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Layer3 Model for Indian IT SME's in Europe

This is the first article from the series I hope to finish for Indian IT SMEs' participation in the European, more specifically the German-speaking European market, mentioned earlier in my blog.

For years and still today Indian IT SME's have struggled to find opportunities for adding value in the European market. I have argued that this is principally because of the lack of ingenuity of business-models on the part of IT services companies from India. For far too long, they have focused on one and only one value-proposition, that of low-cost development resources. I believe it is now time to stop betting the farm on that one value-point, and start identifying under served opportunities, which the same strengths that have propelled Indian IT service companies into global fame, can serve.

The Layer3 Model which I'd like to propose here, segments the market into 3 horizontally laid out layers for visualization purposes. At the left end is Layer-1 where an Indian IT SME fits. Placed right of them at Layer-2 are indigenous European IT companies that consider this market home-turf. At Layer-3 is the end European market which is occupied by IT end-user companies of the most diverse nature.

Playing by Strengths

The Layer3 model champions the idea for Indian IT SME's to work for/behind their European counterparts. The premis for this is simply to play by one's own strengths. Layer-1 companies have it to their advantage that they have significantly more software development resources compared to European companies. Furthermore, while European IT companies have traditionally served their domestic markets, Indian software companies on average derive over 75% of their revenues from overseas customers. This has resulted in global delivery processes and best-practices that have become first-language to most Indian IT SME's. This strength, tested over time and matured over many projects, will result in adapting best-practices for project delivery across the geographical, and to some extent cultural, separation between India and Europe.

Strengths of Layer-2 companies lie in serving their local markets. Europe, with it's multi-lingual, multi-cultural and multi-national fabric can indeed be an overwhelming new market for Indian companies, if they attempt to approach Layer-3 companies, the end IT-users directly. Even zeroing on a single European national market leaves Indian executives with many challenges. Business standards in each market are varied and learning all of them will incur significant costs both in time and money. These hurdles should best be avoided by serving Layer-2 companies as back-end production partners, where a Layer-1 SME's role is limited to technical delivery.

Effects on Bottom-line, Competitiveness and Innovation

Layer-2 companies on the other hand, thanks to added capacities provided by the Indian partner stand a real chance of positively driving their top as well as bottom-lines in their native markets. They become more competitive by offering more services at better conditions in the market. At the same time, if the resources of the Indian partner are leveraged appropriately, European IT companies can also attain higher levels of innovation by freeing up their indegenous engineers to undertake more technically challenging tasks, and allowing their Indian counterparts to perform the more "regular" tasks. Best of all, end customers stand to benefit due to the better deal that the consortium of their regular European IT supplier and the Indian IT SME provide jointly.

Bridgeheads - the Key Success Factor

The advantages highlighted above are infact nothing new in the offshore software services market. When managed successfully all offshore projects offer them, but in the European market, cases of successful offshoring, particularly in the SME sector have been just a handful.

In the context of India, the factor that inhibited successful project work have been points of disconnect at a cultural and work-ethic level. These are full subjects of investigation in themselves, so we'll save them for later. For now, let me introduce the concept of a Bridgehead. Bridgeheads are members of a project team who are comfortable with both the German and Indian ways of work. Lack of bridgeheads in projects can be the single largest failure-factor for offshore projects between Indian and German IT companies.

In perspective of the Layer3 model, on the European side, bridgeheads assume the role of understanding the project requirements, customer's concerns and expectations and standard project management tasks such as scheduling, release-management etc. On the Indian side, they ensure that the team(s) responsible for the delivery are in full understanding of requirements, expectations and standards. Bridgeheads typically also enforce the necessary discipline among all parties involved. In end-effect bridgeheads are point-men who can masterfully coordinate both sides of the buyer-vendor relationship. In the Layer3 model, the presence of bridgeheads could realistically drive the success-rate of projects to near 100% between Layer-1 and Layer-2 companies.

The Layer3 model offers a sustainable and profitable solution for offshoring needs of IT companies in Europe. It significantly increase success rates of projects. At the same times it answers classical political debates like job-loss in local market, because the role of overseas companies is restricted to production activities and they need not be viewed as competitors to domestic players.

.. to be continued ...