Light & shadows in IT

Management shake-ups. Quarterly earnings that threaten to disrupt the status quo . A $1.2 billion buyout which brings the curtain down on long-pending ownership issues at a prominent mid-tier IT firm. And organisational overhaul prompted by fierce competition. ‘Business as usual', one may argue, is the last thing on the IT industry's mind this year.

Be it iGate acquiring Patni Computer Systems (a company almost thrice its size) or Cognizant's street-topping performance that puts it within striking distance of Wipro — virtually each passing week of 2011 is throwing up significant announcements.

Looking back, there has been an unusual spurt in top-deck reshuffles across companies. Wipro stumped the markets when it announced the appointment of T.K. Kurien as its new CEO, replacing incumbents Girish Paranjpe and Suresh Vaswani; analysts are convinced the company's performance over the last few quarters has necessitated the rejig.

Meanwhile, Ashok Soota, one of the icons of Indian IT industry, stepped down from the post of Executive Chairman of MindTree, a company he co-founded with nine others 11 years ago; he has cited “personal reasons”.

Infosys' S. Gopalakrishnan, it is rumoured, could pass on the CEO baton to the current COO, S. Shibulal, around the middle of this year. Later in August, N.R Narayana Murthy, co-founder of Infosys, will retire from the company.

Even MNCs have seen a change of guard at the very top — at Microsoft Ravi Venkatesan recently exited as Chairman and Corporate Vice President of India operations.

All things considered, there is little doubt that Indian IT industry is bracing for a buzzing season ahead.

The IT-BPO sector, which suffered catastrophic declines in export during the global downturn, has now clawed its way back to a path of ‘healthy' double-digit growth. It hopes to end the current fiscal with $59 billion in export revenue. Notably, the industry has breezed past its original forecast, outlined at the beginning of the fiscal. Against a 13-15 per cent export growth target for FY11, it is has delivered an estimated 19 per cent growth.

However, although the turmoil in Egypt appears to be receding with President Hosni Mubarak ceding power to the military, the global macroeconomic environment continues to be shrouded in uncertainties, including Euro zone's persistent debt problems and the slow recovery in the US.

Closer home, Indian companies face a new taxation structure as tax breaks under the STPI scheme are scheduled to end this March.

Nevertheless, the industry is gearing for a strong innings ahead. In fiscal 2012, IT-BPO export growth is expected at 16-18 per cent. “Overall, global companies are investing back in IT, and technology is acting as a big mover in driving organisational efficiency. Our confidence for growth is based on industry hirings and a strong deal pipeline,” Nasscom President Som Mittal says.

TCS, for instance, plans to offer jobs to 37,000 fresh graduates in FY12. Interestingly, the company crossed its 2010-11 hiring target of 50,000 within the first three quarters — for the quarter ending March 2011 it will recruit up to 15,000 professionals.

Clearly, the excitement among companies is palpable as recovery in technology spending, recent deal wins and stable pricing brightens overall outlook.

“Clients' IT budgets are seen increasing in FY12 and we also see more discretionary IT spending,” TCS CEO and MD N. Chandrasekaran told newspersons at the Nasscom India Leadership Forum in Mumbai last week. Nasscom itself has been talking of a 2-4 per cent increase in client budgets for next fiscal.

Even in the BPO space, where growth lags IT services (typically because back-office transactions, such as credit card sales, tend to closely track economic revival), the mood is upbeat.

Aegis BPO, an arm of the Essar Group, is gearing up to hire about 11,000 people for its global operations in the coming fiscal while Hinduja Global Solutions intends to open a third delivery centre in the Philippines (500-seater) next fiscal. The latter is also mulling an entry into the China market.

That said, the coming months will present new challenges for the industry. There will, of course, be some known devils — wage inflation, attrition, and employability issues. But the industry's aspirations for a three-fold increase in export turnover to $175 billion by 2020 and a four-fold growth for the domestic market ($50 billion by 2020) will have to contend with some fresh posers.

Industry observers believe customers will increasingly look at vendors as a strategic partner in specific business areas to drive productivity gains and business outcomes. “IT service providers will have to engage with clients on business issues… They will have to think what it is that customers need to do to compete better in the marketplace. They will have to bring in ideas and look at co-creation. These things are more business related than delivery related,” points out Peter Bendor-Samuel, CEO of Everest Group.

In time, demographic shifts will spur the growth of new sectors (healthcare, citizen services), markets (BRIC, Japan, Germany) and service lines (process transformation for productivity improvement). “New opportunities will emerge — healthcare services for aging population, productivity solutions and re-designed processes to address talent shortage,” says the Nasscom Perspective 2020 report.

In other words, the macroeconomic and demographic trends — namely, the higher growth rate of Asian countries compared to developed economies as well as a decline in the working-age population in Europe and Japan — will have far-reaching implications for the industry.

Therefore, any realignment now will determine how the IT landscape will shape up for Indian vendors in the decade ahead.

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