Indian tech companies must go into quick adaptation mode

From here, it can be difficult. European clients, who typically account for a quarter to a third of Indian companies’ sales, are almost certain to cut their tech budgets, at least until the war in Ukraine ends and supplies normalize. energy. The more important US market may also fail as the Federal Reserve slows that economy to tame inflation. Some American companies may still look to infotech to cut costs as they weather the recession. However, the pandemic-era splurge is now in the rearview mirror for Indian vendors. Coders they could easily hire during the covid lockdowns are growing restless at the lack of career advancement since the reopening of the global economy. The attrition rate of TCS last quarter was more than 21%.

These are all passing problems for an industry that has come into its own at the turn of the millennium. Today, public software exporters in India generate more than $100 billion in revenue, employ 2 million people and have a market capitalization of nearly $350 billion. TCS alone is more valuable than IBM Corp. But size comes at the expense of agility. The outsourcing industry is all about helping global companies reduce friction at work, something consulting firms have been doing better of late.

Managed tightly, Indian IT firms still have a strong cost advantage in manufacturing large-scale enterprise software (think SAP etc). But the locus of demand is moving away from its implementation to cloud-based workflow automation, offered by ServiceNow, Atlassian and others. German startup Celonis, a pioneer of ‘process mining’, claims to help customers “fix inefficiencies they can’t see”. Salesforce, which owns the business productivity tool Slack, had a third of SAP’s revenue in 2017. Now it’s just 12% smaller. Shopify took a 19% share last year in digital-commerce software, versus Oracle’s 6%.

In 2015, Accenture acquired Cloud Sherpas, a small outfit of 1,100 employees of which 500 are Salesforce implementation consultants. Seven years later, the cloud is a $26 billion business for Accenture, growing at 48% annually. Indian outsourcing companies have also ramped up cloud-based offerings, but have struggled to build scale with popular new technologies like the human-resource management system offered by Workday.

Tech is now a big part of what consulting firms do. That’s why they get to the nuts and bolts of their clients’ operations—or at least strengthen their ability to do so. McKinsey & Co, which in recent years has acquired more than 20 technology-related companies, hired Jacky Wright, Microsoft’s former chief digital officer, as its first chief technology and platform officer last month. Deloitte is aggressively recruiting coders and investing in training them in new technologies.

As the line between business and technology blurs among global corporations, Indian software vendors risk falling further behind their consulting rivals. Outsourcing firms are comfortable talking to in-house tech czars at large corporate clients. But when it comes to deciding priorities, functional heads increasingly call the shots. And they don’t speak the language of tech.

A related trend is the rise of citizen developers—non-IT professionals who build automation applications for their teams using so-called low-code platforms such as Appian.

Mind you, the implementation of Salesforce and Workday may not offer a ticket out of a global recession next year: New IT players are also worried about demand. But at least they’re more plugged into the future of work—flexible, digital and often remote—than their traditional enterprise-software rivals. India’s leading outsourcing companies should now have built billion dollar franchises around the implementation of these newer platforms. To get back in the game, they will need fat hires and a thorough look at the state of employment at their own companies, starting with fresher salaries that have been stuck around for nearly two decades. ₹350,000 ($4,250) a year.

The Mint of India reported last week that entry-level positions in India’s IT industry could be cut by 20% in the fiscal year that begins next April. That could give outsourcing companies some breathing room in profit margins. But focusing too much on the current slowdown can be unhealthy. This is the future they must face—and make a bold bet.

Andy Mukherjee is a Bloomberg Opinion columnist covering Asian industrial and financial services companies.