Adverse impact of globalization on Indian software firms: Cloud computing push down deals with MNCs by 17 per cent
Impact of globalization is now being felt in a major sector, India's software industry, which is known to depend heavily on clientele from multinational corporations (MNCs). International giants, such as International Business Machines Corp (IBM), Amazon.com and Accenture PLC, are fast giving up their practice of outsourcing servers and accessing software via personal computers.
The result, according to a study by top consulting firm KPMG LLC, is dire: In 2014 alone, outsourcing deals declined by 17 per cent to 120.4 billion dollars from 145.5 billion dollars a year earlier. The reason, says top New York-based daily Wall Street Journal (WSJ), is that companies like IBM, Amazon.com and Accenture PLC, is that they have fast led their "way into the cloud" and more interested in accessing software via internet.
According to the daily, "New job growth is projected to hit a five-year low this year, says the National Association of Software and Services Companies." It adds, "Tata Consultancy Services, India’s largest outsourcer by revenue, added 19,192 jobs in the year ended in March, down from 24,268 over the same period a year earlier, according to the company’s annual reports."
WSJ warns, "If Tech Mahindra, Infosys Ltd., Tata Consultancy Services Ltd., Wipro Ltd. and India’s other big IT outsource companies fail to change, the consequences for India’s economy could be dire", even as quoting David Smoley, AstraZeneca PLC's technology chief, as saying that the company expects to cut in half the $750 million the drug maker used to spend annually on outsourcing over the next two years."
According to Smoley, the number of people working on information technology with the firm also would drop by 50 per cent, and this is nothing but part of a major shift toward cloud computing, which is starting to bite into the revenue and profits as well as hiring in India’s critical outsourcing industry and poses an existential threat to the players that fail to adapt."
Consequences to India's economy could be dire, suggests WSJ. "Outsourcing accounts for around 20 per cent of all of India’s exports of goods and services. The industry employs millions of Indians and has become an important route into the middle class in the world’s second-most populous country", it adds.
"India’s outsourcing giants rose to prominence in the late 1990s because they could deploy armies of engineers at lower salaries than their Western counterparts to build bespoke programmes as well as monitor and maintain in-house computer networks cheaply for the world’s biggest companies", the daily says.
It adds, "They wrote basic code for databases and enterprise software and handled labor-intensive jobs, such as upgrading their customers’ copies of Microsoft Office, Explorer and other mundane programmes.:"
Pointing that all this is going to become history with cloud computing taking over, WSJ says, "As more companies ditch their own data centres for cloud storage and replace custom-made software with off-the-shelf cloud versions, the need for coders and technicians has fallen drastically, undercutting India’s low-cost-labour advantage."
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