This year considered as Change for Indian IT as more Challenges to come
The $146 billion Indian Information Technology (IT) industry, which employs 3.1 million people, is at a crossroads. Digitialisation, Internet of Things, the move to cloud and emergence of Everything as a Service (EaaS) models have meant that Indian IT has had to adapt very fast to changing market requirements. From a mere $5.3 billion in 2000, Indian IT exports today are around $100 billion apart from the fast growing domestic market opportunity. Here then are the achievements in the year gone by and more importantly the challenges it faces ahead.
Growth: Indian IT grew at 13.1% according to industry body Nasscom in the year gone by. While gone are the days of giddy 20% plus growth rates, one has to acknowledge that the double digit growth rate is coming on a considerably large base. While Nasscom expects growth to continue between 12-14% for FY2016, the numbers put out by the bigger players in the first two quarters of this financial year, give a pause for concern.
As in most sectors, the top 10 firms like Tata Consultancy Services, Infosys Ltd, Wipro, Cognizant, HCL Technologies and Tech Mahindra account for majority of the industry revenues. Each of these large firms are grappling with their own set of challenges and the numbers reported till date have been a shade under market and industry expectation. If this trend continues, next year might see the first year ever when Indian IT might struggle to even grow at double digits.
Technology Shifts: For long Indian IT was comfortable doing ‘lift and shift’ jobs, that is execute jobs at a lower cost based on large work forces in low cost geographies like India. Also Indian companies were adept at low margin but high volume, steady work like Application Development and Maintenance (ADM) and testing. The low hanging fruit have been plucked now and this has become a commoditized business with very little to differentiate among players.
Digital, Social, Mobile, Analytics, Cloud (labeled as the SMAC stack) and newer models of engagement have meant that Indian IT players have been trying hard to stay on top of the game. While the industry cannot ignore traditional ‘run the business’ opportunities it will have to increasingly look at ‘grow the business’ to get that extra progress.
Investing in Innovation: All the major players have been coming up with and started offering their own Intellectual Property through platforms and productive solutions to provide not just value but innovation. For instance in the year just gone by, TCS launched iON its cloud based ERP (enterprise resource planning) offering apart from Ignio its Artificial Intelligence platform.
Similarly Infosys this year launched Aikido – its next generation services in design thinking, platforms and knowledge based IT. Indian companies would need to be more aggressive and experimental as they invest in innovation. Executing orders at lower cost is pass Ã© but helping clients to grow their business is what will keep Indian IT ‘s edge.
M&A: Indian IT has mostly grown organically. As it seeks to push boundaries they need to look at more Mergers and Acquisition opportunities more forcefully. Earlier when they enjoyed growth in high teens they could afford to try and build things organically. Given the seismic shifts happening in the technology landscape such a strategy going forward might be foolhardy.
For instance when Tech Mahindra recently acquired Italian car design company Pininfarina Spa, which has designed numerous Ferraris, the markets briefly punished the company. Irrespective of the merits or otherwise of the move, Indian IT companies are realizing that they need to take steps which might be not popular in the short run but will strengthen it in the long run. Similarly Wipro acquired Danish design firm Designit, there were sceptics who have been proved wrong. Given the large size of most top-tier Indian IT companies they will have to take more aggressive M&A bets, if they want to sustain their growth.
Robust Startup Eco-system: If there has been one sector, which has grabbed all the attention and the money in the last one year, it has been the numerous startups. While the startups have been addressing opportunities across the spectrum, technology has played a key role in their growth and success. A large number of the startups have been funded, mentored or started by people who initially cut their teeth in the Indian IT industry.
The strength of the startup Eco-system enables Indian IT to experiment and deliver solutions, which can then be sold in the international market. India already boasts of the third largest start-up Eco-system in the world and Indian IT industry can only benefit by serving and learning from this teeming number of companies.
Domestic Market: The domestic IT-BPM market is estimated at close to $50 billion. Two major trends market out the domestic market opportunity. One it is growing at a faster clip than the export market at 15-17% according to Nasscom and second the revival of government spending through schemes like smart cities and digital India means, the local market is becoming crucial.
Even some of the large IT players who earlier exclusively focused on the export markets more are increasingly look at the opportunities for growth closer home. Expect this trend to accelerate in the next year as the domestic IT market becomes even more attractive.
Protectionist Sentiments & global economic outlook: The increase in visa fees being contemplated by the US is only the latest hidden trade barrier that Indian IT needs to combat. A $400 million additional bill is unfair and discriminatory. Indian IT needs to step up its lobbying and advocacy through government and other channels to ensure that it is not locked out of the crucial US market from where it gets more than 60 per cent of its revenues.
It has to use every platform available to ensure that its views are heeded. While protectionist sentiments rise due to increase in political temperature every four years in the US – as a part of run-up to the Presidential polls in that country – Indian IT should not allow itself to be used as a punching bag. Even in Europe, Indian IT sometimes gets a raw deal. Only through education, advocacy and lobbying can the industry protect its interests.
The other large worry is that while the year gone by was okay, if there is any dramatic slowdown of the global economy, Indian IT would be hit hard. So even as it lobbies to keep borders and trade open, the global economic outlook will weigh in heavily on the fortunes of the sector.
People: The Indian IT industry has been the biggest creator of white-collar jobs over the last decade. However shifts in technology, increasing reliance on IP, platforms and Artificial Intelligence, means that the industry will not be able to add as many jobs going forward as it did in the past. Also a large number of the 3.1 million people employed by the sector need to be retrained to take on newer challenges.
As 2015 ends, Indian IT can look back at the year with a sense of satisfaction but has to be tinged with a degree of trepidation as it takes on a bigger set of challenges in the New Year. While 2015 can be labeled as the year when the transition began, the results will start getting reflected in 2016.