Information Technology: Light at the end of the tunnel

If 2013 was a turnaround year for India's export-driven information technology (IT) services sector, the next year is likely to be one when it regains some of its lost shine. It is expected growth will primarily be driven by continued demand from the US, a revival in the European market, especially continental Europe, and increased momentum in the adoption of new technologies.

"2014-15 will be a better year than 2013-14, according to the initial talks we have had with our clients. Overall, we expect good growth," said N Chandrasekaran, chief executive and managing director of Tata Consultancy Services.

However, the going may not be all that easy, as the way global enterprises cater to their technology requirements and the way IT vendors sell their services will see a phenomenal change. Spending on digital transformation, spurred by an increasing focus on disruptive technologies such as social media, mobility, analytics and cloud (SMAC), is expected to veer demand from the sector in a major way.

"I think the turnaround has already started in 2013; it's just not that visible yet. That will accelerate in 2014. But it will also highlight individual companies' sales and marketing capabilities. That will play a huge difference in 2014, when fortunes will be decided by sales and marketing, not the quality of their technical capabilities," said Partha Iyenger, vice-president, distinguished analyst and India head at research and analyst firm Gartner.

For the quarter ended September 2013, most Indian and offshore-centric IT services companies reported better-than-expected growth, led by the North American market, which accounted for about 60 per cent of the industry's exports revenues.

Experts say these trends are expected to increase. However, technology outsourcing by clients would be increasingly determined by business outcomes, rather than just cost arbitrage. That's why the new phase is expected see a wide gamut of officials, including chief financial officers, chief risk officers, chief marketing officers and, in many cases, chief digital officers, influencing buying decisions to a great extent. This means companies that have re-energised their sales and marketing engines will be able to manage the situation better.

This process has been going on for the last few years, says Jaideep Mehta, vice-president and country general manager, IDC India. Indian IT players are adapting to these changes accordingly, he adds.

After the Lehman Brothers collapse in 2008 triggered a global economic slowdown, spending on technology spending became patchy, with a high degree of volatility and unpredictability. Though the Indian IT services sector reported healthy growth of about 18 per cent in 2011-12, this was primarily because of the pent-up demand, after two years of sluggish growth, which couldn't be sustained.

"At this point, I think it (2014) certainly looks more optimistic than 2013," said Krishnakumar Natarajan, chief executive and managing director of mid-sized IT services company Mindtree and chairman of industry body Nasscom. "People are starting to think how to leverage some of the new technologies like SMAC; digital is becoming a big thing among large enterprises and the momentum is only going to sustain," he added.

Will the buoyancy in demand trigger large-scale hiring by IT companies, as was the case in the sector's heydays? Perhaps not, admit experts, candidly. "I don't believe we will see a significant uptick in hiring, as the focus will be on driving growth in a non-linear fashion," said Mehta of IDC.
EXPECTATIONS FROM 2014

• The momentum in growth that started in 2013 expected to continue and gather steam in 2014; digital transformation to be the focus of client spending
• Profitability to remain under pressure amid rising costs and stable pricing
• Large, transformational deals are expected to be back into the sectors as clients may open discretionary budget
• Hiring expected to be more need-based; fewer freshers to be hired