Indian IT at crossroads
Indian IT finds itself at crossroads once again. While it’s not a new experience for the industry, this time, it’s different. The questions is, is the future of Indian IT bleak, or is this just another phase it will navigate, as it has done many times before?
It’s difficult to say what the future holds, but here are 5 reasons why we should be concerned.
There were heightened concerns around growth due to the COVID-19 pandemic. Still, few anticipated that cost savings, primarily from reduced travel costs and the pursuit of everything digital, would drive increased investment in technology. Indian IT companies benefitted from this trend as projects were rolled out quickly with existing partners, and cost savings resulting from work-from-home policies drove their margins up.
This was a honeymoon period, and no one discussed what would happen post-COVID. Unfortunately, some Indian IT firms focused only on margins and put investments in building new skills and propositions on the back burner. This was a missed opportunity for making additional investments to move up the value chain and become more relevant post COVID.
There has been an endless wait for a recession in the US, but a few things are clear. In the last quarter of 2022, the top 10 US banks increased their investment in technology by 12-16% year-on-year, and their technology spending as a percentage of revenue remained consistent over the last two quarters, with one exception. Their CEOs have clearly stated their agenda to push digital while driving down operational costs by investing more and more in technology.
This starkly contrasts to commentary from some Indian IT firms, which reported a decrease in project spending as a reason for slowdown in their growth. I am concerned if this indicates that we are becoming less relevant in the pool of investments that customers are aggressively making in their digital transformation.
The debate on the relevance and use of captives has been ongoing for decades. I see a clear trend of customers focusing on captives to build new skills as they view their digital strategy as a core part of their competitive advantage. This trend deprives Indian IT of the opportunity to build new capabilities and case studies with these large customers.
In addition, the trend of outsourcing non-critical work out of captives in the form of insourced variable manpower or outsourced tasks does drive revenues for Indian IT but has low strategic relevance in the long term.
Data migration to the cloud, both private and public, has increased five-fold over the past three years, and it is estimated that 60% of data will be on the cloud in the next three years. This has driven the increasing relevance of companies like AWS, Microsoft, and Google. In response to this demand, these companies have opened their doors to new API development and introduced local and flexible firms to meet customers’ demands. Unfortunately, some Indian IT firms are yet to figure out a compelling proposition that leverages their strengths and converts this trend into a mega opportunity.
Lastly, the people’s challenges in Indian IT are increasing. There is enough supply in India, but costs have increased, and Indian IT must find efficiency levers to retain margins, which I believe they will figure out. However, strategies like delaying joining, reducing salary post-offer, and letting people go may have a long-term impact on the brand. This will hamper the ability of these companies to attract good talent to drive growth in the future.
The more considerable challenge is onshore. The demand for digital services is more front-ended, and with poor application-to-visa ratios for H1 and L1 visas, this is becoming a strategic disadvantage rather than a strategic advantage.
In 2008, Indian IT saw significant growth within two-quarters of the US meltdown because we had the proposition, people, and pricing to solve the cost take-out problem. In 2023, customers are once again seeking technology investments to drive digital-led growth. The question is how many in Indian IT are geared and ready to capitalise on this opportunity and run ahead of the trend rather than get caught on the wrong foot.
I am a big believer in Indian IT and hope that challenges bring out the best in them, as has been true in the past and we come out as winners again. However, as someone rightly said, Hope is not a strategy.