Article: The Last Word: The Slipping Jewel in The Crown

C-Suite

The Last Word: The Slipping Jewel in The Crown

With the US market headed for another recession if not terminal decline, Indian IT has to work on diversifying its geographic reach, on its seeming inability to move up the valuechain, on large-scale staffing issues and learn to cope with the double-edged sword of competing with China & exporting to China
The Last Word: The Slipping Jewel in The Crown
 

Both client economies are going through turbulent economic times and will have to take tough measures to bring their heavily consumption-based economies back on track

 

With the US market headed for another recession if not terminal decline, Indian IT has to work on diversifying its geographic reach, on its seeming inability to move up the value-chain, on large-scale staffing issues and learn to cope with the double-edged sword of competing with China & exporting to China.

Customer on Life Support & A Slippery Value Slope
IT/ITeS accounts for 25% to 30% of India's export basket, contributing roughly USD 55bn in exports. Of this, the US and UK remain major markets, accounting for 62% and 17% of total IT-BPO exports respectively. On the one hand, that is a testimony of success for the industry - having been able to make deep inroads into the world's largest english-speaking economies in a brief period of 15 years. But it also represents a risk in itself. Both client economies are going through turbulent economic times and will have to take tough measures to bring their heavily consumption-based economies back on track. As long as the Fed continues its easy money policy and cash-flush US corporates continue to be wary of deploying money at home, things will continue to look good for Indian IT. After that, the party may lose steam - and if long-facile US political will asserts itself, the repercussions could be painful.
Geographic diversification represents the first big challenge for Indian IT. The next being its slow pace in moving up the value chain by demonstrating the ability to advice customers on business transformation and strategic technology shifts. Let us face facts - five years ago, Accenture looked like an acquisition target for the likes of an Infosys. Today, it is valued higher than Infosys (in market cap terms) and generates 2.5 times revenue per employee as Infosys - in spite of Accenture having 40% of its workforce in India. The ability for Indian IT to build up a knowledge framework around its software servicing ability is going to be tested over the next couple of years.

Education Reforms – All Talk, More Talk
To be honest about it, India has seen few major policy initiatives in higher education over the last 6 years. Most of the policy reforms announced in the 100-day action plan in 2009 - including the Foreign Universities Bill - are yet to move beyond paperwork and rhetoric. There are nearly 15 bills with the government awaiting approval. It is tough not to sound negative here - do we really expect to attain leadership as a knowledge economy with the outdated education and labour ecosystem we have today? Indian IT and its associated industry bodies have some serious lobbying to do in this regard.

China…Globalization…China
02nd of August 2011 marked a watershed event in the short history of globalization, a day when it became easier to demonstrate the shortcomings of the 'comparative advantage' theory - that the promised upscaling of workers in erstwhile 'rich' countries whose jobs were lost over the last 30 years to low-wage countries, has just not materialized. That it takes a brief look at Armageddon for most of the human race to wake up from its collective slumber is a matter for behavioural economists to ponder over, but one thing is for certain. The Chinese have not been sleeping.

Undoubtedly, China has been the biggest beneficiary of globalization and the ability of Chinese leadership to strategize & execute has catapulted them on the road to becoming a dominant Empire. The recent Chinese 12th five-year plan demonstrates how China's leaders can think beyond taking advantage of global trade, as they plan to engineer shifts in their economy from a predominantly production economy to a healthy mix of production & consumption. Embedded in this thesis is also an emphasis on labor growth and a shift from manufacturing-led to services-led growth.

Unlike in India, the plan articulated by Wen Jiabao in March is well into implementation mode today. Should Indian IT be wary? In the short run, no. China provides an excellent hunting ground for customers and talent - and Indian IT should be piling into both. But strategically, we need to be on the ball. Will the Indian IT sector continue to invest in Indian talent as China forms an increasing chunk of business? While we continue to enjoy the benefits of the Accentures & IBMs investing in Indian talent and helping our economy create long-term moats, are our policy-makers shrewd enough to ensure Indian IT retains leadership without repeating such acts or returning such favours in other parts of the world?

As commendable as it is to achieve a position of strength in a world where globalization was the unquestioned gospel and in an eco-system where educated talent was abundant, retaining & growing from that position in a world whose economic foundations have shifted will determine the grain of India's knowledge sector. But first, can somebody awaken our policy makers out of their long slumber?
 

Topics: C-Suite

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