Indian IT Industry to survive the Economic Downturn : A Research Report

With a Global Economic Downturn hitting the IT Industry, IT firms chopping workforce and reducing salaries all over the world, will the Indian IT industry survive ?

Indian IT industry was unlikely to witness a downturn but could see lengthening of sales cycles in the event of a slowdown in the US, a top official of Gartner, a leading global IT research company said. “There is no sign at this point and no evidence of a slowdown (of IT industry) and India will continue to grow at a rate of 25-30 per cent,” Gartner Vice President Partha Iyengar told reporters. “It is unlikely to have a strong endemic but there could be some lengthening of sales cycle.”

Earlier, Gartner Senior Vice President (Research) Peter Sondergaard said that companies of Western Europe, North America and Japan should draft a shadow IT budget to factor in a cut, if any in IT spending. “IT cost as a ratio to revenues will start to decline in the long term,” he said. India’s ICT market is estimated to grow at a five-year compound annual growth rate of 20.3 per cent to reach 24.3 billion dollars by 2011. Based on the findings of the Gartner EXP Worldwide Survey of CIOs, the IT spending by Indian firms have increased by 13 per cent as against the world average of 3.3 per cent for 2008.

Any New IT destinations to complement India?

India may be taking giant leaps in the IT/ITeS sector while countries like neighboring Pakistan and Egypt are also taking tiny steps to corner a share of large global business.

Pakistan‘s IT industry has grown to the size of $3 billion and is expected to grow to $10 billion by 2010-11. Similarly, Egypt, a very new entrant, is doing business of $450-480 million and will touch $1.1 billion by 2010. “The cost of doing business in Pakistan is 30 per cent lesser than in India,” Jehan Ara, President, Pakistan Software Houses Association (Pasha) said. Pasha is the representative body of IT/ITes industry of Pakistan. Similarly, Egypt, which has centres of IBM and Orange, is a door to the Arab World, Europe and Africa, says Amin Khairaldin, Advisor, Information Technology Industry Development Agency, Egypt.

We seek to compliment India not compete with it. Together we can win.

India is a giant shore but smaller companies in countries like Bangladesh or Egypt were doing good business,” he said.

So, will the IT spend of Indian firms be affected?

Even as the $40 billion IT export services industry waits for fresh IT budgets from global companies, one thing is clear: there will be cost pressure on IT. With a sentiment of recession in the US, which accounts for over 60% of the business, top industry honchos believe that IT intensity (that is, spends on IT as percentage of overall revenue) and discretionary budgets will see a downward trend.

That is, Fortune 500 and other companies may reduce overall IT budgets marginally and are unlikely to commit to new systems upgrades. IT spends as a percentage of revenue vary from 3.5% in manufacturing companies, 5-6% in global retail chains to about 9.5% in the banking industry. These could see marginal decline and companies will hold on spends on new IT deployments. While demand side concerns will be clear once the IT budgets are out—expected later this month—most honchos believe that the banking sector reeling under the pressure of sub-prime and mortgage crisis could see IT budgets getting tightened.

Says HCL Technologies CEO Vineet Nayar, “What impact a US slowdown will have on IT budgets is not clear as yet. But I do see IT budgets related to banking, credit card, mortgage space getting impacted. Contracts could be structured in a manner where clients seek to reduce IT intensity. Clients might not increase IT spends irrespective of volumes or revenues going up.’’ For the IT services players already impacted by a 14% rupee strengthening (against the dollar), IT budget cuts by clients will force them to offer greater value. Larger spends on training, R&D, a focus on consulting and higher value services could be the only way out for the services players.

What does China want?

China has invited Indian IT and business process outsourcing companies to set up more units in its IT parks and build them up at par with those in cities like Bangalore, Chennai and Pune. A delegation from Wuxi, an emerging economic zone in the Yangtze river delta, met representatives of software industries here and expressed a desire to convert their district into a “Bangalore of China”.

This is what we want to do for ourselves. That is why we are here.” Weize earlier spoke at a symposium where the delegation held talks with several IT business executives. The companies included Tata Consultancy Services (TCS), Larsen and Toubro (L&T) and others.

What do the advisory firms have to say?

Despite talks of a possible slowdown in technology budgets, the outsourcing of IT services contracts is likely to see a 7% growth in the current year. TPI, a sourcing advisory firm, said “we project around 7% annualised growth in 2008.” In 2007, the total contract value (TCV) of outsourcing contracts above $25 million touched $80.4 billion.

Ok. Now, Let’s be REAL

India‘s top technology and outsourcing body said it is confident it can ride out the challenge of a stronger rupee and a global economic slowdown as it wrapped up its annual meeting. India’s flagship outsourcing industry is grappling with a rupee that rose 12 per cent last year lowering the local equivalent of every dollar earned and a potential recession in its main market, the United States.

The Indian Union Budget : What does it say?

Union communications and IT minister A Raja said his ministry is asking for a dedicated incentive package for the Indian IT and BPO industry in the forthcoming budget and for the continuation of tax holiday benefit under the software technology parks scheme.

 

With the Union budget asking IT Cos to raise salaries of IT professionals, and IT Cos facing major cost-cutting from their US clients, which way will this go? Only time will tell.

For the time being, let’s keep our fingers crossed and hope for the best.

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About theultimaterenaissance

I am an Engineer and a Management Graduate. I love writing poetry and research reports on cars. Surfing, listening to music, and Reading and writing Technical & Research papers are among my most savored hobbies.
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One Response to Indian IT Industry to survive the Economic Downturn : A Research Report

  1. If you ever want to read a reader’s feedback 🙂 , I rate this article for four from five. Detailed info, but I have to go to that damn msn to find the missed bits. Thank you, anyway!

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