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COVID -19 disrupting India’s IT sector

Survival in the new normal is only possible for those who are disrupting the way they work and this has been clearly visible in the shift that Indian IT players made towards work-from-home in order to maintain business continuity.

Also, as businesses across the globe continue to cope with uncertainties, the Indian IT companies are also working towards the challenges they face by making changes in the way they will work in future.

 

The Challenges

According to a recent report by NASSCOM which surveyed 160 respondents in April 2020 across IT/ITES segment including BOM, Software products and ER&D firms:

  • 75% of the respondents expect clients’ business de-growth in FY20-21, with 40% of these respondents expecting a De-growth of 5% or more
  • A similar trend was highlighted by IDC in their April 2020 study which expects a significant fall in IT spending across sectors, barring Healthcare, Education, Communications and Utilities, in 2020
    • As a result, deals are being restructured to manage immediate priorities with a focus on relooking at terms related to fixed-costs, payment-term flexibility, resource reallocation
  • Consequently, 70% of the survey respondents expect FY20-21 revenues to be negatively impacted amidst a slowdown in global demand. Key short-term impacts which have been highlighted:
    • Cost Structure of contracts being revisited
    • Discretionary projects being halted or re-scoped
    • Innovation PoCs with unclear ROIs being de-prioritized

 

The Opportunities

Though, challenges remain tech companies are hopeful of a rebound as they expect strong growth in strategic technology sourcing which will become a key part of the overall tech strategy.

  • New opportunities are emerging as clients start to revisit their digital transformation journey with high-speed secure infrastructure and multi/hybrid cloud leading as the emerging tech spend areas. Data, Artificial Intelligence, IoT and Cyber Security remain the key tech themes.

Source: CEO Pulse Review: Covid-19 Impact on Indian Tech Sector

 

  • Increased migration to cloud and momentum in digital deals are expected to support business demand.
    • According to IDC forecasts for 2020, world IT spending is expected to decline 5.1% in 2020 with all segments witnessing a decline, while cloud spending expected to remain resilient
    • According to Stephen Minton, program vice president in IDC’s Customer Insights & Analysis group, ”Infrastructure spending…is still expected to post moderate growth overall as businesses continue to fund existing cloud deployments while some may even look to accelerate their cloud projects during the remainder of the year as a means to control costs and defer capital spending on upgrades to on-premise datacenters and applications. Where there is growth, most of it is in the cloud. Overall software spending is now expected to decline as businesses delay new projects and application roll-outs, while there is a fundamental link between employment and spending on things like software licenses and campus networks. On the other hand, the amount of data that companies must store and manage is not going anywhere. Increasingly, even more of that data will be stored, managed, and increasingly also analyzed in the cloud.”
    • Share of digital continued to increase for both large as well as mid-tier firms highlighting the growing demand for digital.

 

Established practices to a witness rejig

The Covid-19 pandemic could turn out to be big disruption making fundamental changes in the way the industry will function going forward be it delivery models, contract specifications or fast-tracked adoption of digital technologies

Delivery Models

  • More work from clients expected to be pushed offshore
  • Work-from-home to be embedded in services contract
    • “The pandemic has shown that remote working is possible without any productivity loss. The future of work will be hybrid (a mix of remote working with work from the office). This will expand the talent pool for the industry.” Krish Shankar, executive vice president and group human resource head at Infosys. (June 14, 2020)

Contracts Terms

  • Pricing Models: Outcome based pricing to replace fixed price models.
  • BCP: To include contingency plans for global disruptions like Covid -19.
    • “In a post-Covid world, IT vendors are expected to introduce clauses which will allow them to operate in work-from-home mode without the consent clauses in case such events recur. Also, more specific force majeure clauses are likely to be part of the contract in future,” V Balakrishnan, chairman of Exfinity Venture Partners who is also a former CFO and board member at Infosys”. (June 14, 2020)
  • Risk and reward sharing: customers will expect clauses that will be beneficial for them.

The current crisis have created both and opportunities, the Indian IT industry is all set to leverage the new opportunities by conquering the challenges through new sources of revenues as digital technologies gain more impetus, offering flexible contractual terms, focusing on emerging technologies on skilling with the industry putting these learnings to make it better prepared for handle such situations if they resurface in the future.

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