January 27, 2009

Ten trends Indian IT services cos must catch

Ten trends Indian IT services cos must catch


The last ten years were years of numbers and figures for the Indian IT services industry. And as the National Association of Software and Services Companies (Nasscom) President Som Mittal will tell you, they were years to project numbers and weave a strategy to get to those numbers.

“But the next decade will be structurally different. It will be more about making a change rather than following a change,” he says. With the change in business and economic landscape, IT companies will need a different tool-kit to retain the edge from here on.

Indian players can never forget that out of the total addressable offshoring market of $380 billion, less than 15 per cent has been penetrated. What are the trends that the Indian IT industry needs to catch in order to ride the next decade of growth for the software services market? Read on


Rogue rupee and currency fluctuation

The recent yo-yoing Re-$ relationship has been giving the Indian IT industry sleepless nights. But, it has brought with it newer learning as well.

Companies for the first time, have started talking about reducing inefficiencies from the system and increasing employee productivity. The era of mind-boggling recruitment numbers is passe.

Companies are handing out pink slips to non-performers and more efficiencies are being built into the system.

The likes of TCS and Patni have come out into the open and said that non-productive resources are not welcome into the chain. The lessons in hedging currency risks, if learned, now will stand the sector a lot of good in future.

Companies will always try to stretch their dollar


Irrespective of the outcome of the forthcoming US elections, outsourcing will always find favour there as the dollar is already stretched and for every company it makes sense to get more from each dollar invested.

Even though the economic slump may put pressures on fresh investments which constitute only 30 per cent of an average company’s technology budget, the other 70 per cent will always be open to outsourcing for better utilization of resources.

The argument is substantiated by the fact that even in these times of depression; multi-million dollar deals are being signed.

Also, while the expected tech-spent in sectors like financial services and banking will wane, other sectors like manufacturing and healthcare will

India is on the right side of the demographic divide


According to US Census Bureau International Data, out of a total projected population of 90 million people in the younger working ages (15-29) population between 2005-25, India will contribute nearly 30 million people.

So there is little doubt that India will continue to be the hub of global human resource activity and will have enough people to fill in the demand supply mis-match.

There will be a structural shifts in demographies and this will reflect more importantly in international trade and economics. Is India ready to ride the wave?

Wage inflation & attrition


The economic slowdown has been good for the Indian IT industry in more ways than one way.

It may eventually lead to more business being outsourced but more importantly, it has lead to moderation of the salary inflation and attrition woes.

With fresh recruitments slowing down, it has already become impossible for employees to hop between jobs for a better remuneration. But the trend may reverse with time.

It is for Indian companies to make the most of this downturn and stabilize their processes and bring in efficiencies into their working.


All the low-end processes will eventually get automated


The trend has already begun. Some of the low-end work that was flowing into India is being automated to accomplish cost cutting.

But that in itself has thrown up a new opportunity where the country can take a lead in automating such processes for companies.

Technology evolution and adoption will witness some disruptive changes as the internet generation takes over the workforce.

India can leapfrog technologies to play leadership role in the next technological lifestyle wave

Technology adoption in domestic market will fuel demand


The increasing demand in the domestic markets will put further pressure on the supply of skilled manpower.

Though on a smaller base, the domestic market has continued to gain momentum.

It has grown 26 per cent in INR terms in FY08.

Other countries have aspirations too


As India moves, others are moving too. There are countries that have better competencies to service certain markets due to language skills and accessibility.

India can lose major markets to budding ITES powers like China.

Indian revenues from Europe have grown by 30 per cent but there are a larger number of contenders for pies like Continental Europe and Japan.


Language skills will decide who walks away with biz


English is only a means to the end and not the end.

Indian IT services companies cannot enter new markets and crack markets like Japan and Continental Europe, Germany or Japan if the language skills do not match the demands in these nations.

So the sector has to gear up its language competencies.


Demand will not be a constraint, but supply will


Does India have enough people to service global demand? The industry is fanatically trying to reduce the 16 week training period that companies have to factor in while recruiting new people by including it in course curricula of various colleges. This would make the candidates directly employable.

The industry is employing 2 million people directly, with over 1.5 million people in the export sector. While the IT services exports grew 28 per cent in 07-08, the employment grew by an average of 26 per cent.

Extrapolating the figure into the future, the manpower requirement will be huge both for direct as well as indirect employment.

Demand for offshore delivery will remain strong; 1 in 4 CIOs expect to increase their offshore spending over the next year, while 70 per cent expect to maintain thir current levels, according to a recent survey. So


Second and third tier cities need to catch the IT fever

Presently 85 per cent of software services activity is happening out of the top seven centres in India.

But Nasscom has now identified 50 centres in total which can be beefed up to match the growing demand.

The focus is on shifting the urban pressures in the existing centres and catalyzing development of social infrastructure in other deserving cities.

This is also a necessity to keep cost overheads under control given the rising real estate costs and salary inflation.




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