities that say Accenture may not have? In other words, can they do something beyond merely reducing costs?
The cost will be lower. The quality may be better. The time to market may be better. So these are the potential benefits, and therefore the ROI may be better. As far as services go, I think that whatever an Indian firm can come up with, an American firm can do if they want to. There are only so many types of services. I think it’s more a matter of Indian firms starting to offer the services that American firms already do.

What is the penetration level of Indian companies in the way of capturing the mind share of corporate CIOs?
I think it varies by size of buyers and also vertical industry. The penetration may be 10 percent across the board, but might be much higher in the financial services sector because of insurance and banking.

Do you see any cultural issues concerning Indian firms learning how to do business in the United States?
Certainly. They have to do more branding. They can do that around individual names like Wipro and Infosys, and I think it will be exciting to see Infosys becoming more known. I would say two or three years ago, none of these names were known. Now there is more name recognition, but there has to be more. Secondly, they have never been that creative in sales and marketing, but they are working on that now.

When it comes down to winning a deal, what are the factors that govern it?
I think global risk is key. One of the things on their mind in terms of where they want their IT services located is whether they are comfortable with the location. Are they comfortable with them being in the U.S. based on 9/11, or are they comfortable with them being in India because of 9/11. Other factors are the kind of redundancy they want and the kind of geographical dispersion they want.

Is there a change in the size of deals?
They are slowly getting bigger.

What has been the impact of 9/11?
I think the main impact has been increased awareness around business continuity, security, and the lengthening of the deal cycle. I won’t say that deals are not being signed, but the customers are taking longer to evaluate it.
si