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2017: A challenging year for Indian IT and things may get worse before getting better

It was one of the most challenging years for the $154 billion Indian IT sector that employs about 4 million people.

twitter-logo Venkatesha Babu   New Delhi     Last Updated: December 31, 2017  | 11:20 IST
2017: A challenging year for Indian IT and things may get worse before getting better

It was one of the most challenging years for the $154 billion Indian IT sector that employs about 4 million people. IT exports soared 20-fold in the last 17 years to $108 billion but 2017 saw some difficult times for the industry and exports are projected to grow by a mere 7-8 per cent.
 
Here are some of the challenges it faced and the opportunities it has to get its growth back.
 
a. Automation, AI and shift to digital
 
For years, Indian IT had been talking of the shift to digital and 2017 was the year when the real impact on companies was both seen and felt. Except for a few companies Indian IT was caught napping and tried playing catch-up. Large number of routine IT tasks got automated. Indian companies accelerated their push to provide platforms based on artificial intelligence. While what exactly constitutes digital was still hotly contested, traditional IT services declined and new generation of offerings broadly under the SMAC (social, mobile, analytics and cloud) category grew.
 
b. Layoffs and reskilling
 
Unlike some of the alarmist headlines, Indian IT was still a net hirer in 2017. The industry added about 1.7 lakh jobs amongst IT-BPM companies. With the skillsets in demand changing, industry saw some layoffs, which grabbed headlines too. While most companies retrained and redeployed their workforce, there was considerable fear and uncertainty amongst IT employees. Given the shift in the technology landscape, from the employment generation front, things might get worse before it gets better.
 
c. Average size of contracts shrunk
 
When TCS recently bagged a $2.25 billion contract (albeit spread over 8 years), the average size of contracts shrunk. This meant Indian IT companies, specially the large players, need to be more nimble to chase more number of contracts whose average ticket sizes would be considerably lesser.
 
d. Walls are going up
 
With US accounting for about 60 per cent of Indian IT export revenues, the new Trump administration moves to cut down on H1-B visas and insisting that locals be employed. This development coupled with Brexit meant Indian IT had to face newer set of challenges. Having perfected their offshore low cost destination centric delivery model, they are being forced to hire in high cost, near shore markets. This is likely to have an impact on their margins and competitiveness
 
e. Leadership changes
 
Three of India's largest IT companies - TCS, Infosys and HCL - saw leadership changes at the very top in the last 12-15 months. While some of the transitions like in the case of TCS was smooth, it was turbulent in others like Infosys. As the industry faces newer set of challenges, it is clear that stable leadership with a clear vision and a will to execute would be required going forward.
 
f. Explore newer markets
 
Traditional markets like US and Europe still hold some promise of growth but Indian IT clearly needs to look at other growth opportunities. Markets like China, Japan, Latin America and Middle East need to be tapped more extensively so as to reduce our dependence on a handful of geographies.
 
g. More aggressive M & A moves
 
Till recently with organic growth in high teens, Indian IT companies have been loath to make substantial acquisitions. They need to shed timidity and diffidence to make more aggressive acuqisitons specially in markets where they have little or no presence. More than size of the acquisition, it is technology, geo-footprint and other considerations which should drive quick decision making in such opportunities
 
h. Invest move in innovation
 
Over the past couple of years, Indian IT has started investing in platforms and products. However it needs to step up its investment in innovation if it aims to capture more of mindshare and market share. Throwing more warm bodies at problems at ever-cheaper prices is not the solution and they need to invest in innovation.
 
Inspite of the several challenges Indian IT faces, today it has the resources, industry and domain expertise to address them. The industry is still highly profitable and is a key global player with an unmatched talent pool. How much more pain is left before things become sunny again depends on the industry's appetite for risk, investment in research and how the global economy fares. 

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