For Indian IT enterprises, issues multiply when consultancy firms enter the technology sector
India’s outsourcing companies have started their quarterly results season on a cautiously upbeat note. The biggest software exporter in the nation, Tata Consultancy Services Ltd., posted 8% better-than-expected growth in net income. As Mumbai-based TCS scaled back on new hiring, its operating margin, which had fallen to a seven-year low of 23% in the three months to June, increased by one percentage point.
But from this point on, things can become difficult. European customers, who normally make up a quarter to a third of the sales for Indian companies, are almost guaranteed to reduce their tech spending, at least until the crisis in Ukraine is over and energy supplies return to normal. As the Federal Reserve slows the economy to control inflation, the more significant US market could also disappoint investors. As they prepare for a recession, some American businesses may still seek information technology to save expenses. That indicates fresh outsourcing requests. For Indian merchants, the IT spending binge increased during the pandemic. Since the reopening of the global market, they could readily hire coders during the Covid-19 lockdowns and are growing impatient with the lack of professional advancement. Over 21% of TCS’s workforce left during the most recent quarter. All of these issues are momentary for an industry that blossomed at the turn of the millennium; the Y2K bug made India a global leader in computer services. After 20 years, the publicly traded Indian software exporters generate more than $100 billion in revenue, employ 2 million people, and have a market value of close to $350 billion. The value of TCS alone exceeds that of International Business Machines. However, agility has suffered as a result of size. The goal of the outsourcing sector is to assist multinational corporations in reducing conflict at work, something that consulting firms have been getting better at recently. Customers and clients can “address inefficiencies they can’t see,” according to Celonis SE, a pioneer in so-called process mining and a quickly expanding German startup. The commercial productivity tool Slack’s owner, Salesforce Inc., accounted for a third of SAP’s sales in 2017. It is only 12% smaller now. According to Bloomberg Intelligence, Shopify Inc. held a 19% share of the market for digital-commerce software last year, compared to Oracle’s 6%. The Indian outsourcing providers are far behind companies like Accenture Plc and Deloitte Consulting in terms of integrating modern IT platforms. 500 of the 1,100 employees at Cloud Sherpas, a small company with a focus on Salesforce deployment, were bought by Accenture in 2015. After seven years, Accenture’s cloud business is worth $26 billion and is expanding at a 48% annual rate. Although Indian outsourcing companies have increased their cloud-based services, they are still finding it difficult to scale up with cutting-edge innovations like Workday Inc.’s HRMS. Technology now plays a significant role in what consulting businesses do. That’s why they’re getting involved in the details of their clients’ business operations, or at the very least, improving their capacity to do so. Having recently acquired more than 20 tech-related businesses, McKinsey & Co. last month appointed Jacky Wright, formerly Microsoft Corp.’s chief digital officer, as its first-ever chief technology and platform officer. Deloitte is actively seeking programmers and investing in its technological training. Indian software providers run the risk of falling farther behind their consultancy counterparts as the divide between business and technology at multinational businesses becomes increasingly hazy. The in-house tech czars of large corporate clients and customers feel comfortable communicating with outsourcing organisations. But functional heads are increasingly in charge when it comes to setting priorities. They also don’t speak the technical language. Rising citizen developers, or non-IT professionals that create automation applications for their teams utilising so-called low-code platforms like Appian, is a related trend.
It must be noted that the deployment of Salesforce and Workday may not provide a path out of the upcoming global crisis because the new IT players are also concerned about demand. However, they at least have a better grasp of the flexible, digital, and frequently distant nature of the workplace than their conventional enterprise-software competitors. Top-tier Indian outsourcing companies ought to have already established billion-dollar brands around utilising the most recent platforms. They will need substantial acquisitions and to take a close look at the working conditions within their own companies, beginning with the freshmen’s salary, which has been stagnant for almost two decades at about 350,000 rupees per year.