Economist is running an article on why the Indian IT sector may be heading a downhill journey. The article cites reasons why this is so – appreciating rupee. It seems that Indian IT firms especially the big ones were hiring more people to generate more revenues. The article says so. Specifically, the article quotes:
To increase sales, firms could hire more people without caring too much about productivity, with the result that growth in revenue correlated closely with growth in headcount.
This means the companies does not really care about the employee growth. All it cares about is increasing sales and profit. It is OK for them to churn out some lazy engineers/technicians. Surprisingly even the engineers don’t seem to care about this. They are all looking for a short term reward – money. Long term, they are going to suffer – with no value add capabilities.
Secondly, as with any other business, over a period of time competition increases. China is probably the only country in this world that can match India in its most crucial parameter – size. Fortunately (for Indians) Chinese people don’t have so much fluency in English language. But Chinese already are proving themselves. Middle Europe , as the article quotes, is also coming into the IT business – though they can never match in size, they can definitely fare better in terms of quality and productivity. Something that 50 employees do may be done by just one guy there – both because the white man is more productive and they are using much better technologies to get things done – because most of the research happens there creating new technologies while we will be serving as cheap labour. In this respect, Indian IT firms will have to learn and improve- which brings the third reason why Indian IT firms may not grow faster- same old services quickly becoming obsolete with newer technologies.
I am confident that I don’t yet understand all the nuances of this phenomenon – like what exactly are the IT firms currently doing, why they become obsolete, how exactly competition is going to affect us, how exactly technology is going affect us, whether it is time to eat our own dog food to sustain IT in India, whether we need to concentrate on other markets other than American economy(which, I guess, we are already doing) etc.
It looks to me like what IT firms are facing might be the general economic phenomenon – that of supply, demand, productivity (mostly fueled by technology), competition, profit/loss accounts etc. What they differ is in the details.