Although the Covid-19 pandemic upended every business sector, with rapid acceleration in digitization, technology-driven companies are now leading the path to a faster recovery globally, with Indian IT players back to grabbing large deals.
According to a report by McKinsey & Company for Nasscom titled ‘Future of Technology Services-Winning in this decade‘, technology spending, which is already showing promising growth, is only going to be intensified in the next decade.
The report highlights that India’s technology services industry could accelerate growth by 2-4% over the next five years, reaching USD 300-350 billion in annual revenues if it can win in the cloud, AI, cybersecurity, and other emerging technologies. This will require closer collaboration among stakeholders across the private sector, academia and the government.
Growth amidst challenges
Being valued at roughly $1 trillion today, the technology services sector is now among the most significant contributors to economic growth worldwide, especially in India—the industry now produces about 27% of the nation’s exports and provides livelihoods to about 4.4 million people. Despite this, players across the sector face challenges like driving growth in revenue per employee and providing them with digital skills.
However, with the government playing a more significant role in digital services, increased investment and innovation, and the rise of regional power centers dominated by local players, businesses and the industry will see a massive transformation in the next decade.
The Nasscom-McKinsey report observes that the technology services industry – that fuels over 50 digital initiatives across sectors like banking and finance, healthcare, governance, etc –will continue to be a prime driver of India’s digital dream with a contribution of 8% to the overall economy.
AI-ML, IoT and cloud to lead
With the ongoing pandemic and the pace at which almost every sector has accelerated their digital transformation journeys, the increasing cloud consumption and other digital services like AI-ML are making way for the digital and cloud services, with an opportunity to reach USD 600-700 billion by 2025.
Coupled with cybersecurity and IoT digital spending, the technology services are expected to reach USD 300-350 billion in revenue by 2025.
“The Indian Technology services sector can utilize the potential of deep technologies like cloud, artificial intelligence, machine learning, IoT, etc., through effective transformational practices, thereby contributing to the overall economy in the coming decade, Debjani Ghosh, President, Nasscom said, adding that the government needs to encourage and support digital literacy and skilling to ensure its talent, energy, imagination, knowledge, and unmatched commitment unites to address the customers’ surging needs.
“It is equally vital for India to reach a new level of cooperation to continue the remarkable growth observed in the sector. At Nasscom, we look forward to helping bring people, companies, the government, universities, investors, and customers together to drive innovations that we cannot imagine today—and that will make the nation and the world better, safer, cleaner, more prosperous places,” she said.
The next decade of growth
The next decade will continue to witness growth in technology spend – primarily driven by the rise of technology natives and digital reinventions, new tech-enabled business models like ecosystems, direct-to-stakeholder channels and a rise in demand for Digital 2.0 accelerated by the industrialization of Cloud, AI and cybersecurity.
Competitive intensity is expected to rise further with hyper scalers, next-gen SaaS companies, players, and specialists competing for the tech. Services value pool. There is an ever-increasing need to differentiate among the providers in this space. As the competition intensifies, scale and specialization will be critical to succeed in the next decade of technology services.
Providers will need to refresh their service lines and offerings and stay relevant to cater to these more digitally adept enterprises, who expect higher-quality services and have very different buying behavior. Talent will also be a key differentiator, and the war for acquiring and retaining the next-gen talent will aggravate in the future.
To pursue these opportunities and contribute to the overall growth, there is a need for a complete shift in the operating model and concerted action from the industry and the government, the report concludes.