Competition for India in Software Service Provider Market

Problem:

Indian market, with a special reference to software industry is generally based on the labor cost arbitrage model. What that means is that, if a software developer is paid X dollars per month in a developed country, an Indian software engineer would be paid a fraction for the same job. This model has served Indian software companies well and hence they have thrived over the last decade. However, Low cost service providing countries like China, Russia, Philippines, South Africa and others are quickly catching up on the Indian model. Also there is notable increase in employee compensation, a case of strengthening rupee and other factors which are bridging the gap that helped the existing model to survive. Assuming that you are in the software services market as a new entry, what steps will you take to thrive in the market? What according to you is a solution for the Indian industry as a whole in the given current situation?

Solution:

As a new entry in the Software Services Market, one would have to compete with well-established players. One would have to sell their services for lower rates than the established Brands to get some market share. At the same time, in order to attract better skill set to the company, the compensation package would have to be higher than others. This strategy is, obviously, very difficult to maintain without incurring losses. Therefore, this model can be retained for a very limited time, just to get the primary market share. 

Having a better skilled manpower would result in services being better and differentiated. Keeping the quality of services higher than the competitors won't be tough and will only be impeded by the limited infrastructure of the entry. However, if its development is kept in resonance with the growth in market, a bottleneck would not get created.

With better services as differentiator, one can increase the price of services gradually, which should not affect the market share as long as the quality is sustained and improved.

Additionally, the company’s human resource should be well versed with the demands of the customer. Knowing (and providing) exactly what they want is half the battle won. India would have a upper hand in this case, as they have been ‘in the business’ for far longer than the other countries.

But even these solutions are temporary. All these differentiators can be overcome by other countries with time. So, India needs to come up with something other than just service quality to be much ahead in the race. With availability of highly skilled manpower, the following steps can go a long way in providing an upper hand.

Consultation services

The Indian Software services market can branch themselves into software consultation area, where they would cater directly to the customers’ fundamental problem, rather than just providing the ordered solution. This would open up new sources of income altogether, and would be another market, where the same low cost arbitrage model can be implemented.

Partnership with Client Companies

Having a relationship deeper than a client – service provider would ensure that it would be more difficult for the client to leave the software service provider for greener pastures. Because now it is more closely bonded with the provider.