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Blog: India Moving Down the Value Chain?

Blog: India Moving Down the Value Chain?

This week Wipro announced that it's snapping up U.S.-based infrastructure management provider InfoCrossing for $600 million.

It's one of the largest American buys by an Indian outsourcer (see India's Wipro to Acquire U.S. Services Provider Infocrossing).

The outsourcing analysts say the deal has the likes of IBM and EDS shaking in their boots. But is it the end of infrastructure outsourcing as we know it?

Not exactly.

Typically if you were going to offshore your infrastructure to an Indian company, you'd be engaging in what is called "remote infrastructure management." outsourcing analysts have been hyping it for at least the last year as TNBT (The Next Big Thing). Unlike the traditional IT infrastructure model offered by such entrenched U.S. players as IBM and EDS, Indian companies offered what I'll call infrastructure outsourcing "lite". Taking advantage of a host of new advanced infrastructure management tools (infrastructure planning, administration, and monitoring and problem-solving tools), the Indian providers manage your infrastructure from a different time zone. But they don't actually take the physical data center off your hands.

Or off your books. Which, for many companies, was the appeal of sending IT infrastructure to a third party in the first place - all that pesky, fast-depreciating hardware, software, and facilities expense. But Indian outsourcers are notoriously risk-averse when it comes to investing in assets. Kind of kills the profit margin. They don't really want to take on your (expensive) human resources either, which is why we've only seen limited amount of the "re-badging" of IT employees in Indian deals that marks most outsourcing deals generally. But that's a discussion for another time.

Until now, most of this remote infrastructure management was done by smaller Indian firms you may never have heard of. If you contracted with one of the top tier firms for RIM, they were probably subcontracting it.

The Wipro acquisition marks a major milestone here. Perhaps it represents some kind of a middle ground between the traditional (more costly) U.S. model and the new (cheaper) Indian one. Or maybe it's just a move by a well-funded Indian company to leapfrog into infrstructure competition by buying InfoCrossing's U.S. customers, and the assets that come with it are just a necessary evil.

It's also interesting because for all the talk of "moving up the value chain" of outsourcing, infrastructure management (the most commoditized of outsourced services, if I must use the term "commoditized," which I hate) seems more like a move down the value chain. Particularly India's RIM version. (I know a lot of you will disagree.) But it offers these offshore providers a much more straightforward revenue growth (particularly infrastructure outsourcing "lite") than IT consulting or other activities further up the value chain.

Meanwhile, will actual remote infrastructure management really take off with American customers the way all the analysts are predicting? I know U.S. airline start-up Virgin America is betting on this next big thing, and I'm meeting with their remote infrastructure manager Cybernet-SlashSupport (CSS) later today.

And the analysts make a good case for it. Everest Research Institute says a host of factors - those new infrastructure management tools; the complicity on the part of IBM, EDS and others in also taking advantage of the offshore component; shorter technology cycles; and growing interest from buyers - means that old-school IT infrastructure outsourcing suppliers will start to see declining revenues.

In 2009, that is. In the meantime, I'm going to wait and see how these early deals work out. How about you?

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