InvestorQ : What do you see as the big challenges for the IT sector in the coming quarters?
Rashi Mehra made post

What do you see as the big challenges for the IT sector in the coming quarters?

Archita Jajjoo answered.
1 month ago

Ask anybody on the street and the answer to your question would be operating margins and attrition. There are too few skilled people for too many skilled jobs and that is creating a ruptured equation. However, falling margins and attrition may be problems but they are not show stoppers. The real problems would emerge in the next few quarters and these are more structural in nature. Here are a few samplers of the problems that the IT industry players could face up to in the coming quarters.

a) The first major challenge for the Indian IT sector is that there is a distinct slowdown in Europe and that is not great news. Here is why. EU region and UK regions combined account for 30-35% of revenues for the large IT companies. It is unlikely that the US IT spend would reduce meaningfully, but EU and UK are bearing the brunt. On the one hand there are higher oil and gas prices pushing inflation. On the other hand, there are the clear risks of an economic slowdown with the entire region likely to get into recession by the coming year. That would literally dampen IT spends, put off fresh projects and IT spenders are likely to aggressively bargain on rates and margins.

b) But Europe is something that is for the time being and may eventually improve. The bigger challenge is on the extent of value addition that Indian IT offers on projects to its clients. Indian IT companies are already facing tough competition from the likes of Deloitte and Accenture because they bring to the table a mix of IT skills, consulting skills and the ability to implement a full-fledged solution for companies. These are the companies who will take away the cream of the IT margins. If Indian IT has to capture a bigger share of Europe market in the future, greater solution orientation is needed.

c) For the Indian IT industry, the big challenge is to transform themselves from being mere outsourcers to value added partners. That means, Indian IT needs to change its ecosystem, its DNA and the quality of the talent that it recruits. India made the best of ERP to Y2K to web enablement, because the Indian IT sector had the right skill sets and manpower quality for those needs. Now companies are asking for end to end solutions. Clients want IT solutions that either enhances efficiency or reduces cost or enables value addition or a mix of all three. That is the gap Deloitte and Accenture are filling globally. The big challenge for Indian IT is to reinvent before the model becomes outdated.