Indian software services industry saw its first and one of the biggest boggies as it entered this decade?Millennium bug. And since then, it has more or less managed to stay on the growth curve, despite a few hiccups like the slowdown following the dotcom bust. As the offshoring industry steps into the new decade, the game seems to be changing. Frugal economy has meant death of mega-deals; tighter margins and paradigm shift in the way business is outsourced. Can the industry return to double digit growth levels? Is it at the cusp of a deep transformation? We ask head honchos of offshoring majors like Infosys and HCL Technologies to cherry-pick the growth opportunities in the ?new normal? economy

IT will remain the dream job

Y2K was a defining period for Indian IT. It set off a boom that continued till 2009 with minor hiccups in between, creating more than two million jobs in India and placing Indian companies firmly on the global firmament as dominant players in IT. While Y2K saw a massive increase in business, it was the aftermath of the dotcom burst that forced Indian IT into adulthood. This event made the industry diversify its offerings, build deep domain capability both in technology and business, adopt newer models of business, spread geographically and tackle Main Street instead of the Valley as the focus of its efforts. Industry adopted the best quality standards, invested heavily in its people, grew its infrastructure, raised capital, invested in sales and marketing creating a widespread matrix of offices and delivery centres, focused on hiring in local markets and vigorously went up the value chain.

Today, a large part of global R&D is done in India either through captives or through service providers. The IP creation has been amazing though most of it is sold by the parent or clients. India has a dominant position in enterprise products, embedded software, testing, BPO, product design, telecom applications and in semiconductor chip design. This decade saw the rise of the BPO industry which suddenly changed the landscape creating a 24×7 work culture and large scale employment for graduates!

2009 looked like the end of the fairytale. The world suddenly saw visions of a Great Depression and only massive intervention in financial markets by world governments reversed the slide. Today, the global economy has stabilised though the OECD governments are still grappling with large scale unemployment and fiscal imbalances.

2009 will also see the shift of economic power to the emerging markets, particularly Asia with China and India making up a very large part of incremental global economic growth. The IT industry faced a severe test with its clients seeing massive decline in revenues and stoppages of spending on IT. There were fears of large scale layoffs though this too turned out to be manageable. The industry saw many of its stalwarts giving negative growth forecasts for the first time ever. Faced with shrinking revenues many in the industry fought fiercely for market share, cutting prices deeply. The crisis was a test of character and strength and today many in the industry have passed muster and added to their stature while some have fallen behind.2010 would see growth in the IT industry with employment generation of around 3,00,000 to 3,50,000 new jobs. Overseas clients are spending again, though not at the same pace. Pricing continues to be competitive though not at the same panic levels. Companies who cut prices deeply will have to face the consequences of growth when they see their profitability lag their peers who held firm. But the industry has seen an inflexion point in its growth. Just as Y2K and the dotcom burst saw shifts in the market, the global financial crisis will see another shift.

Right from 1994 till 2009, IT was constrained by a human resource shortage globally. Indian companies excelled in delivery and grew. Now the industry has changed from being delivery constrained to market constrained. Even though there is some growth in overall spending, there is no great technology change that is driving growth, nor the need to change legacy architecture, nor competitive pressures. The mobile is morphing into an intelligent device and may replace the PC, but the Web will continue to dominate. Web2.0 is changing the landscape but slowly. The Indian IT industry has over the decade changed the face of legacy architecture enabling their clients to build a Web faced infrastructure which has reduced costs, increased efficiency and integrated processes. Competition in industry remains intense and would accelerate in a stagnant market but this is not driving IT spending overall but forcing companies to get more out of what they have.

In this scenario, Indian IT has to change its strategy, go up the value chain more rapidly, offer end-to-end services, take more risk, consolidate and focus on acquisitions and invest massively on sales and marketing and become more solution and IP oriented with increased client focus. The game has changed and global leadership will also change.

Some of the Indian IT players would certainly get into the top 5 providers league this decade just as they got into the top 10 in the last decade, but it will be the survival of the fittest with no easy pickings.

In the HR area, certainly there is massive change. This decade saw a huge growth in jobs, and the focus was on getting in people through the door. Salaries saw big increases, many people shifted jobs, companies had to invest heavily in training to compete, the middle management layer was in short supply. 2009 brought in a semblance of reality, shaking up people who suddenly felt insecure with prospects of large layoffs.

As in business, the HR area too has shifted irreversibly. The industry has built up a huge layer of middle level management, reducing the shortage immensely. Today, India has 2,400 engineering colleges with around 8,00,000 intake so there is no shortage of freshers. The industry has experimented with graduate employees and has been satisfied with quality and so there is an alternative source of people. All this means that there will be keener competition for jobs both at the entry and middle level, with salary growth in a normal single digit range in tune with productivity growth.

Many players in the industry have competed on price in the last year and would find their capacity to pay impaired, thus moderating salary growth. The industry has always sourced its senior folks from the global markets and this would continue. This also means that for the whole of Indian industry salary growth would be more reasonable and they would be more competitive. Of course for scarce skills or in some high growth areas there will be keener demand and a higher salary growth, but this would be in certain areas and not broad spread.

Freshers entering the workforce would need to relook at their options. The IT industry would continue to offer the best jobs in India, global in nature, the best investment in training and exposure and IT would continue to be the dream job. But one needs the skills and capability to succeed over the next 20 years. I would suggest that graduates should focus on higher education and look seriously at doing their masters and maybe PhDs. The future would call for a much higher level of expertise, more specialisation, more domain expertise and certainly a better ability to innovate. This decade will offer tremendous opportunities in all areas in IT, engineering, manufacturing, art, culture, entertainment, sports and other professions. What will differentiate people will be skills, expertise, passion, innovativeness, ability to communicate and market themselves and enterprise!

?The writer is member of the Board, Infosys Technologies Limited