It would be pessimist and unfair to assume that we could no longer be the greatest providers of outsourced software services for the world. The industry simply needs to evolve to grow into a bigger industry with larger targets. At the same time, the country needs to prepare as a whole to provide an appreciable environment to overseas customers.
The country is fretting over what seems to be a not-so-bright-future for the Indian IT industry. For those making the bucks, India’s fairytale story can’t seem to go bust so soon. And it might not. Yes, the IT industry is being met with serious challenges that it needs to address immediately. But the good news is there is still a chance and all we need is to prepare for the future. Going by the past trends, the IT industry has always seen it ups and downs. Concluding anything on the Indian IT ITeS industry would be premature. A recent interview with NASSCOM president Som Mittal, in which he stated that the IT sector expects to meet or even exceed its software export target of $ 60 billion and overall software and services revenue goal of $ 73-75 billion by 2010. So dismissing these numbers would not be appropriate.
However there are surly certain issues that require a thought or considerations. On the surface, there seems to be a downturn in India’s bright and booming IT industry. To start with, there is the appreciating rupee against the Dollar. The Indian rupee has strengthened 15% against the Dollar the last one year. But America being the primary provider of outsourced business to India’s IT companies, their dipping economy fares trouble for companies here.
Another twist to this tale is the reduced spending on IT services by American companies as their economy slows down. Not only has this caused a drop in the rate of salary hikes and hiring, American firms are also passing on and creating lesser work for Indian’s IT companies. As the bulk of work lessens, India being the largest provider of low-cost outsourced services, the impact is reflected surely and poorly.
As Infosys Chief Mentor and Non-Executive Chairman Narayan Murthy has constantly pointed out, another bottleneck the Indian IT space faces is India’s clogged infrastructure. Any foreigner, who steps down at the Indira Gandhi International Airport in Delhi or the Bengaluru International Airport for the first time, will not get the best first impression. For a country that opened its doors for other countries almost a decade back, there is poor development.
Our airports need serious makeovers. Let’s hope the new ones will provide the extraordinary experience that a visitor deserves. If you walk down the road from Bangalore’s airport to the city’s best-known hotel Leela, the traffic and pollution are stifling. Similarly, if you land at Delhi or Mumbai’s international airports, there is nothing welcoming about them yet. The efforts are on, but it needs speed and urgency. Or we are bound to lose work to competitors like China, Eastern Europe and Russia, who not only provide low-cost services but also better propriety. With new fiscal budget awaited in near time I would advocate for policies that would aid to sustain the India IT shining story. The Government will also need to look in continuing the tax holiday to smaller STPs beyond 2009
Competitors are another major threat to Indian’s IT industry. While the industry might not be as organized in countries like Russia and China, they are on their way. And they are also producing quality engineers, comparable to India. Even countries in central Europe are not very far from achieving what we have been bloating over. Emergence of these countries in the IT space has already started impacting our client’s preferences and margins.
India needs to stabilize the way IT firms are working. The talent is there but we still fall short of the demand. If we want to continue supplying work to firms abroad, we need sufficient talent within the nation to meet the demand. Engineers don’t simply need to provide outsourced services that mainly involve testing services. If the industry wants to survive, it will need to train professionals to do substantial tasks that will help firms move up the value chain.
Even companies that are outsourcing work to us now want to pass on more evolved work to India. They will soon be automated and we will be forced to take on other work. We need to prepare our systems and professionals for a future that involves different work like developing systems and solutions for foreign clients including diversifying in the various other geographical regions. Companies like TCS and Infosys have taken the clue and are already undertaking work that will help them grow from a service provider to a policy enhancer with larger foot print. Besides, the kind of outsourcing services we are providing right now might become redundant very soon.
At the same time, despite what the scenario looks like, salaries are being hiked at tremendous rates. Salaries of those higher up in the ranks is soon likely to match of those in the United States. This is not a positive sign for the low-wage advantage that we currently offer. Cost arbitrage may very soon not be considered as a differential factor but a hygiene one.
Fortunately, this is not the end of the story. So far, Indian companies have been providing peripheral work to foreign firms. But times are a changing and any IT firm that wants to keep evolving at the same rate will have to grow to be able to provide higher margin work like consulting. We need to the move up the value chain to sustain the advantage that we are currently offering to the world. In the recent NASSCOM leadership forum there was a great talk or recommendation to the India IT ITeS company to move up the value chain to sustain the competitive advantage.
With annual growth rates of nearly 30% in the past ten years, Indian IT industry has been resting in peace. We have provided a bulk of talent and spearheaded some of the greatest software development any country has provided. The stats for future does looks encouraging provided the industry works together to over come the hurdle to reverse the IT down turn. It’s time to gear up. If we don’t change, and fast, we may very well be headed for a fall.
The fundamental business model of Indian IT industry of earn is $$ dollar and spend in rupees would prevail in the coming years with amendments of Earn in Yen, Euro, Pound, Dollar…..and spend in Rupees based upon cohort effort of the industry and industry + government.
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