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TwitterIndia: IT services profit center
Posted by Marc Brien, VP Research, Domicity Ltd.
(This post is based on research for an upcoming Domicity CORProfile competitive analysis study of a global cloud leader. Click here to receive advance notice of this report.)
It only takes a handful of numbers to show why western-based IT services companies continue to look to India as an offshore center for their delivery operations. Just look at the figures below in the 2010 Operating Margin column for India’s Infosys and Tata Consultancy Services (operating margin = operating income divided by revenue).
The enviable profitability of Tata and Infosys shows why IBM Global Services, HP Enterprise Services, Accenture and others in the West are so keen to move operations from the US and Europe to India. Supplying IT services to the rest of the world from an Indian base can be very lucrative.
India’s growing domestic market for I.T. services is just the icing on the cake. 
The world’s I.T. enterprise services leaders are not alone in their love for the seemingly bottomless well of highly-educated, English-speaking, relatively low-wage, graduates of the Indian education system. Any large back-office, call centre, software programming, or engineering operation can disappear down a fibre optic rabbit hole to reappear in Bangalore, Mumbai, Chandigarh or other Indian metropolis.
Unfortunately for the West, the white collar jobs offshored to India may be gone for good, whereas offshored manufacturing operations are expected to come under increased pressure to migrate home as rising prices for hydrocarbons make it uneconomic to ship low value-added goods long distances.
And while India is the most significant offshoring centre for white collar activity, it is by no means the only one. For instance, in addition to India, HP Enterprise Services’ Best Shore offshoring network includes significant services delivery hubs in Bulgaria, China, Costa Rica, Malaysia and the Philippines.
The relatively weak profitability of Cap Gemini and CSC should drive each to revamp their business model, incorporating new service delivery venues and target markets.
Both CSC and Cap Gemini must look like tempting acquisition targets to some IT services competitors and to private equity firms.
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