How big is the commoditization of the consulting biz?

In the 1990s, as the Indian information technology sector began to mature, TIWs were the major recruiters to the Indian Institutes of Technology (IITs). These were sought-after roles, offering a 25% annual salary increase and the ability to emigrate to the West.

TIW acted as finishing schools for Indian engineers and prepared them for the software boom that continues.

TIW could then do this because, to borrow the startup term, they were hyper-scaling. The US dollar hourly rate offshore was in the teens and early twenties, which provided ample margin for lucrative pay increases and luxurious campuses.

Things began to change in the mid-2000s. Seeing their growth, TIW became a massive recruiter to their traditional campuses. This loss of exclusivity diminished their appeal.

Continued pressure on billing rates, which barely exceeded $20 offshore, affected their ability to pay relatively high salaries. They responded by expanding their recruitment net to next-level colleges and relied on processes to maintain their margins.

This trend continues. Three decades later, offshore billing rates remain in the mid-twenties. Starting salaries at these companies have barely doubled in two decades, and their recruiters target a very different profile of colleges.

While this may sound negative, this trend has been a big blessing for India, which has crossed $300 billion in IT services exports. This continuous expansion of the recruitment pool has ensured that hundreds of thousands of young engineers are routed through these world class software finishing schools. This has made them globally competitive.

Today, many have started their own firms or are top leaders in established IT companies. The standardization of the global distribution model, which allowed this expansion with limited billing growth, is an incomparable competitive advantage for the Indian IT industry.

The Indian management consulting industry is witnessing similar trends.

By the mid-2000s, an MBB offering was the holy grail among top business schools. They recruited from just five-six campuses and rarely hired more than 25 consultants combined. His salary used to be the highest, and the occasional offer from international offices made front page news.

Today, these firms are massive recruiters to a large pool of business schools. It is not unusual for an MBB to recruit 30 students from each targeted campus.

Add to that the many similar firms like Kearney, Accenture and Deloitte, which recruit similar numbers. Salaries remain competitive, but technology companies such as Google and VC-funded startups regularly offer higher salaries. In fact, product management in startups is competing with consulting as the preferred option for new MBAs.

These companies are also harming the talent. Many find the constant intensity (and journey) of counseling unsettling. There are many opportunities now in funds, startups and corporates that offer competitive salaries.

These options highly value MBB training, making it an attractive exit route for consultants. It is common for advisors joining these firms to have an exit horizon of two-three years. It’s the blood of genius that has flooded LinkedIn soliciting applications in recent weeks.

In the case of IT, this is a very positive trend for India. We will soon have the largest pool of management consultants in the world. Their training is highly valued, and their talents are in demand. These are professionals who will drive India’s growth as corporate leaders, startup founders and fund managers. Many of them will leverage their training and relationships to start their own consulting firms, which will drive the wave of offshoring of consulting services in India. The impact of this soft power will be widespread, perhaps even greater than that of Indian IT globally.

It will also reduce the rates of consulting services, making it accessible to a larger pool of clients not only in traditional markets but also in emerging economies in Asia and Africa. The resulting virtuous circle for India-born global management consulting firms will help attract both clients and capital.

Like IT, management consulting in India is commoditizing. This is great for India and the world.

Abhishek Mukherjee is the co-founder and director of Octus Advisors.