An Optimistic outlook for the Indian IT industry in Fiscal Year 2018

The chairman of Wipro, Azim Premji expressed a positive outlook on the Indian IT industry prospects for the current fiscal despite the economic volatility globally. Looking ahead, the industry sees a volatile economic environment. However, the economic prospects for main countries of exports are getting a bit better. The global political uncertainties heavily weighed on the business sentiment that impacts the industry in Fiscal Year 2017. The optimism of Wipro for the current fiscal came out from the fact that marketplaces look to spend on technology since it is becoming a key differentiator. Today now more than ever, the importance of Information Technology could not be denied.

DRASTIC CHANGES IN EXPERIENCES AND EXPECTATIONS OF BUSINESSES AND CONSUMERS

Over the past year, there is further evidence of drastic change in the experiences and expectations of both consumers and business models. Careers in computer information technology continues to rise as more and more people are opting to delve into the digital world. The central element that drives the change is digital. According to Premji, the IT services firms are key in delivering digital to organizations. Furthermore, the stated that the success would depend on its ability of redefining and aligning itself with a new global paradigm as well as the disruptive developments in the industry. The firm ended fiscal year7 with a consolidated income of Rs 55,040, recording a 7.4 percent growth.

DIGITAL ECOSYSTEM GROWTH

The digital ecosystem rose from 17.5 percent of its revenues in the first quarter of FY17 to 22.1 percent during the fourth quarter. Moreover, he stressed that Wipro has performed considerable investments in both organic and inorganic fronts to transform business offerings to service the new customer requirements. The chairman put emphasis on the fact that the company goes beyond just making financial capital with value in other aspects, like environmental, social, human and intellectual. The social sphere activities of the company are not only limited to India, but in the overseas markets as well where it has its presence.

THE INDIAN IT INDUSTRY POISED TO WITNESS GROWTH

Despite the headwinds, such as delayed in decision making because of the uncertainties in macro-economic, visa issues, trade protectionism and slower traditional services growth, the information technology industry in India and business processing management industry is poised to witness a seven to eight percent growth during FY18. In general, NASSCOM releases the guidance numbers in February each year, but postponed it citing geopolitical factors. The industry added more than $11 billion revenue during 2016-2017, rising at 7.6 percent in reported currency terms. This was lower compared to the revised range pegged at 8 to 10 percent from 10-12 originally estimated growth. The outlook comes on the back of economic and political uncertainties, which affected discretionary and decision making spend in the past year. Furthermore, NASSCOM cited a boost in requirement for automated based projects and integrated digital capabilities from customers that were key investments for the industry. The growth during the year will be driven by adoption of new technologies and modernization of operations, like the cognitive and embedded analytics, cloud platforms, internet of things, embedded analytics and enterprise customers scale digital projects.

RE-SKILLING FOR EMERGING JOBS

It is imperative for new and existing talents to re-skill to prepare for emerging job roles that require new sets of skills. For the fiscal year 2017-18, it has been stated that the industry would hire 1.3 to 1.5 people on a net basis. It is also looking to establish a digital skills platform, together with its members to re-skill over a million people in the IT industry workforce in the next four to five years. At present, a lot of top companies have already more than 50 percent of their staff are trained in digital services.

The economic momentum of India suffered setback because of demonetization. The economy is expected to recover and growth would accelerate gradually to 7.7 percent by 2019-2020. The World Bank said that the demonetization caused immediate cash crunch and thus the cash reliant sectors activity was affected. Inflation would stabilize, supportable by favorable structural and weather reforms. So far, normal monsoons have offset increases in the prices of petroleum. Exchange rate has appreciated, which partly reflects the expectations of a narrowing inflation gap between the US and India and limited external vulnerabilities as the present account deficit is expected to stay below 2 percent of GDP.

Challenges to the favorable growth outlook of India could stem from the global environment uncertainties, which include the growing global protectionism and a sharp decline in the economy of China that could delay a meaningful recovery of external demand further. There is a big uncertainty on the extent in which demonetization caused informal, small firms to exit and shed jobs.

The positive outlook of the IT industry of India will give rise to more IT professionals providing outsourcing services.

A look at the future potential of the Information Technology industry in India

Today, the IT industry in India is undergoing change. The future potential of the industry will do well if it updates its offerings and capabilities in line with the emerging market imperatives and technologies.

THE IT INDUSTRY TRENDS IN INDIA

News on the coming death of the IT services industry in India begun to trickle a few years ago. It was reported that the country is no longer the automatic choice for back-office work and IT services in the world. Regardless of the prognostications, there’s also optimism on the prospects of the Information Technology industry of India for the coming decade. The IT industry in the country has gone through and has survived difficult times before. An example of this is the dot-com crash in the early 2000s as well as the financial crisis in 2008. Another is the major IT services organizations that devote significant resources to hire development and training, providing world-class facilities as well as educational programs for existing and new employees. Lastly, some are starting to adopt new business models and develop new platforms and products to wean off low value-add services, fixed-price pricing models and time-and-materials.

With the changing trends in the technology industry, the Indian IT industry is growing at a 4 percent rate a year, would continue offering opportunities for IT services companies that operate at all phases of the IT worldwide value chain. Primary customers, CIOs for IT services tend to risk-averse as well as like to perform business with companies that they have prior good experiences. All these factors will continue offering opportunities for the IT services companies in India for the foreseeable future. Nonetheless, not all companies would do well or survive even in the highly-competitive and new global business environment. Only companies that continuously upgrade their offerings and capabilities in line with emerging technologies as well as market imperatives could hope to survive and to prosper in this scenario. For the IT service providers in India, there are five priorities to pursue in order to carve out a fair share of the IT services revenue in the future.

The first priority is to continuously build and upgrade capabilities. Continuous upgrading and capability building are essential for a company’s growth and survival. Industries contain the seeds of their destruction via incursions by new enterprises that use innovations to destroy the advantage of the incumbent. Established companies could counter forces of creative destruction via capability innovation and building. Building capability requires the internet and particularly, external knowledge sources and capabilities, acquisitions and mergers, joint ventures, licensing and strategic alliances. The second priority is not just to explore but to exploit as well. Exploitation is using and developing things that are already known whose returns often are achievable and predictable in the short term. On the other hand, exploration is the pursuit of knowledge of things that could be known. Whose returns are not certain and possibly in a distant future. Successful organizations achieve innovation via internal and external sources and more and more on external innovation sources, like open innovation.

Another consideration is to provide ‘responsibility arbitrage as a new value proposition. Foreign multinational firms go to India to leverage the low-cost structure, scale, technology flexibility and expertise of Indian IT service providers. Today, with the growing competition from other locations, Indian companies should offer something that is considerably more valuable to clients to distinguish themselves from the competition. This includes service and guaranteed results consistency or the chance for them to benefit from ‘responsibility arbitrage. To provide service guarantee, firms would have to be extremely selective when it comes to industry verticals, technology domains and the clients that they serve. No company could be everything to everyone.

Often, IT service providers in India bill their foreign clientele on a time-and-materials basis. Much of the risk in this scenario rests with the client. Consistent with the third priority, more and more firms should start moving towards outcome-based, non-linear business models wherein pricing is based on the achieved results as well as the provider having some skin in the game. Traditional sources of competitive edge for the IT service providers in India, such as talent, low cost, scale, flexibility and expertise are increasingly passé. IT companies in India should become partners with their clientele and get involved in conversations on ‘why do it’, ‘what to do’ and not just on ‘how to do it’. Conversations that involve the latest business and technology trends increasingly involve people at a C-suite level. The benefits that IT providers offer their clientele substantially increase as they move up the value chain relationship and from the back office to front office. For the IT sector in India to retain its health, it would have to deal with the challenges on two fronts. First is the changing nature of business and second is one of perception.