Since the 1990s, one of the great success stories in India has been the growth of the IT and outsourcing services sector. Building first from the shortage of specialized IT resources required to address the Y2K bug in the run-up to the new millennium (for those old enough to remember!), then the dot.com boom and explosion of e-commerce, and then on to the seismic shifts in favor of outsourcing in the light of improved telecoms capabilities in the 21st century, India tech companies have grown exponentially, to the point where these companies can justifiably claim to be among the world’s technology leaders.
India has likewise been a magnet for non-India domiciled organizations who nonetheless wish to make use of the highly skilled (and lower cost) resources available there. It is a rare major corporation that does not have some sort of in-house capability based in India, and many large organizations have shifted substantial parts of their operations out to India. Indeed, IBM is widely reported to now have more employees in India than in does in the United States.
It may have appeared that this march onwards and upwards was set to continue for some time to come, as companies continue to grapple with the need (if not the imperative) to digitize. However, then came the COVID-19 pandemic.
Although the outbreak’s impact upon India seemed to lag behind other countries initially (particularly countries in Europe), the virus inevitably made its way to India. While the government acted swiftly to put the country into lockdown (indeed, to a degree that would probably have been regarded as unthinkable prior to it actually happening), at the time of this writing it appears that the virus has become established and may now prove as difficult to shift as in other parts of the world.
India tech companies have managed to deal with the crisis better than might have been feared. Whilst the underlying network infrastructure in Indian towns and cities is nowhere near as developed as in the US or Europe, it has nonetheless been impressive to see how quickly (and well) India-based service providers have been able to switch to work-from-home delivery models, and generally without significant disruption to their global client base. There have as yet been no publicized examples of outsourced services going into meltdown because of COVID-19. Indeed, notwithstanding the continuing restrictions imposed in response to the pandemic, Indian service companies continue to negotiate and conclude fresh contracts for new services.
That is not to say that there have been NO impacts. To take but a few examples:
- There have been issues with service providers being unable to comply with the (often very strict) IT and physical security policies mandated by their clients, which may include, for example, strict controls on access to dedicated service delivery locations, with no ability to photograph or reproduce client-specific data or content.
- It can be impossible at times to shift dedicated laptops or desktop computers from their service locations, if they are located in a Special Economic Zone (“SEZ”) which provides tax breaks for infrastructure located within it which is dedicated to offshore work, but which prohibits the removal of equipment from the SEZ.
- Even if personnel can take IT equipment home, the ability to provide remote support and replace defective kit can be more limited.
- Project timescales have been significantly impacted, with transition and/or transformation milestones slipping to as yet unknown degrees.
However, such issues seem to be in the course of being worked through, and the overriding spirit largely has been one of collaboration rather than combat, with the detailed provisions of the underlying contracts being of relevance, but not the key determinants.
The key question, then, is how the Indian service sector will emerge from the current crisis. In this regard, we can envisage both positive and negative outcomes.
From the more positive perspective, the sector’s resilience in dealing with COVID-19 may reaffirm customer trust and confidence in the delivery model overall. The pressure to digitally transform will remain, and the fact that companies throughout the world may be facing increased financial pressures will mean that many of them will be compelled to consider outsourcing MORE of their operations, rather than less. In this view of the future, Indian service providers will rebound quickly.
The more negative view may involve the flow of discretionary spend on technology being turned off to a significant degree. Companies may decide to hold off from implementing new CRM or finance solutions if the one they have works well enough and they are otherwise struggling to find the cash to survive. Equally, when a new project is initiated, it may feature increased application of new tech involving blockchain, automation and AI, all of which removes human/carbon labor (which is the key commodity on which much of the success of the Indian tech giants has been based), and so the value of such projects to the service providers may be reduced.
Which route will we more likely take? At the moment it is too early to say, but services and technology companies in India have already proved themselves to be remarkably resilient and flexible (not least in terms of the more recent efforts to pivot from being more service-oriented companies, to instead being more solution-focused, to capitalize on the move to “as a service” offerings from the cloud). It would be difficult to bet against them finding a path through the COVID-19 storm.
If you have any questions regarding the issues covered in this article, please contact the author or your DLA Piper relationship attorney.
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