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Growth
of the Indian IT industry
If
the Indian IT industry continues to grow, a few large players,
especially those that are merely banking on past performances
and goodwill, are bound to falter, believes MOHAN
BABU
Indian
IT majors are beginning to project a uniformly optimistic
view of the forthcoming fiscal year. Case in point, Infosys,
during its first quarterly announcement (Y 2005) painted an
extremely rosy picture of its growth, setting the expectation
for about a 40 percent growth during the coming fiscal year.
Two major factors contributing to this buyout outlook include
subsiding ruckus over outsourcing and the strengthening of
US dollar (against the Rupee). The resilience shown by the
American economy, which incidentally accounts for a large
percentage of Indian IT exports, is also helping. The signs
of optimism are everywhere in the Indian IT landscape, ranging
from statements emerging out of executive interviews to optimistic
reports from industry bodies like Nasscom. Behind all the
signs of optimism, however, there are a few voices of concern
over the trends shaping up.
A
leading Indian business in a recent article set a cautious
tone with the following remark “Finally, in the very success
of the Indian IT companies lies the seeds of a future tragedy.
The stocks have appreciated significantly in the past 12 months,
so much so Infosys, Wipro and Cognizant all trade for more
than 35 times the calendar 2004 earnings estimates. This means
investors need to pay even closer attention to the risks.”
The article went on to analyse various issues, including attrition
at top Indian companies and added, “IT biggies like Wipro
and Infosys are not only losing people at the entry level,
but also experienced professionals at the middle and senior
management level. The top Indian IT companies starting to
lose key software developers, project managers and high level
executives to leading US tech companies such as IBM, Oracle
and Accenture.”
I
began to think of some of the issues raised by the article
and exchanged notes with some of my knowledgeable peers who
had an insight into the trends in the Indian IT industry.
One friend responded saying that he believed that the churn
at the middle/top levels in Indian companies might in fact
turn out to be a blessing in disguise since it would lead
to more opportunities for juniors to move up. He also felt
that for the kind of work being done by a majority of software
services companies, most people weren’t indispensable.
The
vacuum created by the exit of a few senior project managers
or a delivery head are routinely being filled by eager second-line
managers. More than a conscious risk mitigation strategy,
the existence of a ‘pyramid structure’, coupled with aggressive
hiring during the past few years has ensured an abundant supply
of talent in many of the large organisations.
Another
factor propelling Indian IT is the fact that the business
is “highly commoditised” and the business models of most large
software service organisations have been built around economies-of-scale.
It also helps that the sheer momentum created by stratospheric
growth during the late nineties has lead to sufficient inertia
to sustain the current pace of growth. The fact of the matter
is that the growth has definitely “slowed” from ninety or
hundred percent during the late nineties to thirty and forty
percent growth the industry is currently experiencing. This
relative slowing of growth has by no means deterred investors
for whom a forty percent growth is still hugely appealing;
the Indian IT industry still promises higher returns and growth
than most other sectors.
Issues
like high rates of attrition are also moot since attrition
in one or two companies leads to a widening depth of the overall
talent pool available in the industry. Added to this is the
‘reverse brain drain’ of Indian NRIs and technologists overseas
who are not just observing the trends but are also beginning
to return back to partake in growth. At a macro level, Indian
IT is bound to see a sustained rate of growth, regardless
of the issues faced by individual players.
And,
this is where I would like to end my discussion of this topic
by wondering aloud: “If the Indian industry continues to grow,
a few large players—especially those that are merely banking
on past performances and goodwill—are bound to falter. What
would it take to trip the 800 pound gorillas that are merely
moving because of sheer inertia?” Any thoughts and comments
on this are more than welcome.
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