Automotive sector becomes the new sweet spot for IT services firms

The automotive sector is becoming the new focus for Indian IT services firms as global carmakers seek outsourcing partners to help them cope with the changing requirements of customers. 

Most of the IT services players are seeing a spike in demand from the sector. They hope to clinch large deals in areas like engineering services, application development and maintenance and consumer experience.

“Global automotive companies are facing growing demand for automation, for which they require engineers and digital talent. Hence, they are turning to the IT services industry to help address this increasingly urgent need,” said Peter Bendor-Samuel, founder and chief executive officer (CEO) of global research firm, Everest Group.

According to the Everest Group, apart from the slowdown in demand seen in the automobile sector, emergence of electric vehicles or EVs is also forcing auto majors to spend more on new technology.

The rising technology spend by automakers is already reflected in deals bagged by domestic IT players in the last one quarter. 

Infosys, earlier this week, announced that it has been selected as the main vendor for a digital transformation project for Volvo Cars. 

Last month, TCS entered into a partnership with General Motors (GM) under which the IT services firm would acquire certain assets at the GM Technical Centre – India (GMTC-I). As part of the agreement, TCS is also absorbing 1,300 GM employees. Though the size of the deal was not announced, analysts peg it around $600-700 million spread over five years.

Similarly, Cognizant is building an integrated customer experience solution for the Hector SUV – developed by MG Motor India. According to the company, the solution is developed on the Adobe Experience Cloud platform and offers drivers an advanced level of personalisation.

“All three deals announced by these IT firms are trendsetters. While Infosys’s deal is about its agile way of working, the Cognizant one is an example of how the company has started bagging a customer experience contract in an emerging market. Similarly, the TCS-GM partnership shows the path for more such R&D deals in the coming days,” said Pareekh Jain, an IT outsourcing advisor and founder of Pareekh Consulting. 

“This shows that Indian IT players are better placed to benefit from the rising spend on technology by automobile makers, globally,” Jain added.

Industry experts are of the opinion that at a time when the manufacturing vertical is going through a tough time, increasing spend by automobile players will be able to offset some of the business losses.

Around 12 per cent of the total IT outsourcing spend comes from the manufacturing sector, with automobile being a major contributor to this. 

“It is clear that the automotive sector shows a lot of promise. However, it is nowhere near the size to offset the slowdown in financial services spending or compensate for the broad decline in discretionary spending in other industries,” added Bendor-Samuel.