The Certain Uncertainty

After five odd years of heady growth there is a different challenge ahead for
the Indian IT & ITeS industry. I say different because managing the challenges
of growth is not less than the challenges of managing a slowdown. The only
difference is that in the first case there is a party at the end of the day!

There are at least five reasons for the challenge of 200809.

The growth spell in the past few years has been exhilarating. An offshoot of
this has been the almost insatiable need for skilled and cost-effective human
resources, causing wage rise. The average wage increase has been around 15% each
year for the last five years. That means that this significant cost element has
doubled. No doubt there will be a slowdown nowand it has already started
happening. But this can increase the pressure for retaining skilled resources.

This year the global environment is more uncertain as the
outsourcing-unemployment debate in the US may turn more vociferous. The slowdown
in the US will impact the demand for Indias IT services. Some believe that the
slowdown can actually result in more business flowing to lower cost centers.
This can happen but in slowdown situations decisions get delayed and decrease
the overall business volume. Whichever way you look at it a slowdown is not the
best thing to happen.

The strengthening of the rupee12% plus in the last yearremains a cause of
concern. There is no saying which way it will go in the future. It may not
strengthen at the same rate but no one is arguing that the worst is over. Major
changes would happen only after the US elections, and till then the uncertainty
is bound to continue.

Shyam Malhotra

The end of the tax holiday also looms ahead. The current debate on the
subject is rather subdued and it is unlikely that the holiday will continue. The
industry itself has a somewhat divided opinion on the subject. And, frankly, it
is difficult to argue that an industry which has grown at a phenomenal rate and
with extremely healthy bottom-lines for many years still needs support.

And then there is the matter of increasing competition. The Indian success
has encouraged many other countries to follow suitas it does for all success
stories. But has India done enough to build non-cost related advantages? This
year will provide the answer.

There are a couple of silver linings too.

The current situation is very different from the dotcom bust. At least the
larger Indian IT companies are on much stronger footing now. They have better
measures in place to handle such situations. They have development centers
across the world. Wipro has a center in Atlanta and is planning three more, one
of which would be in Detroitthe state where unemployment has been an important
issue. Together, this would create more than 2,000 jobs in the US. TCS centre
in Cincinnati is expected to be a 1,000-seater. These will blunt the
anti-outsourcing rhetoric to an extent.

The situation of manpower demand chasing supply has eased out and will
provide relief. The head of training and hiring in a tier-1 IT company, reveals,
on condition of anonymity, that about 1 lakh people, whom IT companies have
hired, have not been given joining dates. He also says that about 30% of these
may not find employment in the IT sector at all.

In each of the challenges and the possibilities the highest common factor is
uncertain conditions. And that is when the defense mechanisms start working
overtime. And the pendulum swings to the other extreme. This them likely to be
the biggest challenge in 200809 for the IT & ITeS companies operating from
India.