The IT services and outsourcing industry was a growth engine for India 20 years ago. Digitisation, cloud migration and remote work have brought it roaring back.
Boyden's perspectives on the news and trends that are transforming industries
India’s three biggest information technology firms, Tata Consultancy Services (TCS), Infosys and Wipro, became corporate giants when Western companies started outsourcing their IT on a large scale. The trend was initially spurred by fears of a ‘millennium bug’, but on the strength and low cost of Indian tech talent, it continued well beyond the century’s turn. The top three Indian IT firms saw revenues grow by around 40% a year for most of the 2000s. Then, in the wake of the global financial crisis, growth slowed nearly to a halt and never quite rebounded—until the pandemic.
Indian software and IT services were in high demand again as companies worldwide grappled with pandemic disruptions. The mass shift to remote work created outsized demand for outsourced IT, and Indian firms were at the ready. Their share of India’s GDP reached an all-time high in the last financial year, at 5.6% with a value of $150bn. Revenues are expected to grow from $227bn last year to $350bn by 2026, according to India’s National Association of Software and Service Companies (NASSCOM).
The industry is massive in terms of both sales and headcount. TCS, Infosys and Wipro are expected to grow by double digits and bring in up to $60bn next year. They are also making huge gains in human capital, adding some 200,000 people to their combined ranks in the past two years, for a total of nearly 1.1mn. The count rises still higher with the addition of big Western firms, such as IBM, Capgemini and Cognizant, with IT services businesses based in or focused on India. Also in the mix are smaller Indian firms and the in-house Indian operations of foreign firms.
The brisk growth of the information technology big three has not escaped the attention of investors, who have driven their combined stock market value up to $330bn since the start of the pandemic. Factoring in companies like Cognizant and Tech Mahindra, for example, brings this figure to about $400bn. This scale of investment has broader implications. As The Economist reports, it “represents a huge bet on the future of white-collar jobs”.
Indian tech talent is positioned to support three key developments: In addition to more work being done remotely, companies worldwide are digitising more of their operations and moving more of their activities to the cloud. Digitisation and remote work create the need for sophisticated software, much of which stems from India’s original IT boom and continues to be developed there. The move to the cloud is opening up opportunities in areas such as supervising the migration itself, ensuring the security of cloud operations, and adding cloud-based data analytics and AI, according to Anuj Kadyan of McKinsey.
There are also forces running counter to these. Not all Western companies are keen to make remote or hybrid work permanent. Nor is outsourcing necessarily their first choice in the case of high-value core projects. Compensation for Indian software engineers and other tech talent is rising, as is the intensity of competition for this talent. At the same time Indian IT firms have become more global. Infosys and TCS, for example, have greatly expanded their global presence. This means being closer to their clients. It also means hiring local talent.