India’s IT outsourcing market is the back office of the global economy but has seen its heady growth of recent years choked off by the Coronavirus pandemic and worldwide lockdowns. Ever resourceful, the Indian IT players are staying flexible as they look to re-invent their relationships with clients and rush ahead with automation, artificial intelligence and machine learning to carry them through to future growth.
The big six IT outsourcers – HCL, Tata Computer Services, Wipro, Infosys, Cognizant and Tech Mahindra – and consultancies such as Accenture are looking to reinvent the way they work. They are looking to restore heady growth to the Indian outsourcing market, estimated to be worth some $177bn last year.
As Jagdish Mitra, Chief Strategy Officer and Head of Growth at Tech Mahindra, says, “COVID-19 has been an accelerator for digitalisation across industries, resulting in innovations in global delivery, with more offshoring and optimum utilization of resources.” He says 25% of the company’s staff are working in offices and the rest work from home during the current lockdown. But in the long-term, he expects up to a third of staff to continue remote working. And he thinks the move to remote working and consuming will change the way many businesses operate. “The pandemic has exposed a lot of opportunities across industries including manufacturing, banking, communication, and retail primarily around providing omni-channel and omni-commerce delivery, among others, resulting in a more aggressive shift towards digital,” he says.
Even so, lockdown and the ensuing economic downturn have taken their toll on revenues across the industry. In 2019, IT outsourcers in India grew their second quarter revenues at between 6 and 13%. But in the same quarter of 2020, revenue growth had slumped to between -6% and plus 1% as the effects of the pandemic were felt, says Gartner analyst Neil Barton. This is quite a reversal from previous years, when growth has been explosive.
“It’s not the end of the world not to be growing at up to 25% a year anymore, it’s just a new experience for companies which have experienced constant growth in the ten years since 2008 and the great financial crisis,” he says.
Business Process Outsourcing hardest hit by pandemic
The switch to home working among IT outsourcing companies since India’s lockdown began in April has tested the stability and strength of India’s broadband infrastructure. Apart from some initial hiccups, the switch has gone smoothly and the nation’s urban broadband has proved up to the task. Some outsourcing employers managed to persuade local governments that their work made an essential economic contribution and negotiated lockdown opt-outs allowing staff to continue working on campuses.
But Gartner’s Barton says the situation has affected the three main areas of outsourcing in different ways. The provision of software services - which accounts for just over a third of India’s outsourcing market - has switched fairly seamlessly to home working. Software developers are technically literate, typically have access to high-speed broadband in their homes and own sophisticated equipment such as monitors. They know how to set up Virtual Private Networks, MS Teams and other systems and their transition to home working has been smooth.
Hardest hit has been Business Process Outsourcing, which accounts for up to 10% of the Indian market’s revenues and includes finance administration, payrolls, HR, purchasing systems and outbound contact centres. BPO works with production data sets, the personally identifiable information of individuals, which is strictly regulated to comply with GDPR in Europe. Controls were put in place to achieve compliance in offices on the campuses of the Indian outsourcers to protect that consumer data security. The people working in this area are paid a lower rate and thus have fewer technology capabilities to set up at home. For these reasons, it has been much harder to get the BPO services working as extensively from home. BPO companies have experienced loss of client work and many clients have renegotiated contracts at lower rates.
Between these two extremes lie IT managed services, which includes infrastructure and operational services managing cloud servers, data storage and networks. These account for about 45% of the market. While technical staff working on these areas have access to personal data sets, they carry out little processing of this personal data. This sector has not been affected as badly as BPO by the pandemic.
Temporary setback
Overall though, the strength of India’s IT market will outlast the short-term impact of the pandemic, says Barton: “I think it is a temporary setback. This all depends on how the pandemic is resolved, but if a vaccine appears in 2021 or 2022, then a lot of businesses will return to something more normal.” He says the problematic areas are proximity industries such as transportation, hospitality, events and live entertainment.
“At the moment business levels and growth are down, but people are learning to live with this business volume and are investing for the future because they believe things will return to a more normal situation.”
Meanwhile, Mrinal Rai, an analyst with researchers ISG, says that service providers are well placed to handle the crisis, even though it was unprecedented and nobody could predict Covid-19. “They were developing strong portfolio services so when this pandemic hit, there was a resilience that these providers have shown and they have not faltered from service commitments and ensuring that the clients are receiving a good service.”
He says most providers were able to adapt quickly to lockdowns and 70% were able to convince their clients that they could deliver their services. “They have shown a good response to this pandemic and the ability to serve the client. So yes, the initial phase was kind of tricky and going forward as work from home becomes the norm, there are some challenges in how they are going to help their clients with the ongoing remote working models.”
He believes there will be significant challenges in helping clients adapt to new home working strategies over coming years, as some research predicts that between 45% and 75% will work from home in future.
This will create a whole new set of challenges for the outsourcing companies as they will need to cope with the shift to remote working by both their clients and their own workforces. Future growth will depend on finding solutions to these problems and creating simple, automated forms of outsourcing that can be deployed by staff with limited technology skills.