Strategic choices and challenges in the Indian IT industry: In search of a new business model

Abstract

Mention the word outsourcing, and the Indian IT industry seems to be a bell-weather indicator of the trend. In 2015-16, India’s software exports amounted to US$ 74.1bn (excluding on-site exports), making up almost 48% of total service exports in India and amounting to 3.6% of GDP (RBI). While overall exports of IT services have been growing at 11.2% CAGR between 2011 and 2016 (RBI,Figure 1), there are strong indications that the composition of that growth would shift sharply away from the current model of on-shore and off-shore outsourcing. This paper aims to explore the evolving business model that Indian IT firms must adapt to remain competitive globally, in the backdrop of changing H1B regulations and the advent of automation and new business segments. The impact of tighter regulations and emerging technologies is evident in the slowdown in annual growth to 7.3% in 2015-16 from more than 14% between 2012 and 2015 (RBI, Figure 9). While IT services have traditionally constituted the bulk of software exports, this paper would explore a forward-looking strategy on the need to upscale to high value-adding activities, so that industry margins maintained (RBI,Figure 2).