Embracing a Brave New World. We have been at the Indian IT services trade group NASSCOM’s annual gathering this week and, while the tone is not negative, there is a clear under-current of nervousness. Yes, the Trump factor, but it is more than that. The Indian IT services industry has been a massive job creator (both direct and indirect) locally and that jobs machine is now being threatened on several fronts. Automation is actually the biggest headwind as providers respond to yet another round of pricing pressure from clients by increasingly replacing people with software. Artificial Intelligence/Cognitive Computing is also expected to reduce client end market job opportunities, i.e. the downside of technological advancement.
There was much talk of reskilling and a need to be a continuous learner – of course that is easier for the more educated – while technology is more impactful on lower skilled jobs. Global delivery market maturity, and therefore slower growth, has led to less “fresher” (recent grad) recruiting. The start-up boom in India is also starting to slow. And yes, U.S. President Trump is forcing providers to ramp up non-visa holder hiring, something that should have happened long ago anyway as the Tier I providers make the journey from being “International” to “Global” firms. All are capable of this transition, in our view. In part helped by activist investor Elliot Management’s encouragement of Cognizant (CTSH) to shift their focus to balancing growth and capital return, other leading services providers are rethinking their strategies. A final note: Traffic in India is still chaotic, but now stoplights are viewed as a reason to stop rather than just a potential consideration. The roads are better, but cannot keep up with the proliferation of cars and motor cycles. Air quality only grows as an issue. Unchanged since our first visit in 1998, we continue to find the Indian people as warm, open and friendly, but don’t under-estimate their ability as business people!