Saturday 30 June 2012

The long tail of IT: the Indian connection

This is a theoretical post lacking research and analysis - for that, I'll have to take a few days and I'll follow up in my next post.
However, I have this idea in my head and usually, that leads to something good and insightful. So please bear with me while I set out my thoughts on the Indian connection.
I've worked for a system integrator for well over a decade - I've also analysed system integrators for almost a decade. As such, I've been sandwiched between internal figures, and outside figures, and wondered where the ever deepening gap disappeared into

My thesis: system integrators (SI) are a dying breed, yet that doesn't show so much (if any) because of the fact that they hire Indians by the sackfull

Why does that impact the outside view? Because Indians come relatively extremely cheap. E.g. in 2010 Capgemini paid 5,000 euros a year for the average Indian employee - annually - while the average US employee cost 192,00 euro, a UK one 218,000 - in short: 124,000 euros a year for the average employee within the Capgemini Group, not counting Asia Pacific

That's a difference of a factor of 25, on average. Expressed in percentage, that's 2,500%.
So, employee number increases. Yet with every Indian employee, employee cost decreases by 2,400%

As promised, I'll have done a full analysis of the top 5 mayor SI's in the next post, but let's just base this on my assumption: the SI revenue and profit growth has been realised thanks to the addition of loads of Indians. Cost in the Old World has gone up while revenue hadn't been increased if the SI wouldn't had offered their work for less. I've seen the average annual Charge Out Rate drop from 80% to 55% in the year after

Meanwhile, I want you to know that system integrators will have to transform themselves into the next breed of service providers: supplier integrator and outsourcing integrator. The market is transforming: old lessons are learned, next to new ones - and the need for a middle layer is increasing by the day

See you in two days - and what remains of my thesis

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