Covid-19 may trigger third wave of outsourcing for Indian IT industry

A Goldman Sachs report said, in the past also, major crisis have led to a sharp increase in outsourcing and even offshoring particularly to India , thanks to lower wages for technology developers as compared to developed economies, and an increasing annual base of engineering graduates.

Much like the Y2K problem and global financial crisis in 2008, Covid-19 too is expected to result in an increasing number of technology roles globally finding their way to India as ‘work from anywhere’ becomes the new accepted norm.

According to a recent report by Goldman Sachs, in the past also, major crisis have led to a sharp increase in outsourcing and even offshoring particularly to India.

This is primarily on the back of lower wages for technology developers as compared to developed economies, and an increasing annual base of engineering graduates.

During FY17-FY19, the base of digitally skilled IT employees in India grew at a compounded annual growth rate (CAGR) of 37 per cent to over 600,000, making India the hub and even the largest beneficiary under the ‘work from anywhere’ norm.

“We believe these digitally trained employees at Indian IT firms are likely to drive overall revenue growth, which would be the key reason for their increasing relevance amid the requirement for digital-at-scale solutions,” the report added.

Besides, the report said, while the labour and cost arbitrage model helped the industry in the first two wave of outsourcing, the industry seems to have now graduated to a value-based model “with a consultative approach around the best digital solutions on offer”.

Some of the recent deal wins, it said, wherein the providers are managing the entire IT function for the clients as part of large managed service contracts, and selling vertical-specialised solutions are examples of this maturity level.

“Both of the above approaches require more fixed-price and outcome-based contracts with higher risk-reward.”

The global brokerage firm expects that the top 5 Indian IT service providers are expected to grow at about 12.6 per cent (in average) in FY22 as compared to earlier estimate of 9.7 per cent.

"The cloud adoption has entered into a stage where technology has largely matured with standardised digital solutions that can be customised based on business or client requirements.

"This standardisation and wide-scale adoption has led to front-to-back integration of entire IT stacks including applications, database, middleware and IT hardware," the report added.

Photograph: Vivek Prakash/Reuters