IT sector sailing into a perfect
storm in ’17

VENKATESH GANESH

Surge in protectionism and its ability to go into a higher orbit pose challenges

BENGALURU, DECEMBER 26 2016:  

Protectionism challenges
“Shifting software development work from India to the US will not make sense for Trump,” says Peter Schumacher, CEO, Value Leadership Group. Part of Trump’s rationale seems to be his keenness to narrow trade deficits with countries like China and India. But the US trade deficit with India is minuscule compared to its trade deficit with China.

The US will benefit significantly more from reducing its trade deficit with China, which is predominantly made up of manufactured goods. Shifting some of this outsourced manufacturing back will create jobs, in particular, in the rust-belt States, where manufacturing jobs have been lost, according to Schumacher.

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GE opens biggest digital hub in India

Karl Flinders / Services Editor / 01 Dec 2016 11:13

Peter Schumacher, CEO at management consultancy The Value Leadership Group, said GE had a long legacy in India.

“GE’s large outsourcing contracts helped establish India’s enormous technology sector, and its investments in R&D and digital technologies are now contributing to Bangalore’s transformation into a global innovation hub,” he said.

The type of work GE performs in Bangalore goes beyond the areas of expertise that India is best known for, said Schumacher. “No other company has captured this opportunity more comprehensively and consistently than GE,” he added. “These investments have greatly expanded GE’s capabilities, enhanced its organisational agility and have given the company significant time-to-market advantages in high-value areas.”

Over the past decade, Bangalore has seen growth in captive centres for research and development and corporate services from across sectors. Today there is a diverse talent pool in the city and other Indian cities, such as Pune and Hyderabad, which attracts multinational companies.

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Trump election win creates uncertain future for IT services sector

Karl Flinders
Services Editor
11 Nov 2016 16:15

The IT services sector looks set to face a period of business uncertainty following Donald Trump's win to become US president

Legislation would have worldwide effect

The impact of Trump could go way beyond the Indian IT suppliers and affect any company using offshore resources to deliver services to US companies, according to Peter Schumacher, CEO at management consultancy The Value Leadership Group, who added that all the big IT services firms use resources in India.

“There is really no such thing as the Indian IT services sector. All companies would be affected. For example, Capgemini employs more people in India that in any other country. Legislation does not differentiate between Infosys, Capgemini or Accenture,” said Schumacher.

Regarding India in particular, Schumacher added that the IT services industry has been “wrought with fear that the US government may impose stricter regulations or other barriers” and thereby erode, even destroy, the advantages of the global delivery model.

Schumacher said while “some restrictions have been imposed”, the industry’s performance proves that “they have not impeded growth materially”, with the value of IT-related exports now surpassing US$100bn annually.

“The IT industry has become the largest private sector employer in India and represents almost 10% of the country’s GDP. Driven by the success of this industry, India has become the world’s fastest growing large economy. Given the fragile state of the world economy, enacting legislation that would hurt this growth is in no one’s interest,” he said.

“Any legislation aimed at reversing this would be irrational and is more than unlikely to happen as it would significantly weaken the US trade negotiating position with India.”

He said the US has a huge trade deficit with India and is pushing India to procure US military equipment. India is a large buyer of military equipment and wants to buy equipment from Europe and Russia, as well as the US. “Putting restrictions on offshoring will hurt these negotiations,” he added.

Schumacher said if tougher restrictions were to be imposed, although this is unlikely, it could prove to be risky and even backfire as multinationals could shift important strategic business advantages to offshore-based technology firms.

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Diageo opts for additional services centre in Bangalore

Karl Flinders
Services Editor
20 Oct 2016 15:08

Drinks maker Diageo is increasing its footprint in India with a new business services centre in the city of Bangalore.

Peter Schumacher, CEO at management consultancy The Value Leadership Group, said while US-based companies started this trend, European firms are increasingly expanding in India, including "many with a heightened sense of urgency."

"Aside from addressing increasing cost pressure, their agenda is focused on taping into the enormous talent and innovation opportunities available in Bangalore for example, which has become one of the world's largest and most vibrant eco-systems for knowledge-based work," added Schumacher.

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Appirio will give Wipro a better standing in cloud computing

VENKATESH GANESH

US-based company services Salesforce, Google, Amazon

BENGALURU, OCTOBER 20 2016:  

“As a cloud consulting firm, Appirio can help Wipro accelerate its entry into the market for cloud services and contribute to reshaping Wipro’s strategy in this area,” said Peter Schumacher, CEO, Value Leadership Group.

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Infosys chalks out strategy to revive consulting business

VENKATESH GANESH

Plans to have strategic conversations with clients, execute larger projects

BENGALURU, SEPTEMBER 25 2016:  

According to Peter Schumacher, CEO, Value Leadership Group, while many customers are asking for price discounts, the reality is that their bargaining power is often limited

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TomTom finds its way to Indian global delivery hub

Karl Flinders
Services Editor
01 Sep 2016 10:30

Sat nav maker TomTom invests in its Indian technology operation to increase innovation in a move that mirrors that of other corporates

These developments are further evidence that offshore hubs are more about strategic business development than cutting costs.

The two deals are further evidence of the trend for multinationals to set up delivery hubs in close proximity to companies in similar sectors. This helps them access skills and expertise and contributes to the sharing of knowledge.

Peter Schumacher, CEO at management consultancy The Value Leadership Group, said the establishment of captive centers in India reflects the strategic view of the opportunities India offers.

“For example, over the past decade Bangalore and Pune have seen an enormous inflow in captive centers for research and development and corporate services from across sectors,” he said.

“Now venture capital investment in startups is creating a multiplier effect and a dynamic and innovative business environment is rapidly emerging.”

Schumacher said in these cities there is a diverse talent pool with constant interaction. “This is facilitating new relationships, making collaboration easy and enabling the efficient exchange of ideas – all of which are key drivers of innovation.”

“The smartest companies are leveraging the ecosystems to do things they would not be able to do otherwise.”

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Infosys shares down 1.1%
on RBS effect

VENKATESH GANESH

MUMBAI, AUGUST 16 2016:  

“Many customers are asking for price discounts in commoditised services and are not willing to pay premium in this business environment,” said Peter Schumacher, CEO, Value Leadership Group.

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Are Vishal Sikka’s efforts helping Infosys turn around?

VENKATESH GANESH

Industry watchers expect the software major to recover next quarter

BENGALURU, JULY 21 2016:  

“The impression in the market is that Infosys is trying to buy growth with aggressive pricing, which is tricky now,” says Peter Schumacher, CEO, Value Leadership Group.

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Standard Chartered takes global delivery network to next level

Karl Flinders / IT Services Editor / July 12 2016

Peter Schumacher, CEO at management consultancy The Value Leadership Group, said Standard Chartered was a pioneer in setting up global delivery centres. “Starting in 2001, it was one of the first banks to develop an integrated network of shared services centres in Asia,” he said.

The bank is now scaling up its global delivery network, said Schumacher. “Like many banks, it is stepping up its cost focus to improve profitability. Enhancing its already large centre in Malaysia will help it structurally lower its cost base and increase its development capabilities in newer digital technologies.”

But it is not just about lowering costs, he added. “It shifted its attention from cost to skills, built domain capabilities, redesigned global processes and worked on global integration.”

Schumacher said Standard Chartered is committed to in-house IT development and operations and outsources very little to service providers.

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IT services sector faces freeze amid Brexit wrangling

Karl Flinders
Services Editor
29 Jun 2016 12:16

The IT services sector across the globe will be hit by the uncertainty around the UK's future relationship with the EU, but a spending freeze will eventually thaw

Widespread disquiet

Beyond the UK, an EU exit by the UK is seen as bad news. Peter Schumacher, director at global business consultancy at the Value Leadership Group, which operates from Germany and the US, described it as “a fundamental shift in the European economic and political landscape that will create a lot of additional uncertainty and trigger significant changes across Europe”.

He said the ramifications will reach India, with IT services firms there likely to be hit.

“The UK is the second largest market for the Indian IT services sector and the leading companies generate roughly 60% of their European revenues in the UK. TCS, for example, generates about 15% of its total revenue in the UK and another 11% from across continental Europe – in total about $4.5bn in annual revenue.

“Until customers have more clarity around the political and economic roadmap going forward and the implications thereof, investment decisions will be delayed. Indian IT services firms should expect new business deals to hit a hard stop and current business to slow.”

But Schumacher added that, despite many challenges, the longer-term view remains favourable for the Indian IT services sector in the UK and Europe.

“I don’t see the Indian IT services sector losing the significant position it holds in the UK to local providers or other competitors,” he said. “Regardless of the decision to exit the European Union, the UK economy will need to continue to increase its investments in IT and digital transformation.”

He added that adjusting to the new realities will also lead to new investments.

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Infosys may have buried its rules for
CEO-to-worker pay ratio

VENKATESH GANESH

Vishal Sikka recently got a ₹49-crore compensation package, despite disapproval of some board members

BENGALURU, MAY 25 2016:  

“The questions relate to the kind of change to pursue and, secondly, how this goal can be accomplished without incentivising the CEO and top management to pursue strategies that involve inappropriate levels of risk,” says Peter Schumacher, CEO of Value Leadership.  

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Vision 2021: will Infosys,
Wipro make it?

VENKATESH GANESH

IT majors have chalked out plans, but implementation may prove a challenge

BENGALURU, MAY 9 2016:  

According to Peter Schumacher, CEO of Value Leadership Group, the articulated targets are incredibly ambitious and most likely neither firm knows how to achieve them.

“Clearly management’s intent is to challenge their organisations to think differently and find new ways to grow the business,” he added.

While such goals sound good, there are risks too. “Companies that have set themselves very ambitious growth targets will often pursue riskier strategies, and the negative implications often outweigh the intended benefits and can even be destructive,” warned Value Leadership’s Schumacher.

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Shell the latest multinational to insource IT offshore

Karl Flinders
Services Editor
04 May 2016 11:45

Oil giant Shell is the latest large business to announce plans to insource its IT operations at a delivery centre in Bangalore, India

Other large multinationals that have insourced include Daimler and General Motors. But these companies still want to benefit from offshore delivery and, in many cases, India-based expertise, according to Peter Schumacher, director at business consultancy The Value Leadership Group. He said there are cities in India where global technology companies, multinational businesses, investors and academics have converged to create ecosystems with IT advancement at the core.

He said Bangalore, Gurgaon, Pune and Hyderabad are now the places to go for IT brains, experience and capital – as well as research and development (R&D). He said setting up operations in these cities can yield a huge advantage, to companies of different sizes. “These cities have become the largest, most diversified ecosystems in the world.”

He said Shell had established three centres in India, in Bangalore and Chennai.

“While the advantages around cost-efficient knowledge-based capabilities and innovation are well-known, more companies now believe that India is evolving into a strategic platform for transformation and new competitive advantages,” added Schumacher.

“While US-based companies have traditionally been driving these trends, European firms like Astra Zeneca, Bosch and Daimler too are expanding their captive centers in India, many with a heightened sense of urgency.”

He said that, over the last 20 years, the talent pool in India has significantly developed and can now handle complex projects that companies might have previously kept onshore. “The India-based centres of many firms have moved up the value curve as measured in patent filings, number of chief engineers, and the ability to manage complex projects end-to-end.”

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The see-sawing fortunes
of TCS and Infy

VENKATESH GANESH

BENGALURU, APRIL 25 2016:  

“Cost takeaways are a given. The question staring at these companies is whether they can convince customers that there is value beyond cost,” says Peter Schumacher, CEO, Value Leadership Group.

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Barclays Bank closes
US technology hub

Karl Flinders
Services Editor
01 Apr 2016 16:30

Peter Schumacher, director at business consultancy The Value Leadership Group, said closing the centre in McKinney needs to be seen in the context of the restructuring underway at Barclays. "Under the leadership of John McFarlane, the bank is pursuing an ambitious schedule to generate greater value. Key initiatives involve simplifying the business and reducing costs."

"The IT center in McKinney is relatively small and has comparatively higher operational costs compared to captive centers in India. While closing the center in McKinney is a disappointment for the local community, maintaining it doesn’t fit with Barclays's priorities for the future," added Schumacher.

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Indian suppliers are mopping up Nordic business

Karl Flinders
Services Editor
10 Mar 2016 13:15

Indian IT suppliers are blazing a trail in the Nordic region with large deals and major local investments

Peter Schumacher, director at business consultancy The Value Leadership Group, said Nordic firms have lost their way. He added that it is not dissimilar to when the US giants allowed Indian firms in under the radar, when big business craved low cost IT support amid Y2K fears.

“In response to the advancing offshore firms, Nordic firms have been retrenching, delisting and focusing on operational excellence and localisation. Today, most firms are boxed-in and even more strategically disadvantaged,” said Schumacher.

He added that Tieto’s revenues for example are down 20% since 2008, while leading offshore-based IT services firms have at least doubled their European revenues.

“European firms have failed to build advantages, rather than just eliminate disadvantages. Most have fallen behind on the change curve and remain trapped in outdated business models, practices and paradigms.”

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Assa Abloy outsources IT transformation to Wipro

Karl Flinders
Services Editor
08 Feb 2016 14:08

Swedish lock maker has outsourced its IT infrastructure
to Indian IT services firm

Offshoring specialist Peter Schumacher, director at business consultancy The Value Leadership Group, said that while IT spending and budgets at European firms are expected to remain flat or even fall marginally this year, organisations are shifting more work to offshore services firms.

“Offshore services firms will continue to gain market share in Europe in 2016,” he added.

Schumacher said Assa Abloy is a good example of a large European firm using the global delivery model across its business.

He added that Wipro’s deals with Assa Abloy and RSA Insurance “reflect the new dynamism that its new CEO, Abid Neemuchwala, is bringing to the business”.

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Wal-Mart to make huge data and analytics investment in India

Karl Flinders
Services Editor
26 Jan 2016 9:58

Retail giant Wal-Mart is investing heavily in its IT development centre in Bangalore, turning the city into its most important centre outside the US

Peter Schumacher, director at business consultancy The Value Leadership Group, said Bangalore, Gurgaon, Pune and Hyderabad are now the places to go for IT brains, experience and capital – as well as research and development.

To put this in context, he said the city of Bangalore receives more venture funding than the whole of Germany.

“These cities have become the largest, most diversified tech ecosystems in the world. Big banks, retailers and global tech firms all set up IT development operations there and there is cross-pollination.”

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