Monday, August 8, 2022

India may witness a wave of offshoring strategy and planning services

India’s evolution from cost-to-thought leadership through management consulting is a theme I covered in earlier columns too. Today, I am making a prediction: Global firms will increasingly have offshore strategy capabilities to India, either to India-bred management consulting firms or to their own captive arms.

Can the strategy, however, be outsourced? While we understand that non-core functions can be outsourced, there is another dimension that drives outsourcing: Limited-time projects versus business-as-usual activities (BAU.) Activities like payroll are non-core BAU and these have been outsourced for decades .

Non-core limited-time projects such as IT system implementations are also regularly outsourced. Core BAU activities such as sales and service delivery are typically held in-house in most companies as the “secret sauce.” Strategy and planning fall in the last remaining quadrant: Core but limited-time projects.

The fact is that strategy has been outsourced for decades to global management consulting firms. Most consulting engagements are limited-time projects that require specialized capabilities. Many large organizations, including Indian conglomerates, have decades-long continuous relationships with management consulting firms. It is not uncommon for consultants to rise to partnership in such firms by servicing a single client over years, spanning multiple engagements, across geographies.

That said, even if the strategy is outsourced, can it be offshored? Conventional wisdom is that these are high-touch engagements that require co-location. Covid-19 has upended this conventional wisdom. Even pre-covid, it was not unusual to find dispersed strategy teams spread across key markets. Post-covid, virtual agile teams will be the norm. Limited travel will continue to build relationships and understand context, but the default mode will be virtual and agile. So yes, the strategy can be offshored.

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But why will such offshoring happen to India? This is easy: No other country has the depth of proven consulting talent, communication capabilities and global business context. Almost all global consulting firms already leverage large India-based workforces. Our IT services industry has created a large workforce and associated systems capable of engaging and delivering globally. Our domestic economy has grown to an extent that India-bred consulting firms now have world-class experience and credentials.

What kind of clients will pioneer this offshoring of strategy to India? We believe there will be three types: One, given the post-covid VUCA (Volatile, Uncertain, Complex, Ambiguous) world, the need for strategy and planning will percolate beyond large companies to mid and small-sized firms. These firms cannot afford the high fees of global consulting firms and will be keen to work with India-bred firms, once they realize the option exists. Two, leading firms from the next set of emerging economies, in Asia and especially Africa, will tap India-based consulting talent to grow, both domestically and internationally.

We are seeing this trend first-hand in the Philippines and South Africa, where pioneering entrepreneurs are leveraging Indian consulting talent. Three, global conglomerates, who work with large consulting firms today, will smarten up and cut the middleman, by working directly with India-based consulting talent. The exorbitant margins that large consulting firms make today, by charging global rates while leveraging Indian talent, will be incentive enough. We may also see such firms add strategy capabilities to their Indian captive arms.

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Is this trend playing out already? Absolutely. We know multiple pioneering EU and US-based leaders who are leveraging India-bred consulting firms to access world-class talent at Indian rates. We are also witnessing increasing M&A interest in India-bred consulting firms.

This interest is coming from international funds who want consulting capabilities at sustainable rates, IT firms who want to build “tip of the spear” consulting capabilities and conglomerates, who want to build such capabilities within their Indian arms. We expect to see multiple such transactions in the coming two years: Indian consulting companies are coming of age much like Indian tech, SaaS and e-commerce startups.

So, what needs to happen for this trend to gain momentum? Awareness, pioneers, and advocates. Buyers of strategy services need to be made aware that this India-based option exists. More pioneering clients are required to upend conventional wisdom that still allows global management consulting firms to charge exorbitant fees. And I reiterate that we need a Nasscom-kind of industry body to advocate for Indian management consulting.

Abhisek Mukherjee is co-founder and director of Auctus Advisors.

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