As 2016 draws to a close, the $143 billion Indian IT services industry is traversing through various challenges that are likely to continue in the coming year too.
Some of them were the British vote to leave the European Union, protectionism in the major markets including the U.S. which contribute to more than 60 per cent of the business, shift from traditional business model, visa regulations and also emergence of new technologies like the Cloud, Internet of Things among others.
Experts said that some of these worries would be more evident in the coming year. The victory of Donald Trump in the U.S. is an important factor that has forced the Indian firms to adopt a cautious wait-and-watch mode. During the campaign Mr. Trump spoke of stricter H-1B visa regulation and creation of more domestic jobs.
H-1B visa
Traditionally H-1B visa is used by Indian IT firms to send their employees on short-term work permit to the U.S.
This was one of the reasons why Indian industry associations sought government support to help deal with challenges posed by anti-globalisation tendencies and rising protectionism abroad.
“There are political changes in some of the major markets of Indian IT services companies. However, such moves will not come in the way businesses are done or companies are operated,” said P.N. Sudarshan, Partner, Deloitte.
Parthasarathy N.S., President & COO, Mindtree Limited, said: “International political developments should be viewed only as a changed operating environment rather than a challenge.”
Localisation of workforce is another major step Indian IT companies may take to overcome the likely visa woes during Mr. Trump’s presidency.
“As of now, there is no change in status quo as far as recruitment in the U.S. is concerned,”said Hansa Iyengar,Senior Analyst – Large Enterprise Service at Ovum. “Though there is a little wariness on both vendor and client side regarding the potential changes that Mr. Trump might introduce, everyone is still waiting to actually see what these changes are going to be before taking action.”
Brexit impact
Another major hurdle for Indian IT companies was the Brexit vote. India’s second largest IT services major, Infosys, was the first company to bear the brunt as Royal Bank of Scotland shelved its plan to create a separate bank in the U.K., forcing Infosys to shift about 3,000 employees from that project.
Following impact of Brexit and other client-based problems, leading software exporters like Wipro, Cognizant and TCS had to revise their guidance for the full fiscal year. The lackluster performance by many major companies forced the IT industry body Nasscom to revise the guidance for the fiscal FY17 downwards to 8-10 per cent this year due to the uncertain environment.
However, some experts said that with more projects expected to be renewed in the coming year, there will be an intense fight between the providers to garner the pie of the market opportunity.
There are also expectations that the deal size might get smaller and also witness more pricing pressure. Some experts said there will be a shift from the traditional time and material model to more outcome-based projects.
“With over $200 billion worth contracts set to expire in the next 24 months coupled with growth challenged players, the competitive pressures to retain for incumbents and win away for others will only intensify,” said Dinesh Goel, Partner, ISG India, an outsourcing advisory firm.
Drastic shift
Though there will be continuation of challenges that existed there is a drastic shift happening in the technology arena. The emergence of technologies such as cloud, Internet of Things and automation among others has created uncertainty as well as opportunity for the industry.
According to C P Gurnani, CEO & MD of Tech Mahindra, the world of tomorrow is going to be quite different. “We are going to witness immersive experience which will transcend both the physical and digital world. As a company, we are transforming ourselves from an IT services provider to digital transformation partner,” said Mr. Gurnani.
The companies have already started various measures to skill their employees to cater to the changing technology needs.
This sudden shift in the technology has become a catalyst for the Indian IT services majors to go for acquisition and also make investments in the new age start-ups. One important reason cited for this is the lack of ready availability of skilled hands in the new domains.
Start-ups
It has even resulted in companies like Infosys and Wipro to create dedicated corporate VC funds to invest in the start-ups. So far, Infosys has made about 10 strategic investments in young companies while Wipro has also invested significant amount in start-ups.
In 2017, more such strategic investments, acquisition, hiring strategy and skill trainings are expected from the Indian IT majors. In spite of all the uncertainties, India’s market share continues to be at 7 per cent of the global software and IT services spend, and 57 per cent of global IT services is outsourced to India.
Driven by strong, stable fundamentals, IT industry body Nasscom has reiterated that the long-term opportunity for the industry will remain unchanged to achieve $350 billion by 2025.
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