Here's a summary of the situation as of today in a numbered list:
1.Major financial institutions in US are going bankrupt or being sold at bargain basement prices.This is bound to impact Indian IT companies in two ways: (a) Companies like TCS, Wipro, Infy and Satyam would lose business worth hundreds of crores (b) Companies like NIIT and Patni (which are partly owned by the likes of Merill Lynch and Lehman Bros) may see erosion of stakeholder value.
2. The US Dollar is getting stronger against the Rupee.Yesterday it was at Rs.46.Almost all the Indian IT majors have hedged their positions around Rs.42-43 per USD. So, a weak rupee will not have any positive impact on their revenues.
3.Due to increase in costs, and reduced business from US, many IT majors are contemplating or actually doing layoffs. So far, Satyam and Wipro have bitten the bullet.We can safely expect that TCS and Infy will follow suit, albeit the spin they may give could be different.
So, the writing on the wall for Indian IT services industry seems pretty obvious. Okay, it is obvious, but not pretty :-)
Indian IT majors have to prepare for reduced margins, and reduced business from the US.And with Eastern Europe coming up to speed, winning EU business will become even more arduous than ever.Investments in China are not yet paying off.
None of the statements in the above paragraph are revelations.All Indian IT executives know these things.
The answers are also obvious.
Focus on the domestic IT opportunities ! Reduce operating costs by moving out of the metros into the hinterland of small towns and villages ! Drive the growth of the Indian tech startup eco system!
But none of the IT majors seem to be doing any thing substantial about it.
Problem 1: Indian IT majors feel that domestic small and medium (and even large) companies cannot really afford their services. So, they do some work for the Government and PSU banks etc, but have not really focused on delivering IT enabled value to the vast and growing SMB segment in India.
Vijay Anand did an excellent analysis about this affordability aspect back in March. Check it out.
The main issue is that our IT majors are in an intertia of sorts.They do all the high end talk about consulting, alternative markets etc, but are primarily focused on the low hanging fruit of US staff augmentation.
Problem 2: The IT majors know that domestic market can not be ignored, but seem bereft of ideas about how to deliver services and products for this market without reducing margins.
The answer is to move their delivery centres into the hinterland and charge realistic prices to the domestic customers. And implement hosting solutions instead of on-the-site solutions.
But the biggies don't want to take the risks and create the market. I think they are waiting for mid sized IT companies to come up in the domestic sector, and then acquire them.
The big question is: will it be too late for these current IT majors?Can they afford to ignore the home market and not invest for the future?
More about Indian IT majors and their involvement in the startup ecosystem, tomorrow.
1.Major financial institutions in US are going bankrupt or being sold at bargain basement prices.This is bound to impact Indian IT companies in two ways: (a) Companies like TCS, Wipro, Infy and Satyam would lose business worth hundreds of crores (b) Companies like NIIT and Patni (which are partly owned by the likes of Merill Lynch and Lehman Bros) may see erosion of stakeholder value.
2. The US Dollar is getting stronger against the Rupee.Yesterday it was at Rs.46.Almost all the Indian IT majors have hedged their positions around Rs.42-43 per USD. So, a weak rupee will not have any positive impact on their revenues.
3.Due to increase in costs, and reduced business from US, many IT majors are contemplating or actually doing layoffs. So far, Satyam and Wipro have bitten the bullet.We can safely expect that TCS and Infy will follow suit, albeit the spin they may give could be different.
So, the writing on the wall for Indian IT services industry seems pretty obvious. Okay, it is obvious, but not pretty :-)
Indian IT majors have to prepare for reduced margins, and reduced business from the US.And with Eastern Europe coming up to speed, winning EU business will become even more arduous than ever.Investments in China are not yet paying off.
None of the statements in the above paragraph are revelations.All Indian IT executives know these things.
The answers are also obvious.
Focus on the domestic IT opportunities ! Reduce operating costs by moving out of the metros into the hinterland of small towns and villages ! Drive the growth of the Indian tech startup eco system!
But none of the IT majors seem to be doing any thing substantial about it.
Problem 1: Indian IT majors feel that domestic small and medium (and even large) companies cannot really afford their services. So, they do some work for the Government and PSU banks etc, but have not really focused on delivering IT enabled value to the vast and growing SMB segment in India.
Vijay Anand did an excellent analysis about this affordability aspect back in March. Check it out.
The main issue is that our IT majors are in an intertia of sorts.They do all the high end talk about consulting, alternative markets etc, but are primarily focused on the low hanging fruit of US staff augmentation.
Problem 2: The IT majors know that domestic market can not be ignored, but seem bereft of ideas about how to deliver services and products for this market without reducing margins.
The answer is to move their delivery centres into the hinterland and charge realistic prices to the domestic customers. And implement hosting solutions instead of on-the-site solutions.
But the biggies don't want to take the risks and create the market. I think they are waiting for mid sized IT companies to come up in the domestic sector, and then acquire them.
The big question is: will it be too late for these current IT majors?Can they afford to ignore the home market and not invest for the future?
More about Indian IT majors and their involvement in the startup ecosystem, tomorrow.
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