The next 2-3 weeks are critical, said Akhilesh Tuteja, Global Cyber Security practice co-leader at KPMG India, adding that if the virus is contained within this period then the domestic IT industry can heave a sigh of relief.
China has been struggling to contain the epidemic which has so far killed 2,236 and infected more than 75,000, triggering stringent curbs on travel and movement which in turn have kept many businesses shut, disrupting global supply chains.
In a bid to cushion the economic fallout, China's financial regulators have urged banks to lower interest rates and extend loans to targeted companies that have been affected by the outbreak, among other measures.
India's top IT firms have a fairly large presence in China, the epicenter of the epidemic.
Tata Consultancy Services (TCS) ranks among the top outsourcing firms in mainland China, while India’s second-largest IT services company, Infosys, opened its first overseas centre in Guizhou province in 2015. Wipro and HCL are also present in China.
Although many global companies have suspended operations in China in the wake of the outbreak, Indian industry executives said they have so far managed to scrape through by asking employees to work from home or remotely from other locations.
“The IT sector may see some indirect impact in the medium to long-term as some of the clients have exposure to manufacturing in China," said Pravin Rao, NASSCOM vice-chairman, as well as chief operating officer Infosys.
China is the world's biggest manufacturing hub. The country became an attractive market for Indian IT firms when the US clamped down upon on H-1B visa issuance, and when the UK and Singapore tightened work-related immigration.
Typically, Indian companies are present in China as branch offices, subsidiaries, joint ventures, or wholly-owned foreign enterprises, hiring more than half of their workforce locally. There are three IT corridors set up at Dalian Guiyang and Xuzhou to facilitate partnerships between Indian and Chinese companies, focusing on emerging technologies like Artificial Intelligence, Internet of Things and Big Data.
Economists have estimated that the virus outbreak could reduce global GDP by almost 0.3%.
Antoine Imbert, chief operating officer of Capgemini in India said, "We don't see a big impact at this stage across global operations but we are analysing our business continuity plans to see if more employees need to work from home. We have flexi work policies that can be leveraged in case we need it but there has been no need to take any specific actions right now. APAC is overall 5-7% of overall revenue so China is present."
Besides asking employees to work from home, companies are taking up office spaces in other locations to provide backup.
The outbreak coincided with the annual Lunar New Year holidays in China in late January, when most companies typically budget for a period of non productivity. But that has period has now extended for many companies, while for others operations have resumed minimally.
The impact to the IT industry has been negligible so far, but according to NASSCOM’s senior director for global trade development Gagan Sabharwal “the overall economic impact will be huge for China."
“We should focus on the global supply chain of technology, which is more on the manufacturing side because that is an area where China plays a significant role and if there is a continuing situation like this, then that may have an impact in the long term," added Akhilesh Tuteja, Global Cyber Security practice co-leader, head – risk consulting and partner KPMG India.
Coronavirus is a rude reminder of the fragility in the systems of doing business and the uncertainty. While in the short term, this is no more than a minor speed bump, in the long run, IT services companies must take cues from this episode for contingency of delivery to clients, said Sanchit Vir Gogia, chief executive and founder Greyhound Research.