The New Disruptives In The IT Space

The New Disruptive 21^st Century IT Beckons to India’s $100 Billion Plus Outsourcing Industry

When the same shrinkage in fortunes afflicts India’s top-three IT companies, TCS, Infosys, and Wipro, it is time to review the situation. All of them, at the same time, have posted their worst first quarter performance in a decade.

The bourses instantly punished their shares, with a sharp, nearly 10% per cent cut, before relenting a little, in the days after the results were announced, between the 15^th -20^th of July.

All three posted first quarter results up to June 2016, with an erosion of  margins and profits, none too encouraging forward guidance  either.

Andy Mukherjee, writing his influential column for Bloomberg, said future  ‘profitability is now capped by robots’. He was alluding to the strong move to automation, and the trend towards captive IT centres.

These are replacing swathes of work that was/is being done by big and small outsourcing majors from India. They once sent in their swarms of techies to work on the complex software problems on-site, at their client premises. But it is this that is facing erosion and change now.

But, to put a perspective on it, tech-celebrity Raman Roy, who sold his Spectramind to Wipro, and now runs Quatrro, says, outsourcing is here to stay, because it has gone ‘mainstream’ in America, and accounts for too much profit to be knocked out easily.

It, that is both IT and BPO together, use nearly a million Indian people in the US, on H1B and L1 visas. This, despite the higher cost of the visas, hefty fines for misuse, caps on their number, threats of visa allocations being cut further.

Roy didn’t spell it out, but all the political rhetoric apart, there is a severe shortage of Americans who have STEM talent, (science, technology, engineering, mathematics), available for a reasonable price.

Nevertheless, the writing is on the wall, for a migration to quality and high technology, from quantity and ‘cheap-at-the-price’.

Particularly, when the demand supply gap generally, is widening. The Us and European markets are weak and innovation is the new king of the hill. A protectionist sentiment and headwinds like Brexit, does mean cost cuts.

Margins of the big three from India are all under pressure- Wipro has 23%, Infosys has 25%, ditto TCS. This is down from the erstwhile 29- 31%.

Staff attrition, including at the senior-most levels, triggered by the restlessness brought on by slowed growth, meaner increments/bonuses/ stock options, is burgeoning- 21% at Infosys, and 11.3% at TCS. Wipro has changed several CEOs in the past decade, and has another, in Neemuchwala, erstwhile of TCS.

Vishal Sikka of Infosys, himself quite new to his job, is trying to talk away Infosys’s lacklustre 1^st quarter results and guidance. He shuffled the top deck, in the face of  shareholder and market-watch criticism, but this has led to more senior level departures still.

What is the matter down deeper? Andy Mukherjee cites a need to come up to speed with ‘artificial intelligence’, ever newer ‘digital technologies’, and ‘blockchain’, the distributed database used for bitcoin transactions.

Tech Mahindra, risen from the ashes of Satyam, is focusing on co-option of the newer technologies- using automation, and ramping up digitisation.

Others, such as Vashishta, formerly head of Accenture, speaks of cloud-based services demand, migration to mobility/smart phones, and social media connectivity.

But the real McCoy is ‘artificial intelligence’, the new frontier, and something being called the Internet of Things (IoT). 

IoT will account for over $300 billion worth of business alone by 2020 according to several estimates, and India, with its over $ 100 billion outsourcing presence today, can aspire to barely 10-15 billion of it, as things stand.

The Department of Electronics &IT, ERNET and Nasscom have set up together to try and promote an IoT ecosystem here, but such a sarkari/quango construct, is not the best crucible for innovation of a high order.

Still, its heart is in the right place, and the government may well throw some money at it.

America may well seize the initiative once more, because in the highest technology innovation space, it is absolutely unparalleled.

So, it will go from driverless trains, already in operation, to driverless cars, now starting to show up and all sorts of ‘smart objects’ able to ‘talk’ to each other, ‘sensors’ collecting huge data, with a massive analytics industry setting up behind it.

Can the Indian IT industry gear up to meet this challenge? It had better.

Otherwise the 56% share of the services sector including IT in the GDP, may be in for a great Humpty-dumpty style fall.

For: ABP Live

(753 words)

July 24^th, 2016

Gautam Mukherjee