There Are No Limits To Growth, Only Limits To Thoughts
Date: Friday , September 02, 2011
Last decade saw our IT/ITES industry grow from roughly $8 billion to $70 billion. Will it have the same pace in coming decade? Numerically that would mean crossing $600 billion in industry revenue. Unlikely, one would say! Especially going by conventional logic - You can't have steady increases every year, at some point, you're going to plateau. To add to it, the global IT/ ITES outsourcing industry is estimated not to exceed $2 trillion, so with market share as a constraint, reaching $600 billion is improbable. However, rather than asking will this happen or not, let us put our thoughts to what will make it happen?
Last decade, we have used our demographic advantage to successfully build a services lead cost arbitrage model focused on overseas market. Over the period, we have strongly complemented our inherent advantage with process excellence, domain knowledge and innovative delivery models. Continuing on the same path, we can expect our sector to keep growing albeit with diminishing returns and slower year-on-year rise. Maybe reach $250-300 billion in this decade. The growth has to come from different business model and that to me will be driven by innovation in products and technology targeted at domestic and similar markets. India’s competency will remain in IT services given our demographics may be even more favorable in year 2020 but given the vastness of our country, there is no reason why we should just have one core competency. Over next few years, there is every possibility that we will have several innovations in products and business model catering to domestic and emerging markets in India. The reasons for this are-
* On the demand side, there obviously is vast potential for serving domestic market through innovative IT solutions at right price points. Its not just about supplying IT solutions to large government or corporate sector projects but using IT to build business models for mass markets where our large demographics helps in scaling of business, such as education, hospitality, ecommerce or healthcare. By 2020, India will have over 900 million population in the range of 15 to 60 years with far more purchasing power than today. The added advantage is in the fact that if the right solutions and business model is built for Indian market, it can also be translated to several geographies in Asia and Africa, which will be difficult for similar products built in Western markets.
* On the supply side, given the increasing cost for delivering services and requirement of certain scale to be competitive, entrepreneurs will be forced to look beyond starting up IT services based companies. The ‘low risk’ services business actually will become unviable for new companies. The competitive advantage of start- ups will be based on product or business model innovations, which will be more sustainable than factor cost advantages.
*The innovation will also be aided by the fact that the existing stock of knowledge will be higher compared to the past decade as IT industry in India has matured considerably. People today are enriched and equipped with better knowledge and understanding of market dynamics and current technologies added with global exposure than before. This certainly provides additional impetus for being innovative. Many have already experienced first-hand how innovative products are launched and managed. Success of previous innovation breeds more innovation as there are then role models to following leading to a positive virtuous cycle.
*Another supply factor will be availability of structural support for innovation. Having an idea is the easier aspect of the innovation, commercializing it requires support from various quarters. Advanced markets have support ecosystem to take the product to market, not just as availability of risk capital but also support organizations for product certifications, patenting, market research, branding, resourcing etc that fast tracks and entrepreneurs’ success. With the increase in entrepreneurial activities, such ecosystem is going to evolve in future.
While India may or may not have high amount of pure research done (as measured by patents) in future like say Japan or even Taiwan or Israel, it will have many innovations lower down in the spectrum in terms of new products or adaption of new technology for local market and new business model to server mass market at lower price points. And hopefully these innovations will continue to drive the growth of IT at the same pace of last decade.
The author is CEO & Co-Founder, Paladion Networks