Indian IT outsourcing was thriving on labor arbitrage, a concept that refers to the shifting of jobs where labor and the cost of doing business is inexpensive due to the reduction or removal of barriers to international trade. However, geopolitical developments across the globe, such as ongoing Brexit concerns, and radical industry shifts to new technologies like cloud computing have sounded out some warning signals to these firms.
In a recent presentation to Nasscom, Global advisory firm McKinsey & Company said that nearly half of the workforce in the IT services firms will be “irrelevant” over the next 3-4 years. A similar view was echoed by Capgemini CEO who feels that 60-65 percent of the workforce are just not trainable.
According to a study by Horses for Sources, India is likely to lose 640,000 jobs to IT automation by 2021.
Chart : Total impact of automation on IT/BPO services workers by major country (all skill-levels across all workers)
Robotic process automation is already a buzzword in industries around the world. It presents a massive challenge to India’s software services sector. IT services providers must not only explore new service lines and solutions but also invest in building new capabilities and re-skill employees with emerging technologies.
Unfortunately, for the USD 155 billion industry, the imperative to structurally reorient the business has come at a time when they are facing headwinds like the ones from President Trump’s protectionist agenda.The IT service industry employs around 4 million people. A large majority are engaged in jobs that are likely to be non-existent in the future. The old-fashioned manual coding jobs are likely to be replaced by automatic coding and cloud computing that significantly reduces the size of the workforce.
Slow revenue growth and adoption of newer technologies — cloud computing and automation platforms — have started replacing engineers. Hiring will definitely be slower than revenue growth as IT companies try to make their existing employees more productive. The slow pace will affect the middle management as well lower rung of employees doing work that can be automated.
Easy Way Out
The IT industry’s success story is not a straight line. The Y2K provided a great opportunity for it to penetrate global corporations while expanding its revenue base. The dot com bubble perpetuated by the internet companies impacted its growth but lasted only for short period of time. In the meantime, US went through a couple of recessions with the 2008 financial crisis being the biggest. The industry also overcame several technological shifts by quickly adopting new technologies and retraining its work force. The Indian IT industry used every crisis as an opportunity to re-invent and re-establish itself as a formidable player in the global software space. Today, it is a mighty, dominant force in the global outsourcing industry with more than 60% market share.
The industry is facing several headwinds today, of which some are structural. The whole world is going digital at a rapid pace. Newer technologies like cloud, mobility, Artificial Intelligence, Virtual Reality, etc., are redefining how global corporates consume and spend on technologies. While the global corporations still spend a substantial amount of money on legacy software, the incremental shift in spending on new technologies is humongous. This is a structural change and the industry needs to take several steps, both internal and external, to be relevant in the new digital era.
Chart : Companies with most H1b approval in 2016
Chart : Share of H1b for Outsourcing companies
The new numbers from the agency show that these companies that outsource IT roles do make up a large portion of the H-1B visas issued, according to analysis by Quartz.
H1b numbers for last 10 years show that the companies have gotten used to easy way out and stopped innovation/workflow research. Some companies are using the Global Delivery Model to add bureaucratic controls on a growth oriented industry, at the same time trying to corner the easy visa spots such as H1b for their employees at a steep discount in the open market. Numbers show that the companies have gotten used to cornering the giant share of the H1b visas for cheap labour only without concern for the research and development in this Technology oriented field and have repeatedly lost out on new technology solutions/initiatives to innovative companies from Far east and Europe. The enthusiasm to spend on newer solutions is utterly lacking in many of these offshore companies while they overenthusiastic to manage the operations in relatively well developed markets such as USA, Europe and Middle East.
Chart : Innovation benchmark not maintained by these companies
Chart : Companies with most H1b approval in 2016
Corporate Initiative and CSR
In 2008, Bill Gates spoke at the World Economic Forum about “creative capitalism.” He encouraged companies to identify their expertise- be it technology, agriculture, healthcare- and develop products that could “stretch the market forces.” A slightly more nuanced take on “doing good,” it meant honing in on the business’ specialty, not just throwing money at various charities. He has substantially invested in poorer countries in Africa, Asia and America and demonstrated effectiveness of technology in solving social and subsistence problems of the people.
However offshore companies don’t do anything like that. Some of the companies such as Wipro and Infosys have announced investment in foundations and also claim to partake in philanthropic activities aimed at poverty reduction. We have in the Satyam saga how the owner tried to claim philanthropic activity in rural health care while trying to gain a share in corporate healthcare while paying only peanuts for the ambulatory services. These companies seem to heed no advice and drift in the direction of self destruction without taking any note of the leadership provided by the technology leaders such as Bill Gates. Taking out huge amount of money from H1b visas without proper direction will stall IT growth and it might take decades to correct the mistakes. This is creating a serious, significant issue for governments of India with a heavy reliance on its workers providing outsourcing services for Western enterprises. None of the companies are addressing the situation here nor they are doing any thing to develop new age technology leaders that can steer the companies to higher grounds. These companies are not investing on soft skills such as Humanities, Reskilling, Basic Sciences and most of the time are relying on government dole in those areas.
The upper middle class urban elite that control the management in majority of these IT firms are mostly interested in skimming money using cheap labour on H1b and B1 visa, while they want to make use every dole provided by the government in Humanities development, Basic science development, poverty elimination in lower classes etc… These management people have proved to be real corporate chameleons by being on the top of the job market and have successfully jumped between MNCs and Offshore companies with ease. At the same time the lower middle class dominated programmers and analyst have lost jobs in thousands due to lack of proper leadership in IT field. In long run this will create major class problems if not addressed now. Over the decades these executives have bested the art of creating cheap pyramid schemes and clever head hunting tactics with utter disregard for overall social vision of the programming community. Many of these IT executives have a scant regard for the rules of the country and most of the time tried to aggressively play the international game in politically volatile countries such as Latin america, Africa and Middle east. Once the IT hayride is over these tactics will start coming back to the original perpetrators in future. These issues might provide a big headache to the IT governance at the government level in near future.
These people are further dividing the line between haves and have-not and are also not acknowledging the government schemes that contributed to their development initially. The burden on governments in developing coherent strategy will be immense in coming years to address the ever increase skew in income categories.
- The silent crisis: Why Indian IT engineers are staring at a future of no jobs, Madhuchanda Dey Moneycontrol Research
- Artificial Intelligence and the Death of Indian IT Sector, Harpreet Singh