Conventional wisdom in the US holds that consulting firms like McKinsey have nothing to fear from Indian firms. The reason is that Indian firms are most unlikely to win high-end strategy and board level consulting business, at the expense of the likes of McKinsey and Bain, because the cultural barriers are way too high.

There are a few reasons. First, because few Indian IT and consulting firms have succeeded in differentiating themselves in ways that McKinsey, BCG, & Bain have spent decades doing. Second, the relationship demands for dealing with chairpersons and CEO’s are more dramatic and much higher than at operational levels. Third, the management demands of having such diverse levels of people providing advice and service from the top down are too complex for current Indian management structures and skills. It’s very different to have senior level presence in the boardroom, at the chairman level, or at the chief executive level than it is to have strong relationships at the operations level.

Experts say that there is a threat to Indian companies in America because their weakness is in business development and relationship management. They don’t do the relationship management and talking the strategy talk very gracefully. Part of the challenge for the Indian companies is to try and understand what their value-added is, as other companies start to see the value of moving their costs down. The Indian companies, Wipro for example, have a strong potential to grow profitability. Given their current margins, which are in the 20-per cent to 30-per cent range, they should be able to reinvest in growing in a smart way.

The technology services industry operates three major layers. The bottom-most layer is a very hardware-driven business (producing computers, etc) in which there has been convergence onto a few standards. The middle level consists of a bunch of services, like applications development, applications testing, and documentation. The top level is what falls into the grab bag of consulting, but these are really customized services. If you look at the margins, Indian companies are really strong in the middle level. They are almost absent from the hardware level, since for a variety of reasons manufacturing is still not competitive in India. It’s in the middle - the application development design, testing code maintenance - where Indian companies are really strong.

But I believe there will be a shedding of the US companies’ high-end consultants that are housed inside the outsourcing companies. In that case, will companies like Wipro and Infosys work with to help them change their culture, which somewhat mirrors the US outsourcing culture? Now that they’re playing in the world scene, I think they’ll have to spend some of this money on getting their own strategy pulled together.