If Mohammad won't go to the mountain, the mountain will come to him. This saying effectively captures the state of play in the IT-BPO industry. Wage costs are high in the developed world and one way of bringing them down would be to allow the inflow of workers. But since immigration is a ticklish issue, that is not about to happen. Yet, if companies there want to maintain their profits, they do have to reduce wage costs. So they are sending work out to other countries. One of the main beneficiaries of this is India. That is why, despite the odds, the IT-BPO industry is doing better than expected. Nasscom's scorecard, which tabulates the industry's annual performance, shows that exports will grow an estimated 18.7 per cent in fiscal 2011, beating the original target of 13-15 per cent growth. The fiscal 2012 projection of 16-18 per cent growth for IT-BPO exports — though seen as ‘conservative' by some since it is down a bit from the growth estimates for current year — points to a healthy demand for outsourcing. This is in spite of the slow pace of economic recovery in the US, Western protectionist tendencies, and the Euro zone crisis. Further, global tech purchases of hardware and software products and services combined are expected to increase by 7.1 per cent to $1.7 trillion in 2011. Acceleration in software purchases will, in all likelihood, be driving demand for IT consulting and systems integration services. The local Indian market is also growing well and is estimated to clock about 15-17 per cent next year. That said, economic and political uncertainties continue to be a worry. Egypt on edge, developed markets staring at sluggish recovery, high unemployment and the risk of sovereign default all point to a large number of potential wobbles. Infosys Technologies, last month, had flagged some of these issues as being the key risks for the industry. Moreover, with tax breaks slated to end and the roadmap for goods and services tax and the DTC still shrouded in a haze, the industry will have to deal with challenges that go beyond wage inflation, attrition and employability issues.
Over the next 20-25 years, the macroeconomic, social, demographic and business trends will reshape the technology landscape, both on the demand and supply side. Global clients will seek value propositions that go beyond cost arbitrage and into areas such as innovation, revenue enhancement and risk management. Therefore, much would depend on how quickly Indian IT services companies move up the value chain, drive non-linear revenue and break new ground with regard to business models, solutions, domains and process-reengineering.
That India can do it is not the point. Of course it can. But whether the Government will allow it to do so is not as certain, not because it would not want it, but because of its habit of inadvertently getting in the way. Bad governance is, therefore, the biggest risk.