Down, but Not Out

Over the past few months, Nasscom has been analyzing the performance of the
IT industry like we usually do. We have taken into account some sixty-nine
companies which together contribute around 70% of the total IT revenue. And
through this internal research we found out that these companies have grown at
about 24% during the first half of this financial year. So during that time the
industry was well on track of achieving the expected growth of 22-25%.

Needless to say, the current global scenario has affected our IT industry.
Most people did not expect things to decline so fast and did not foresee this
massive slowdown with big names like Lehman Brothers declaring bankruptcy.
Whatever has happened in September and October has been very unanticipated. So
clearly, there is a need to re-look at the outlook that we have adopted for
ourselves. However, we are still in talks with companies and are trying to
establish the growth patterns required to maintain the growth curve.

Whatever said and done, we still dont expect the growth to hit a single
digit figure, even if the industry is to have two flat quarters owing to the
slowdown. The growth story should remain at around 20%. Our estimate is that
even with a flat Q3 and Q4, we shall still manage a decent growth rate, which in
the present times can be very healthy. It may not be 22% or 23% but it will
still be around 20%.

Change Dynamics

Another thing we need to take into consideration and highlight here is that
the structure of the industry has changed a lot over the years. The industry has
undergone a lot of diversification. From the time of only Indian vendors, today
it accommodates the Indian vendors, multi-national companies and captives. On
the IT side the MNCs and captives account for almost 18-20% and the
corresponding figure for the BPO side is actually close to 60%.

Also the industry has diversified into various segments like IT services, BPO,
engineering, infrastructure management, etc. It has also entered almost all
verticals like banking, retail, telecom, healthcare, etc. The US companies like
Microsoft, IBM, Oracle are only one type of companies. They are not available
anywhere else in the world. If we remove all of these companies, saying that
these are only one set of companies and not available anywhere else, then the US
percentage actually comes down to around 45%. And this 45% coupled with the 30%
of the European market is a fairly good indicator of the diversification in our
industry.

So, we can conclude that the effect on the Indian vendors is relatively less.
Also, if you consider the European market, the exposure there is comparatively
less. The MNCs focusing on France and Germany among others, say that they
arent feeling much of an impact because the exposure is so less. So, its not
that the market and the world is without opportunities. They just are not where
they used to be.

The Indian Scenario

We believe that its yet too early to say anything and the current 6-8 weeks
are very uncertain. But the Indian market will surely offer a competitive ground
to companies. It (India) is definitively a credible alternative for
organizations world over now.

As far as the Indian IT industry goes, we dont believe that it is enormously
hit by the recession as of now, but we have to consider that we are the largest
export sector in the country. So the impact in terms of revenue is definitely
going to show. But in employment and other terms, IT is far better off than
other sectors.

In IT spends, its only the discretionary spend that is coming down. The
non-discretionary spend still hasnt taken a hit. For eg, if a project was to be
flagged off in December, it will probably now take off sometime next year. Its
not that business is not happening; its just taking longer to happen.

Also, lack of money is not the problem. The businesses have the money to
spend, but due to the extreme uncertainty attached to the situation , they are
just being cautious and not spending it at the moment. So the kind of impact we
are feeling is because of this delayed spending.

Another interesting thing here is that the small to mid-size companies are
saying that they are not feeling the impact. This is primarily because they
werent in the US and they werent into financial services. This has shielded
them from the immediate impact.

On employment front also, we are still hiring, we are not retrenching, and
are paying well. So saying that the impact has been larger than life doesnt
hold true as of now. But as I said, its yet too early in the day to say
anything for sure. Well get a clearer picture only by January or so.

The Domestic Take-off

With every crisis comes opportunity, and this one is no exception. This is
especially going to spell good news for the domestic market, as the vendors will
now look inwards rather than outwards. The hardware spend will obviously go
down, but not so for the IT services and solutions, as they are not likely to
feel this impact.

Besides, the government spending might actually increase which is obviously
going to help. For the domestic BPO also, there is huge potential. There is more
willingness to outsource in India. Thus, the business is increasing on the
domestic BPO side.

And although there is a lot of pessimism being generated about the slowdown,
it is not without its positives. This slowdown is forcing companies to look into
and analyze each and every process and remove the inefficiencies in the system.

Another interesting thing is that attrition rates will plummet. People are
going to stick to their jobs and the focus is going to shift from salary hikes
to career development and skill acquisition. This can also improve our academic
system and force it to be more competitive in nature. It might be a wake up call
for the numerous institutes which have mushroomed all over the country. Together
with all this, we shall see better onshore presence and an improved level of
interaction with the client base.

Getting Trendy

Some defining trends are obviously going to emerge in next year. Be it
technology or market, things are going to change. Green is one trend that is
going to take the foreground. This is primarily because of the cost benefits
attached to it. Other trends will be cloud computing, increased softwarisation,
infrastructure outsourcing and managed securities.

Also, global presence is going to be a strong phenomenon. Some markets like
Japan can prove to be a huge opportunity ground, if we are able to put into
place enough enablers. Middle east also will emerge as a very attractive market.
Another remarkable arena to watch out for is the regulation front at the time of
such a crisis. Although the self governed Indian IT is not expected to witness a
major change there, the global scenario might shift interestingly. We are yet to
see how regulations and policies can assist IT operations at such a time.

In the End...

Let me conclude by saying that India is still a very resilient market. We
are a very strong market and we shall continue to grow more in the linear
verticals, and maybe in the non-linear ones as well. The client confidence is
still there and there isnt going to be a situation when someone will say that
we dont want to work in India.

The domestic scene is definitely going to be strong. The young companies can
look more at the offshore opportunities and MNCs can look at making deeper
inroads and expanding their business in India. But its the domestic business, I
believe, which is going to jump leaps and take our growth story forward.

Sangeeta Gupta, VP, Nasscom As told to Mehak Chawla

mehakc@cybermedia.co.in