Yearender: IT firms eye eventful 2014 as SMAC, demand optimism beckon

Written by PTI | New Delhi | Updated: Dec 24 2013, 17:25pm hrs
IT FirmsDemand is set to pick up in sectors like BFSI, healthcare, retail and transportation globally in the year ahead. (AP)
Braving the 'new normal' of currency fluctuations and global economic challenges, the USD 108 billion Indian IT-BPM sector is looking at upsides as improving US and European markets and disruptive technologies propel business confidence and client spending.

Year 2014 promises to be bigger and better than the last two years, which were marked by bloodbath in global markets due to Eurozone crisis and falling consumer confidence in the US. Demand is set to pick up in sectors like BFSI, healthcare, retail and transportation globally in the year ahead.

However, the changing regulatory environment in certain geographies like the US, Canada and Australia could play spoilsport for information technology and business process management (IT-BPM) firms as they face mounting operational expenses, which can further pinch their margins.

Besides, the upcoming Lok Sabha elections in India next year could delay the government's IT spending, which is expected to touch about USD 6.4 billion in the ongoing year.

"2014-15 is going to be better that 2013-14, which was better than 2012-13. It will be good for us as well as the industry," India's largest software services exporter Tata Consultancy Services CEO and MD N Chandrasekaran told PTI in an interview.

He stated that four "powerful" technologies are transforming the industry.

"SMAC is throwing up huge opportunities as firms want to optimise investments in current technology and drive growth by using digital technologies and platforms. The digital forces of social, mobile, analytics and cloud (SMAC) will reach mainstream status in 2014 and create requirements, drive new purchasing and establish new competitive realities," he said.

According to the Indian Brand Equity Foundation (IBEF), Indian IT vendors are expected to generate USD 225 billion from SMAC-related revenue by 2020 of the USD 1 trillion global opportunity.

Cloud represents the largest opportunity under SMAC, increasing at a CAGR of about 30 per cent to USD 650700 billion by 2020, followed by social media, which will offer a USD 250 billion market opportunity by 2020.

"2013 marked a year of innovation and transformation for the sector. New business models emerged to attract and retain customers and align to changing business dynamics," Frost & Sullivan Head Consulting (ICT Practice) Nishchal Khorana said.

Increasing adoption of cloud computing has pushed Indian IT players to devise the core value propositions and delivery models, he added.

Mobility, analytics and social media created new revenue opportunities and business lines to create differentiation in the market.

Indian IT services as well as product companies invested significantly in developing centres of excellence to showcase capabilities, building skill set and marketing initiatives to ride the next wave of growth.

IT vendors continued to expand their presence across markets like Latin America, South East Asia and Eastern European countries, which offers not only access to low-cost labour and also the opportunity to tap new virgin markets,

thus further mitigating risks of adverse regulatory impacts.

Industry body Nasscom, which forecast a 12-14 per cent growth in the sectoral revenue for the ongoing fiscal, said export revenues would touch USD 86 in 2013-14 on the back of adoption of new technologies and tapping new geographies.

"They (IT companies) are more positive on the US and discretionary spending outlook in the US. In Europe, the outlook and traction continues to be strong, driven by the ongoing trend of greater off-shoring penetration," research firm Nomura said in a note.

The importance and attractiveness of Europe as a market is being reflected in the acquisition activity within Tier-I IT (Valuesource, Equinox and C1 Group by Cognizant, Alti by TCS and Infosys' acquisition of Lodestone), it added.

Among verticals, BFSI (especially retail banks), manufacturing, healthcare and energy and utilities will continue to be strong verticals, while retail and telecom are expected to be sluggish.

On the domestic font, Nasscom expects revenues to be about Rs 1.04 lakh crore, a growth of 14.1 per cent.

With Indian focusing on technology-enabled delivery mechanisms with projects like e-passport, UIDAI project and digital learning, domestic market for software services, consulting, project implementation and IT outsourcing also looks promising.

Indian government's IT spending is expected to touch USD 6.4 billion alone this year, says research firm Gartner.

"The preference to manage everything in-house and the perception that "I can do it better" are being challenged by economic and efficiency objectives," IDC Senior Analyst (IT Services) Sachin Chaturvedi said.

Increased complexity at the infrastructure level and higher operations/maintenance costs will drive more customers to adopt outsourcing services (in the country), he added.

The first half of 2014 could be difficult for IT vendors in the country due to parliamentary elections and there could be delays in orders from the government sector.

"However, several large outsourcing contracts, which are up for renewal in 2014 and adoption of third platform technologies (SMAC) will keep the growth momentum on in India IT services market," Chaturvedi added.

Increasing competition, pressure on billing rates and increasing commoditisation of lower-end ADM services is forcing Indian IT-BPM industry to re-invent their business models.

They are now ramping-up their software value chain by offering higher value-added services like consulting, product development and R&D, besides SMAC services.

However, what could spoil the party is the hardening of regulatory environment in geographies like the US, Canada and Australia.

For example, the Border Security Economic Opportunity and Immigration Modernisation Act 2013' in the US, has provisions like higher visa fee, wage requirements and enhanced audit by US agencies.

The proposed legislation also requires firms to dilute their visa dependent workforce over the next few years, a move that will force Indian companies to hire local talent, thus affecting their revenues.

If passed in its current form, the Bill could hurt the margins of the Indian IT export sector, which derives almost 60 per cent of its revenues from North America.

Following the US, Australia is tightening its work visa programme, making it mandatory for IT companies to advertise openings to attract local talent.

Similarly, IT firms are facing a political backlash in Canada on concerns that local jobs are being shipped overseas.

Canadian banks and financial services firms are under pressure to create more jobs in the country as the government finds itself in a tough spot due to rising unemployment.

2013 has been a year of innovation and transformation.

Like the Silicon Valley in the US, India is now becoming home to start-ups with more than 20 privately run accelerators and funding groups launching operations in India in the last two years. Most of them are supporting 5-10 start-ups annually on an average.

With a large numbers of investors, new and experienced, India is all set to experience a new age for technology entrepreneurs and 2014 promises to be the year for them.