Friday, December 23, 2005

Why Indian IT must move up the value chain, an analogy

One of my favourite analogies of the IT services industry in India is the auto garage. Once you see the analogy, it is fairly easy to see why (and how) the garage has to move up the value chain.

As a garage, your margins are low. The real margins are in cars. When a car manufacturer offers you servicing, it is more convincing, than when the garage offers a car of its own brand.

Or to use another example, if your interior designer offered to work on plumbing and carpentry in our house, we are more likely to accept, but if your plumber or carpenter offers to do up your home, you are sure to think twice before accepting the offer.

Thus too, India IT, which is now more at a low value addition stage (more or less). They need to move into niche high value areas, be it semiconductor design(Wipro) or Consulting (Infosys) or something else. From high value service providers it is easy to "create business" for the core business, thats IT services, rather than the other way round.

3 comments:

Kiranz..!! said...

true..!!

ankan said...

It it not easy to move up the value chain though...I wrote up something based on my understanding of the situation.

http://space_of_ankan.blogspot.com/2005/12/is-world-really-flat.html

Neelakantan said...

Well, what you have written is partly true, much like what Friedman has written. The world has flattened, to the extent that an Infy from India or an IBM from the US (take any name) are competing for the same business. To the extent that a graduate from Begur or Berkeley can aspire to join a global firm, Infy or IBM respectively. That in itself is a big big change. These changes do not happen overnight, but they are happening in the space of a generation which is mindbogglingly fast.

Regarding moving up the value chain, I know that many companies are doing the same. Observe the various ways in which they are doing it, organic, acquisitions, tie ups with universities. So, move up the value chain, we surely will.

Will there be a breakthrough product coming out of India? Ummm...observe the way Japan shaped up, Korea shaped up, Taiwan is shaping up and if we take a like to like comparison, we can reach there, but it will take some time.