The challenge ahead

The leitmotif for the Indian information technology (IT) and business process outsourcing (BPO) sectors for 2003 is Nasscom chief Kiran Karnik on the cover of the Forbes magazine.

This was in response to the magazine's readers determining that outsourcing was the most significant development of the year for western companies.

Not unexpectedly, this and several other reasons have made the year the most dramatic in the history of the Indian IT and BPO sectors.

The year began with a downcast mood, the industry grappling with the global IT slowdown and the price-discounting phenomenon that affected all players, including the strongest.

Matters were not helped when Infosys announced its fourth quarter results for 2002-03 and issued guidelines that severely disappointed the investing community.

The earlier part of the year was marked by both the Iraq war and the Sars epidemic in South-east and East Asia.

But somehow the scenario changed. The war clouds lifted, the epidemic abated and, as the year progressed, there emerged clear signs of business and stock market revival in the US. This had its impact on the Indian software sector and from the second quarter onwards it did not look back.

Today, demand is buoyant, prices have stabilised, there is ramping up almost at a frenetic pace and, perhaps inevitably, turnover of staff with a few years' experience has reappeared in a big way.

If this were all, then it would be a predictable cyclical story for an industry totally geared to the mature economies experiencing the same ups and downs that it later goes through.

But there are several aspects that have emerged by the year-end, indicating that the Indian software and BPO sectors may be passing through an inflection point.

The extent of new orders and resultant ramping up have taken everyone by surprise. The mature economies seem to have come to the conclusion that every company that takes its future seriously must have an India strategy.

Be it an IT or any other company, the realisation has dawned that software development and business processes have to be outsourced in order for the companies to remain competitive and secure the preconditions for growth.

This, in itself, would have been dramatic enough but the wave of offshoring and outsourcing has resulted in a new wholly unpredictable consequence.

There is a serious backlash against outsourcing in the mature economies and the major focus of that ire has been India where most of the jobs are seen to be going.

This reaction seems to be quite out of proportion to the scale of outsourcing that has taken place and will take place in the near future.

Several reasons have been cited for this, like election-year politics and jobless growth, but they do not provide a complete explanation.

There is enough evidence of very skilled jobs migrating to India for the Indian government and the IT-BPO sectors to get ready for a long battle to counter animosity in the mature economies.

Indian leaders should study how Japan became the butt of a similar negative sentiment in the eighties and learn lessons on how to combat such a scenario.

If you take the entire knowledge-based sector (including research) or the services sector, a remarkable opportunity has arrived before India to leverage its capabilities and significantly lift its growth rate.

There is every reason to end the year with not just a sense of achievement but also a sombre sense of responsibility.

An opportunity has arrived but an enormous effort has to be made to make the best use of it. This is the challenge.