A time to plant, a time to reap

A time to plant, a time to reap

If there’s one thing that the ongoing turmoil in global credit markets proves, it is simply that forecasting, prediction and scenario planning are overestimated in terms of their ability to say what could happen in the future.

Given these circumstances, one needn’t dwell at length on the futility of trying to read the future from the results of the big five Indian information technology (IT) services firms, Infosys, Wipro, HCL Technologies, Tata Consultancy Services and Satyam.

What makes sense, however, is to look at the Indian IT services business in terms of competition and resources —and see the impact of global economic events on both.

From both points of view, the Indian IT services business looks secure.

On the competitive front, no country emerged as a significant challenger to India in the boom years. It is unlikely one will emerge at the onset of the bust. Customers are unlikely to trust the efficiency or delivery capabilities of new entrants in these uncertain times. Nor can these companies price their offerings at the same level as the Indian companies that have significant fixed as well as current assets (including people) on the ground. In terms of resources, engineering schools are not going to stop churning out graduates during a downturn. So, business will continue to grow for these companies, and the competition they used to face in recent years in their hiring efforts will decline at least in the short term.

To be sure, the big five, and other software services firms here, will not grow at the rates they did in the past, and some may even find their profitability declining, but none faces the threat of going out of business.

Where they find themselves when the current down cycle ends, however, is a function of what these companies do now. Should they invest in so-called near-shoring centres in the US and Europe to deliver services to customers? It is always easier to hire people and set up business in a downturn.

Should they acquire companies and, in case they have made a habit of doing so in recent years, increase the size and scope of their acquisitions?

The smarter companies are probably asking themselves these questions.

What should Indian IT companies do? Write to us at views@livemint.com