Indian IT firms move towards employee reduction and fixed price contracts

Babu Ghanta

Jun. 9, 2009

Indian software industry is large but vulnerable to the whims of the US and UK economies. The current deep recession in the West has created a depressed environment for IT outsourcing industry. The companies are struggling to keep their status quo attitude.

With pricing cuts in the range of 4-5 per cent IT firms have started focusing on increasing the share of revenues from offshoring work and moving towards fixed price contracts.

That is not easy. The honeymoon is over. Fixed priced contracts can be the graveyard for any software company if cost control and tight management is not in place.

Lay-offs have been one of the most sought after tool by the IT industry to cut costs. The industry that would generally hire in thousands in anticipation of business has decided to freeze hiring, increase the bar of performance or simply not visit the campuses.

Indian software companies operate at a very low operational efficiency level. However they excel because of very dedicated employees and low cost labor. When that component is demoralized, the Indian software companies can face severe trouble.

What is still lagging in India is the software package marketing talent. To build application software, the technical effort required is only 10%. The rest 90% goes into innovative, sharp, and shrewd marketing.

Indian software companies have very few (negligible in number) internationally known software packages. All that they could sell is manpower (bodies) or one time tailor made software applications that is specific to a client.

Time has come for Indian software companies to get out and do what Japanese car companies started doing in sixties and excelling in eighties: making compelling products through innovations.