The IT services industry has remained a crown jewel in India’s success story, and a key growth catalyst in the nation’s economy. This industry grew to $181 billion in 2018-19, accounting for nearly 45% share of India’s total services exports and contributed around 7.7 per cent to the country’s GDP. Yet, it struggles to maintain its position and relevance in the industry today. What does it take for a turnaround?
The IT services sector is witnessing one of its most turbulent times: (1) the advent of new technology paradigms like robotics, AI, blockchain, IoT and autonomous IT is changing how companies and individuals consume technology. Old, legacy technologies are getting replaced or eliminated; (2) the emergence of cloud as an alternate computing model is gaining traction in the large and small enterprise segment. Cloud is able to offer companies more secure, reliable and efficient performance at a fraction of the cost of legacy software maintenance; and (3) the need for talent reskilling is becoming imperative as businesses and the market realities change.
How can India’s IT services sector be revived?
Looking at India through a new lens: new opportunities and new partnerships
For long, India has been the destination for low-cost outsourced software and support services, but it’s not enough to be able to do cheaper work. It’s important to be able to build something new and contribute to India’s digital revolution. Even with economic uncertainties, India has the absolute capability of emerging as a technology super power – we have it all. We have the talent, people – one of the largest youth populations in the world, a thriving startup ecosystem, and a business environment where you are allowed to fail.
Let’s take an example. India houses many mid-size banks looking to cross their next big growth milestone, by pushing the envelope on digital innovation. Take Federal Bank for example, one of India’s fastest growing mid-size banks. It currently serves over 8 million customers and manages almost 15 percent of India’s inbound overseas remittances. With over 1200 branches, 1600 ATMs, and more than 11,000 employees, the USD 1.5 billion Federal Bank is undergoing a massive digital transformation. The bank has increased its digital transaction volume by 43 per cent vis-à-vis last year. It’s working with a well-known system integrator to future-proof its data management, while also working with a blockchain startup to explore how to make cross-border payments faster, simpler and more effective.
Startups rise to the occasion
We should be proud that some of our home-grown startups like Flipkart, Ola, PayTM, Oyo or Byju’s have become multi-million dollar businesses, and some have even expanded outside India. For IT services firms that depend on the bulk of their revenue from international markets like US or UK or Middle East, the opportunity to tech-enable these Indian unicorns is a massive opportunity, to build and grow their local business operations. Ola has already expanded to new markets like Australia, and Oyo isn’t far behind. As these companies scale, they’ll create a multiplier growth effect for the technology service providers they work with.
The new power trio in town
Imagine if IT services companies collaborated more with startups and developed joint go-to-market efforts! It can create a win-win scenario for all: the startup gets access to a new market/segment/company; the IT Services company gets access to a new technology offering, which could be pitched to its other existing customers; and last but not the least, the end customer gets an opportunity to undertake innovation (startup’s technology) in a stable IT environment (managed by the IT Services company). This three-way alliance automatically creates a network where different organizations get an opportunity to innovate, to try new ideas and unlock new business opportunities. While this has started happening in pockets, there’s ample scope for the IT services industry to scale this further.
How Indian IT 4.0 can serve tomorrow’s unicorns
India is home to more than half a billion internet subscribers, making it one of the largest and fastest-growing markets for digital consumers. According to a Mckinsey Report, by 2025 widespread digital adoption has the potential to create significant value in all sectors of the economy – for example, E-commerce and digital supply chain have the potential to create $35billion worth value by 2025.
Also, India is ranked third in the global startup index. According to the Economic Survey, the Indian startup ecosystem witnessed a funding of $7.5 billion in 2018 as compared to $4.3 billion in 2017. As per industry-wide distribution of recognized startups, IT Services accounted for around 15 percent, followed by Healthcare and Life Sciences at around nine percent, and education at eight percent. Start-ups like Byju’s, Swiggy, Oyo Rooms, PayTM, Zomato are all based on technology and they have transformed the face of their respective sectors dramatically.
Lastly, national and state governments need to work together to foster digital growth. This can be done if governments improve infrastructure and digitalization of their operations. And who better than IT services firms to help with this digitalization! Strengthening of the IT services sector will help create the next wave of large-scale employment. On its part, the Indian Government is undertaking several major initiatives to boost this industry. For instance, it has identified IT as one of the twelve champion service sectors for India and an action plan is being developed.
The Government’s policy think-tank, NITI AAYOG, has also announced a national level programme to enable mainstream adoption of AI for transforming India. Underpinning all these emerging technologies is the cloud.
Another pertinent example of how the Government is exploring new frontiers of innovation for social welfare, is the blockchain pilot project spearheaded by NITI Aayog, in collaboration with Apollo Hospitals, Strides Pharma and Oracle, to fight the fake drug menace in India. Once successful, IT services companies can take this model to other developing economies and support government welfare schemes, and save more lives.
Future of Indian IT services industry hinges on a Gen 2 Cloud
For the Indian IT services sector to remain successful, the service providers will need to upgrade to the technology of tomorrow, today, via a Gen 2 cloud platform – one that combines human and machine intelligence. A modern cloud will unlock new possibilities for innovation and income in a new India. New technologies will call for new skills to be acquired, which will pave the way for employees of Indian IT services companies to upgrade their skills, move up the IT value chain and unlock more business value for their organization.
India has a number of roadblocks to overcome, but there’s the right environment, intent and tools necessary to take a leading position on the global technology stage. Encouraging more foreign investment, offering tailored training programmes, trying to retain home-grown talent, as well as creating the right regulatory infrastructure are all vital to successful digital growth. With cloud adoption at the core of the nation’s growth agenda, a Gen 2 cloud with autonomous capabilities will be key to realizing the ambitious vision of making India a $5-trillion economy.
How soon can Indian IT Services companies rewire their DNA to make the next digital leap?
The author is Regional Managing Director, Oracle India
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