Off late, there have been many indications that the traditional method of IT outsourcing adopted by majority of Indian IT companies would face huge challenges. Not so glamorous results of Wipro and rejig at the top is only a small indication that the shoe has fitted all for too long. Infosys results not showing favour with stock market and static results of TCS are not just indicating that post recession things needs to be relooked but also shouting out loudly for change. The current setup of all these companies are highly oriented to body shopping and servicing clients IT needs instead of innovation and creating futuristic products which can create future jobs.
While I had been critical on the methods of third party service providers in India in employing large number of graduates for doing blue collared jobs in IT, eventually the market has now got tuned to churn out graduates who are only fit for such blue collared IT jobs and have little or no growth in future.
Traditional markets of North America and Europe are either remaining stagnant or shrinking. Customers are not ready to commit for long term and contracts are getting renewed in short cycles of as low as three months. There are pressures for IT companies to re-quote lower rates and deployment cycles are becoming very unpredictable. To add to these issues, US government is adding levels of difficulty in getting H1B visas which is certainly going to hit the profit margin badly in years to come. More and more jobs are now being done out of India for overseas customers and the luxury of 30% operating margin is almost certainly a thing of past unless these IT players end up finding a lot of ignorant customers.
To add to these problems, increasing number of North American and European companies are finding that opening a captive in India helps them in not only saving over these third party providers but also retain IP apart from the most compelling benefit of finding foothold in highly lucrative Indian market for their own businesses.
To add to al of these signals, we have cloud computing which is driven by North American and European companies who use whatever of Indian resources they have almost entirely through their captives in India. Cloud is going to change the dynamics of IT user in a big way. Adoption of cloud is not very fast today, primarily because the service is still evolving. It is likely that next decade will have cloud as the standard. Indian IT companies in their current form will be worst hit if they do not evolve faster. Standard products being delivered through cloud would end up shrinking IT service market in a big way.
The final straw of the problem is the emergence of China and India. Almost al the IT companies have experience of making money by servicing clients of North America and Europe. China as a market will overshadow the traditional market and Indian companies may not even get a small fraction of that pie. Looking at India itself, there is a huge scope for Indian companies to save face and jobs looking inwards. Again, the track record is very poor. Till couple of years back Infosys did not do any work in India and solely focussed on overseas business. Whatever large contracts were raised, mostly were bagged by MNC operators like IBM. If this has to change, the operating model of every IT provider has to change and margins have to be reworked.
It is certain that if we keep ourselves in fool’s paradise, will have a lot of IT jobs but not the fancy salaries, very slow growth of the industry and employees and thousands of jobless IT professionals who left their core skills to become managers and will have little value in the changed IT world.