Forces shaping the digital revolution
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The digital transformation that is washing across the global economy is also breaking against India’s shores.” Culled from a recent Nasscom-Mckinsey study, there are four themes which resonate repeatedly: online proliferation of consumers who demand customized products and services; dominance of mobile that will dictate expertise required of companies; digital technologies that will bring about significant changes in process improvement and customer experience while driving efficiencies and reducing costs; enablement of data-driven decision-making.
Of course, the rate of adoption will not be uniform. In the Indian context, the three-speed universe may be classified as tech-savvy industries, tech followers and laggards, with different parts of the government and different states straddling all three categories. Furthermore, the ongoing Digital India drive and the more recent wave of re-monetization continue to birth a plethora of opportunities, but more of that later.
Clearly, India’s tech-savvy industries include financial services, retail, communications and media. Currently, they are more or less at par with their global peers in going digital, driven largely by domestic consumers who are comfortable with the digital medium, as they adopt products and service lines online. Increasingly, these industries will rely on service providers for cutting- edge technologies, and their growth in tech spends over the next decade is likely to increase significantly. Next, the follower industries include healthcare, manufacturing, transportation, utilities, education, commodities and wholesale trade. Though cognizant of the inevitable shift that is happening, these sectors still seem to be playing catch-up with their global peers in digital adoption. Comparatively though, education and transportation are witnessing a surge towards digital as they lead this pack of adopters.
Challenge before the incumbents
Achieving pre-eminence over several decades by creating the modern offshoring industry, the yesteryear disruptors have become the incumbents of today, and are challenged by the digital way of doing things. To put things in perspective, let us look at the global trend. In 2014, the global tech and services enterprise spend was around $2.7 trillion (Nasscom-Mckinsey study). Out of this, 90% was attributable to traditional tech and only 10% was digital. Fast forward 2020, a $3.5-trillion market is being envisaged, and the mix would have to change to 65:35, respectively. Fast forward further to 2025, as a $4-trillion market opportunity beckons—an inexorable and game-changing shift to a 40:60 ratio (traditional spend to digital) is foreseen.
Leveraging new opportunities
The normal response to address similar challenges has been of vertical disaggregation, and it is imminent for the tech industry as well. As new business models emerge, partners of the future will have to develop niche capabilities to deliver both digital and traditional solutions. IT services would require proprietary platforms to integrate digital and legacy technologies and offer new digital service lines, including a strong focus on consultancy. Furthermore, traditional technology would be optimised through automation and lean processes. The BPM (business process management) industry would increase focus on customer experience as they migrate to BPaaS (Business Process as a Service) and adopt analytics as an integral part. Engineering services are likely to witness a much higher focus on IP and end-to-end initiatives. R&D spend and talent will claim the lion’s share of fresh investments. Also noteworthy here is the sheer size of the opportunity that Internet of things provides for India. In the next 5-7 years, it is expected to grow threefold to touch $15 billion or thereabouts.
Worldwide, and especially, in our traditional markets, as protectionist measures threaten to create unwarranted barriers, it provides an opportunity to look more favourably towards the domestic market. Only $35 billion of the $150 billion Indian IT industry is what the domestic market is all about! In support of the government, it should be mentioned here that its continued focus on digital has been a huge confidence builder. The re-monetization drive has reinforced this belief and upped the ante. Aadhaar, which provides a unique 12-digit identification to 1.1 billion Indians today, forms the bulwark of a digital economy and is unparalleled anywhere in the world in its sheer scope and outreach.
India has nearly 4,500 tech start-ups today—the third highest in the world! It is also saddled with mammoth-sized challenges in the areas of education, healthcare and civic amenities, among others. Interestingly, the start-ups look at these challenges as billion dollar opportunities, and rightly so. Once solutions are built for India, they can be replicated in other parts of the world to build on scale.
Given our size and diversity, the transition may encounter a bumpy road ahead, but innovative minds would always choose to see the glass half full.
R. Chandrashekhar is the president of Nasscom.