The recent appreciation of rupee has thrown some interesting facts about the Indian economy. For one rising rupee is a good news for the Indian consumers and the other that there is a whole industry(ies?) in India that is created on the basis of rupee – dollar purchase value differential – mainly IT and BPO services .
I just think for a moment if India’s whole IT industry stops growing then what?
Well there is an army of people that is employed in the sector - the best and the brightest. India now produces about half a million engineers per year and most of them are absorbed by the IT industry. Now there is a severe shortage of right trained manpower that has caused ballooning salaries that is eroding the profit margins of the IT companies which they try to compensate by productivity gains every year.
Now look at the collateral effect of the Industry on the Indian economy.
IT industry contributes significantly to the Forex earnings of the country .But this is not the end of the story. NRI’s who are deputed on projects by the Industry also remit forex inthan $ 20 billion last year.
Since IT professional have large surplus owing to their high salaries , they invest most of this surplus in stock markets an real estate.
Now think of the effects of the slump in IT industry. A meltdown in stock prices of IT stocks and the money invested in the market, slump in real estate market ( which is in some sense related to stock market) apart from a hit in country’s forex earnings and a slowdown in the job market.
Hmm…..
The slump in the job market will reduce salaries that’ll help the IT industry to become more competitive – a kind of corrective feedback loop.
I personally think that low cost is an advantage that somebody else can always emulate and that anything and everything can be emulated given sufficient time .What matters is the difficulty and time to emulate . You can then use the time and energy to move far ahead of competitors.
So what can be the eternal plus point for Indian IT indstry ?
Quality at the right price , Brand Image , Innovation and availability of skilled manpower in large numbers .I think these factors can keep Indian IT industry kicking for time to come .
What can immediately be done to mitigate the risk of a slowdown in IT industry worldwide?
A number of classical risk mitigation strategies:
- Increasing business in Europe , East Asia and India ( which is a second class citizen for IT companies) .High valuation of IT companies can be leveraged for takeover of large IT companies in Europe.
- Need to Build a strong Brand Image
- Hiring in the said markets. Local resources are highly essential for a client facing role
- Offshoring in other countries like China, Eastern Europe , South America
- Building Product portfolio
- Create Intellectual property rights which can be leveraged over a period of time
