The increase in margins and net profits may have something to do with the strategic direction in which TCS is moving. As the traditional business of development and maintenance with billing on a time-and-material basis is being increasingly affected by automation in the information technology sector, the future lies in delivery through higher technology. Cloud-based services are becoming increasingly important; the days of steady income for the creators of licensed enterprise-based solutions, and for those who maintain them, are numbered. Another major change is the decline in the relative importance of infrastructure services in support of already-completed systems integration work. In its place has emerged what is commonly known as the "digital" trade - the digitising of a business' activity and data, and the moving of some of it to the cloud. This, it is argued, enables a firm to track itself much better, and to understand its clients better, too. TCS' claim is that it is progressing particularly well in digital work, which accounts for over eight per cent of its revenue and is growing at over 10 per cent. Technological upgrade and competent delivery of such services are key to the continued relevance and success of Indian IT services firms in the future.
The main challenge for large Indian companies like TCS will be to rely more on technological prowess and less on the cost arbitrage derived from the willingness of Indian software engineers to work for less than their developed-country counterparts. As higher skills will be needed, compensation levels and training costs are likely to rise rapidly. Along with this, it will become increasingly difficult for companies to post Indian engineers at competitive rates in client-country locations, given tightening visa restrictions. To continue to do well in information technology, companies will have to live by their wits.