Indian tech firms have more problems than the federal government

But after that, things can get tricky. European customers, who typically account for a quarter to a third of Indian companies’ sales, are sure to cut their technology budgets — at least until the war in Ukraine ends and energy supplies normalize. As the Federal Reserve slows the economy to control inflation, the all-important U.S. market is likely to disappoint.

Some American companies are looking to information technology to cut costs in order to get through the recession. This means new foreign orders. However, the pandemic-era expansion in IT is now in the rearview mirror for Indian vendors. Coders, who could easily hire during the Covid-19 lockdowns, are finding themselves restless due to the lack of career growth since the reopening of the global economy. In the last quarter, TCS’ utilization rate was over 21%.

All these are temporary setbacks for an industry that came into its own at the turn of the millennium – the Y2K bug put India on the global technology services map. Two decades later, publicly traded Indian software exporters have grossed more than $100 billion in revenue, employed 2 million people, and had a market capitalization of nearly $350 billion. Only TCS is worth more than International Business Machines Corp.

But size comes at the expense of efficiency. The outsourcing industry is helping global companies reduce friction at work, something that consulting firms have been doing of late.

Indian IT companies that are strictly managed from their headquarters in Mumbai or Bengaluru still have strong labor costs when it comes to large-scale enterprise software. The area of ​​interest is from SAP SE or Oracle Corp. It is moving away from implementing technologies on customers’ premises. The need for cloud-based workflow automation has fueled ServinceNow Inc. since 2015. Sales of San Francisco-based Atlassian Corp., a cloud-based application for project tracking, rose eightfold as revenue grew sixfold.

Selonis SE, a fast-growing German pioneer in process mining, says it helps customers “fix the inefficiencies you don’t see.” Salesforce Inc., which owns business productivity tool Slack. It had one-third of SAP’s revenue in 2017. But now it is 12 percent less. Shopify Inc. It commanded a 19% stake in digital-commerce software last year, compared with Oracle’s 6%, Bloomberg Intelligence reported.

Indian outsourcing players like Accenture Plc and Deloitte Consulting are lagging behind in implementing new age IT platforms.

In the year In 2015, Accenture acquired Cloud Sherpas, a small outfit with 1,100 employees, 500 of whom were Salesforce implementation consultants. Seven years later, cloud is a $26 billion business for Accenture, growing 48 percent annually. Indian outsourcing firms have developed cloud-based offerings, but are struggling to build scale in popular new technologies such as Workday Inc’s human-resource management system.

Tech is now a big part of what consulting firms do. That’s why they’re tapping into their customers’ movements—or at least increasing their ability to do so. McKinsey & Company, which has bought more than 20 technology-related companies in recent years, last month hired Jackie Wright, formerly chief digital officer of Microsoft Corp., as its first-ever chief technology and platform officer. Deloitte is investing in recruiting coders and training them on new technologies.

The dividing line between business and technology in global corporations is such that Indian software vendors are at greater risk of failure than their consulting rivals. Outsourcing companies are comfortable talking to technology czars in large corporate clients. But when it comes to setting priorities, task heads are calling more and more. And they don’t speak the language of technology. A related trend is the rise of citizen developers — non-IT professionals who use low-code platforms like Appian to bring automated applications to their teams.

Mind you, Salesforce and Workday implementations may not offer a ticket out of global recession next year, and the new IT players are also worried about demand. But at least they’re more aware of the future of work—dynamic, digital, and often remote—than their traditional enterprise-software rivals. Top Indian outsourcing firms have now had to build multi-billion dollar franchises around implementing the new platforms. To get back in the game, they need to take a deep look at meat procurement and working conditions, starting with freshmen’s pay, which has been stuck around 350,000 rupees ($4,250) a year for two decades.

Mint reported last week that entry-level positions in India’s IT industry could shrink by 20% in the financial year starting next April. That could give foreign companies some breathing room on their profit margins. But it may not be healthy to focus too much on the current slowdown. They must face the future – and make bold bets.

More from Bloomberg Commentary:

• America’s recession reaches India’s tech hub: Andy Mukherjee

• Pivot or Godot? Markets Awaiting Bets: John Authers

• The labor market is coming to the margins – or worse: Jonathan Levine.

This column does not necessarily reflect the views of the editorial board or Bloomberg LP and its owners.

Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services in Asia. He previously worked for Reuters, The Straits Times and Bloomberg News.

More stories like this can be found at bloomberg.com/opinion