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The
stock market downslide of many Indian IT companies has not surprised
the analysts. MOHAN BABU writes that the Indian IT industry
must revisit its long-term priorities by increasing global market
penetration and moving up the value chain
The
recent Indian stock market debacle, especially of tech stocks, wiped
out crores of rupees in market capitalisation and made analysts
and industry experts sit up and take note. A number of articles
in the press also contributed to the general feeling of despondency
in the Indian tech industry, a fact that did not go unnoticed by
the American media. Articles like the one titled ‘American
firm reverses outsourcing to India’, started making the rounds
during the past few weeks, leaving Indian outsourcers, especially
smaller players, visibly shaken. What if American companies in other
states across the US follow eFunds’ action, which decided to
relocate its call centres back in New Jersey, succumbing to political
pressure? Similarly, Reuters ran a piece titled ‘India’s
software industry worried by new woes’, in which it chronicled
woes such as renewed screening of Indian techies in the US, and
elsewhere, stricter visa rules. The article went on to add that
the “feel good” factor had gone from the Indian industry.
To this genre of articles making the rounds, my only response is:
The same old wine in a new bottle?
The
articles are just echoing the views of industry veterans, with hardly
anything new or original in them. Indian techies in the trenches
in India, US, UK, Singapore and elsewhere, have known and experienced
the impact of global slowdown for at least the past two years, a
fact I have chronicled in my columns on-and-off. For technologists
observing trends in the industry, it comes as no surprise that the
stock market debacle is the latest, but not the most surprising
fallout of the global slowdown.
It
is the global economy
Globalisation
brings sweeping changes in the way businesses operate, particularly
as the economies of countries around the world start becoming more
integrated. This is especially true of the technology sector that
saw a massive thrust towards globalisation during the past decade.
The flip side was that scores of Indians got an opportunity to migrate
to the West. However, many of them also bore the brunt of layoffs
in the high-tech, telecommunications and airlines sectors, and migrated
back to India. When all the dust finally started settling, it helped
that opportunities were already starting to move back to India.
The
trend towards offshore outsourcing is not new. It has been refined
and tested for over a decade and Fortune 500 companies have become
comfortable with the idea, so much so that many have set up shop
in India and elsewhere on their own (case in point: GE, Citicorp,
Lucent, Microsoft, Oracle, IBM, et al). The brouhaha over the New
Jersey government trying to “reverse” the trend, or British
Telecom stopping the movement of call centre work to India is probably
a drop in the bucket. This kind of reaction is to be expected when
hundreds of companies are already moving work overseas and locals
(in the West) start feeling disgruntled over the loss of jobs.
Politics
and businesses have historically been like oil and water, not really
mixing well because of differing agendas. The agenda of any business
is simple: make money for investors. The agenda of politicians and
governments, on the other hand are driven more by societal aspects
of providing jobs for, and catering to the welfare of citizens.
If businesses are unable to operate profitably in an economy because
of governmental interference, they will move to other areas where
they can operate profitably. The governments can provide sops to
businesses to attract them but such incentives have a cost that
has to be borne by the society at large. That’s precisely the
reason why the Federal and State Governments in the US have taken
a laissez faire attitude towards business; and businesses have been
thriving.
If
one were to take a big picture view: the bottom line will start
taking precedence as businesses try to cut costs while looking for
ways to emerge from the current period of slowdown. This trend of
movement of jobs to cheaper offshore locations (including to India),
is a byproduct of globalisation, a trend which will be hard to reverse.
The
woes of Indian software industry
No
one can deny that the Indian IT industry is going through a rough
patch. Slowdown in western economies, the war in Iraq, new security
measures being enforced by American companies, SARS scare, all are
contributing factors. After experiencing a hundred or fifty percent
growth rate during the past decade, the industry is coming to grips
with the fact that the growth will be a more modest ten to fifteen
percent moving forward. Nothing wrong here. However, those in and
outside the software industry probably need to reset the sights
in line with the new reality.
We
also need to bear in mind that when tech companies in America are
going bankrupt in troves, a 15 percent growth— projected by
Indian titans—starts looking really attractive. Analysts are
also advised to keep in mind the fact that after experiencing a
decade-long period of super-hot growth, the current slowdown in
the Indian software industry may in fact help us revisit our long-term
priorities: by increasing global market penetration and moving up
the value chain.
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