Indian outsourcing firms should reduce headcounts

Gartner report shows Indian service providers are falling behind in revenue per employee

Large Indian outsourcing providers will need to cut down on staff numbers if they want to maintain their unprecedented business success, analyst firm Gartner has warned in a new report.

Gartner has released facts showing the big three Indian providers – Tata Consultancy Services, Infosys Technologies and Wipro Technologies – are increasingly considered for service deals over today's global "megavendors" but demonstrate much lower levels of productivity.

The lower productivity level of the Indian providers is shown by their smaller revenue per employee compared to global services giants IBM, Accenture and EDS.

"The Indian providers will have to address the issue of moving away from resource-intensive revenue growth to a model that provides higher leverage and increase revenue without a linear relationship to head count," noted the Gartner report.

The "India-3" are emerging as the next generation of IT service megavendors and are growing three times as fast as the world's current megavendors, according to the figures released by Gartner. Gartner also predicts that the large Indian providers will replace today's megavendors by 2011.

However, the Gartner figures also show that each global megavendor had roughly £50,000 higher revenue per employee than any of the Indian firms.

Gartner explains the three big Indian players will have to achieve similar levels of revenue per employee benchmarks to the current megavendors to "truly achieve megavendor status".

Ideally, a company wants the highest revenue per employee as possible as it denotes higher productivity.

"Revamping and continually reinventing their delivery capabilities, even as they address the challenges of managing their growth opportunities, will determine how and when these emerging megavendors will actually achieve megavendor status," said Partha Iyengar, Gartner research director and vice president.