India now stands out as a globally recognisable brand in IT business sector. This brand was not built in a day; but it was the result of a long journey in a sea of several twists and turns for years. Indian IT is now navigating safe in the right direction of growth. However, in the cloud of current global economic crisis the sea is not yet calm. In the wake of another recession winding down in global markets, Indian IT service providers are now cautiously optimistic as they take on the challenges Indian IT industry is presently confronted with.
Challenges in Indian IT Industry
- Competition from other offshore outsourcing destinations
- Increasing IT expense in India
- Unstable workforce
- Skill gap
- Upcoming recession in US and European markets
Competition from other offshore outsourcing destinations
The strong base of technical education, government policies and cost factors have always helped India in achieving a bulk share of outsourcing jobs from global IT destinations. However, with a delay, other outsourcing locations have started following the same strategy that India followed in grabbing the IT market. Competition from emerging IT destinations like China, Brazil, Mexico, and Philippines are now a major challenge to Indian IT industry. Countries like China are now aggressively pursuing scientific & technical education and language proficiency trainings. India was greatly equipped to grab the IT market pulses and operate accordingly, thanks to the long-standing experience in IT outsourcing and efficient infrastructure facilities. With increasing competition, Indian IT and IT-ES are now swiftly adapting to the emerging market requirement and capitalizing in other key areas.
Increasing IT expense in India
Offshore Outsourcing to India was well known for the cost differential from western countries. However, this cost differential gap has substantially decreased over the last decade. The employee compensation levels are now mounting along with the inflow of market demands, overall growth of the Indian economy and cost of living. Increasing IT cost and wage inflation are influencing the technology decisions of many global companies. On an average, the salary of an Indian IT employee leaps 5-8 times in 10 years. Salaries of middle to top managements are now almost comparable to cost in developed countries. Indian organisations are now facing increased challenge to maintain the average cost of compensation (ACC) at current levels. Many global organisations are now keeping their options open, to newer outsourcing destinations that are cost-effective compared to India. However, considering the huge growth prospect of the Indian Software and IT sector and growing market, Indian organisations are now considering innovative approaches to maintain profitability. New ways are introduced to increase quality levels and to set up less lucrative business models for IT. At a time when India’s revenue leaps to three fold by 2020, the Indian IT market would continue to attractive for global clients.
The world is becoming smaller and smaller as technological advancements keep us increasingly connected. Organisations are now more accessible to employees and vice versa. Identifying the right talent and maintaining them are problems that Indian IT market currently faces. High-quality talent is getting scarce. This instability affects productivity and challenges employee morale. With many multinationals in India, organisations are in competition for retaining the best talent. Organisations are getting concerned about attrition and the additional overhead, which they bring via recruitment and training costs. HR managers are now working out new ways to retain the talent, as the attrition rate keeps on increasing. New measures like occasional gifts, performance based bonus, career development programs, employee reward programs, referral programs, etc are being tried out.
According to NASSCOM, approximately five lacs graduates pass out across all streams from various Indian Universities. Only 25 % out of these have employable skills. Skill gap is thus another challenge for Indian IT industry. At a time when outsourcing covers core technical jobs, resources with sound technical knowledge and experience are unavoidable. Lack of resources matching with requirements is a matter of concern for client organizations. In the case of IT services like Mainframe Application development, support & maintenance, etc the skill gap is quite deeper than other industry verticals. However, efforts from organizations to introduce internal training programmes offer a ray of hope in addressing this challenge. Government and private sectors are now contributing to bridge this skill gap. Several Indian organizations are introducing training programs for resources. Maintec’s “ Hire, Train and Deploy program” is the best example for this. Educational institutions are also taking steps to ensure that the curriculum adaptations move as fast as the pace of Industry change. Indian IT industry has to go hand in hand with academic institutions as well as industries for increasing the performance and improving the productivity.
Upcoming recession in US and European markets
The economic uncertainty in US and European markets is another impending challenge for Indian IT. Since many of the Indian IT firms are rooted in US and European markets, Indian industry has a direct impact on global market pulses. Analysts are expecting the ripples of recession to be visible in the Indian IT markets too due to the over dependency of India to US markets. This can result in salary cuts, layoffs, freezing of new appointments etc. Even though recession can affect the pace of India’s IT growth, market experts are hopeful that India’s long-term growth prospects would not be affected largely. With increasing relevance of India’s large domestic IT market, overall IT growth is expected to continue in global economic slowdowns too.
India has sailed through several turbulent times to reach its current state of growth in IT. Visionary IT leaders, Government policy reforms, educational institutions etc have contributed greatly to India’s IT journey so far. As the sea of global economy keeps on fluctuating, challenges are ahead in the journey, as we all know. However, identifying and addressing the challenges at the right moment can reduce its impact significantly. IT experts are analysing the impending challenges for Indian IT as another recession is now looming around the global economy. Combined efforts from IT top-level management, Government, educational institutions etc can help India sail safely to a position of world’s leading IT destination.
How easy would it be for India to overcome these challenges?