The biggest threat as anyone could imagine is faced by Indian IT outsourcing giants, the billion plus dollar club - companies with more than billion dollar in annual revenue.
Past few years saw exponential growth of these IT majors, winning multi-million multi-year deals, moving upward in the value chain, expanding their portfolio of offerings, acquiring competencies organically and by M&A, diversifying their delivery locations globally and outside of India, rapid expansion in employee base and frenzied hiring to meet up with projected/futuristic demands based on simplified extrapolation and assuming linearity in growth, market size and in some cases market share. Not to miss out hyper-competitiveness witnessed among billion dollar club members on metrics like quarter on quarter/year on year growth in sales, profitability, employee base etc.
All this led to :
- Huge blind spot for associated risk
- Investment in Capital assets with long term view of absurd growth rate (something like 40% growth)
- Massive increase in operating cost for purpose of scalability (to prepare for futuristic demand)
- Hasty and stupid M&A deals to gain competencies and edge out rivals (fall out of hyper competitiveness)
- In some cases accounting malpractices to beef up the numbers to ensure stock gains
- Failure to exert pressure on govt to improve infrastucture to sustain competitive advantage, keep operating costs low and ensure that the value of offshore is not eroded (which has very much eroded in terms of cost arbitrage)
Mid sized companies fared a bit better by virtue of being left out of this mad race and had to contend with moderate and below average growth, cost pressures and high levels of attrition, all of which forced some of them to imbibe core virtues of doing business like austerity, productivity, better utilization etc. Having lost out the race to win big deals these companies focused their energies on building competencies in some niche where they could differentiate and win projects. To impress the analysts they did not have growth in revenues so they worked on containing costs and improving margins, since they did not have scale and leverage of large players they could hardly do anything on pricing and improved margins by enhancing utilization, rationalizing their hiring and cutting down on capital spending. All these forced measures may actually help them in the weathering the storm and emerging stronger and bigger out of this turmoil.
My assessment is that 2 yrs from now we will see some of the large Indian vendors consolidate, go out of business or shrink in size and brand, while a select few mid sized companies who had got their act right (way back in 08) would actually ascend to leadership position.
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