Informations Technology
Challenges faced by Indian IT:
1. Uncertain global economy: The Indian IT outsourcing industry gets about 75% of its revenues from US and Europe. The renewed concern regarding the European sovereign debt has led to companies slowing down their IT spending. BFSI segment has been the biggest contributor to Indian IT revenues. As shown in the figure below, the recent turmoil in Europe & US has resulted in slowing demand in BFSI segment.
Source: Business Standard
2. Protectionist measures: There have been periodic threats of the US stopping all outsourcing work. Rising US rhetoric against shipping of jobs to low cost locations ahead of US presidential elections in November might result in lower market shares for Indian IT companies. The US Senate will be looking into a bill backed by the Democratic party popularly known as the ‘Bring Jobs Home Act’. If the bill is passed, tax benefits will be extended to companies that shift their work back to the US & will end tax incentives for those who send work offshore. On the other hand, Europe has quietly enforced visa restrictions making people difficult to travel onsite for work.
3. Tough competition from MNCs: Increasing competition from MNCs like IBM, Accenture who have set up bases in several of the IT zones earlier dominated by Indian IT firms. Also, US wages have been decreasing and are on par with Indian wages for some of the sectors. Outsourcing will be less attractive to American employers.
4. Pressure on billing rates: Discounts from key financial sector clients is pinching IT firms. On 12th July, Infosys claimed that pricing has fallen by 3.7% in the June quarter from the previous quarter. As the growth in demand has fallen, firms are vying for the small pie by opting for price cuts.
5. Low employee utilization: Increasing bench size has been reported across various IT firms. Employee utilization has fallen down to 67% for lot of Indian companies. Companies have to reserve certain human capital so as
1. Uncertain global economy: The Indian IT outsourcing industry gets about 75% of its revenues from US and Europe. The renewed concern regarding the European sovereign debt has led to companies slowing down their IT spending. BFSI segment has been the biggest contributor to Indian IT revenues. As shown in the figure below, the recent turmoil in Europe & US has resulted in slowing demand in BFSI segment.
Source: Business Standard
2. Protectionist measures: There have been periodic threats of the US stopping all outsourcing work. Rising US rhetoric against shipping of jobs to low cost locations ahead of US presidential elections in November might result in lower market shares for Indian IT companies. The US Senate will be looking into a bill backed by the Democratic party popularly known as the ‘Bring Jobs Home Act’. If the bill is passed, tax benefits will be extended to companies that shift their work back to the US & will end tax incentives for those who send work offshore. On the other hand, Europe has quietly enforced visa restrictions making people difficult to travel onsite for work.
3. Tough competition from MNCs: Increasing competition from MNCs like IBM, Accenture who have set up bases in several of the IT zones earlier dominated by Indian IT firms. Also, US wages have been decreasing and are on par with Indian wages for some of the sectors. Outsourcing will be less attractive to American employers.
4. Pressure on billing rates: Discounts from key financial sector clients is pinching IT firms. On 12th July, Infosys claimed that pricing has fallen by 3.7% in the June quarter from the previous quarter. As the growth in demand has fallen, firms are vying for the small pie by opting for price cuts.
5. Low employee utilization: Increasing bench size has been reported across various IT firms. Employee utilization has fallen down to 67% for lot of Indian companies. Companies have to reserve certain human capital so as