India and the changing IT industry
The India's Information Technology (IT) outsourcing is getting “Hotter” than ever. The giant TCS who are already reaching over 190,000 employees is planning to add 40,000 more. Infosys who has 160,000 employees is also announcing that they will hire 30,000 people this year. Other Indian IT companies are also hiring more IT workers than previous year. With an industry already employs over 2.54 million software workers, the plan to add 250,000 this year and over 400,000 workers next year is an indication that the future of IT in India is brighter than ever. According to Indian government, this is the highest employee addition ever by the country's IT industry. One government official told the India Times Newspaper: “With more than half million IT workers hire this year, we are expected to add over 6 million indirect jobs into the economy. IT really drives our economic prosperity into high gear.”
In addition to the hiring of workers in India, Many Indian companies are also actively hiring in the U.S. and Europe this year to counter the notion of “anti outsourcing” addressed by several politicians. The same tactic was used twenty years ago by Japanese automakers when it seemed the U.S. was planning to restrict the number of cars imported from Japan. At that time, many Japanese automakers were opening manufacturing facilities in the U.S. and hire more U.S workers to counter the “Jobs loss to Japan” notion. However, the hiring oversea is more a plan to mitigate the shortage of skilled workers in India and expand their capabilities into technical areas that India does not have. To keep their costs more stable, India companies are now “outsourced” low-end works such as coding, testing to other countries such as China, Malaysia, and African countries etc.
As demand is soaring and hiring is in full speed, employee attrition is also increasing at an alarming rate. The turnover rate in the past three years was between 13% and 22% but just in the past three months of this year, it was between 20% to 35%. As competition for skilled workers is getting fierce, more workers will change jobs for better wages. If the market is not cool down, the turnover could go as high as 45%. The wage increases also creates a disadvantage for Indian companies. It is estimated that within the next 5 years, salaries of IT workers in India could get to the same level as in the U.S and Europe. However, industry research found that the “low-cost” wave of globalization has passed. Today the industry is moving into the next wave or the “quality-value” where customers are not looking for low cost anymore. The shortage of IT workers globally has pushed many companies into a panic point and they would do whatever they can just to get their IT systems running efficiently and effectively, regardless of costs. As IT is becoming a business strategy, the key factors are knowledge and skills that can create quality and values (more revenues and profits).
In this highly competitive IT market, the winner takes all. In the first two months of 2011, there were 20 acquisitions by Indian IT outsourcing companies where large companies brought out smaller companies. Last year in India alone, there were 120 acquisitions. For example, iGate brought Patni for $1.2 billion USD. Pearson brought Tutor Vista for $127 million USD and Tata brought Bit-Gravity for $100 million USD. According to recent global business study, size is very important in the globalized world. No one does business with smaller companies anymore. In global IT business, contracts often value at hundred million to billion dollars. Smaller companies cannot compete with industry giants who have over 100,000 or 200,000 IT workers.
The question is where do you find such large number of IT worker during this IT worker shortage? According to Phaneesh Murthy, the iGate's company chairman: "With globalization, IT workers do not have to go to find jobs but the jobs will have to go to where skilled workers are. We have plans to actively go to many countries to hire IT workers. With high speed broadband, workers can work virtually anywhere. Having workers that scatter all over the world will also solve the high attrition problems in India”.
Last week, newspaper headlines in India announced a $5 billion USD worth of IT outsourcing orders from several large U.S. banks as the financial market were under significant pressure to cut costs. These were very good news to Indian IT industry. Of course, these companies have been expecting that kind of business for many months as the global economy began to recover. They were right in their optimism because beside that orders, there were several orders from European countries between $1 billion to $3 billion USD worth in cloud computing as several government offices were moving to “The Cloud”.
Cloud Computing is a new business with significant potential. Indian IT companies have been focusing on this new technologies and business model for years. With cloud services, users can download software from the Internet and also access IT infrastructure, such as servers and storage devices, by simply paying a fee each time they use. Instead of buying equipments, they just rent them. Software and hardware manufacturers benefit because the lower price for each use expands their market to many users who otherwise could not afford the expense. IT outsourcing companies benefit because they can offer software from multiple manufacturers in a cloud, and also offer businesses private cloud services with customized software.
In anticipation of this lucrative business, TCS launched iON, a subscription-based cloud computing service targeted at small and medium businesses. With this model, iOn eliminates many upfront costs by users, allowing them to start small and increase hardware resources only when there is an increase in their needs. Therefore, companies can deploy a service and scale on demand without taking the risk to build a large data centre for an unknown future. According to several sources, TCS could sign up over 1,000 customers this year and expands this service to many countries, all over the world. The source also believe TCS cloud business will earn revenues of $1 billion USD annually.
There are several studies indicated that almost half of all companies in the world is planning to move to cloud computing in the next five years. This new business model will completely change the entire IT industry. As the competition heats up between giants such as TCS, Infosys, Wipro, and Cognizant and IBM, Microsoft, Google, HP and Dell, the entire IT industry will going through a process of “creative destruction” where thousands of smaller companies may not survive.
The switch from software as a product to software as a services (Cloud Computing) will also change the way university offer training courses. Demand for Information System Management (ISM) programs will rise significantly. As more and more companies move to cloud computing, they will need more service managers than project managers. The roles of architects and network system analysts will become more important as well as System security specialists. Of course, Cloud computing services will not replace traditional software development. Technical skills in designing, programming, and testing are still needed regardless of what business models.
Sources
- Blogs of Prof. John Vu, Carnegie Mellon University
