The news of India’s IT bellwether shedding a few thousand jobs has been in the headlines for a few days now. The intelligentsia have proposed several explanatory theories and counter-theories. Inflamed LinkedIn warriors have opined on what the company should have done or should do now, along with the mandatory ten things to learn from this episode.
Apart from feeling sorry for his salaried brethren who have lost their jobs, Bertie did not think much about this news. After all, the lost jobs amounted to about 2% of the overall workforce; a number that the company, in usual course of business, would be attriting in less than two months. But what surprised Bertie were the obituaries of Indian IT services business models that have started appearing in media.
In the middle of a turbulence, the spectre of a doomsday scenario seems quite persuasive. The somewhat predictable storyline was that the rise and rise of artificial intelligence (AI) would eat the humble coder’s lunch. And as AI’s reach becomes all-pervasive, clients would find little use for the services of technology companies.
Bertie called his favourite technology analyst Will hoping to get a nuanced view of the situation. Will and Bertie have known each other for over two decades through booms and busts—both projected and actual—of the tech services industry. They first met at an analyst meet of a ‘new-age’ IT services company that resembled a rock concert, complete with blaring heavy metal and management team sporting leather jackets. Over some roadside tea post the meet, the two had agreed that the company would not exist a decade later and had been proven right. The company had dissolved but their friendship had solidified.
Will has an air of calm when he speaks. His sentences are short and responses are measured. There is very little that excites or disappoints him, and that is probably the result of covering this roller-coaster space for many years. When Bertie asked him about the recent prognosis of impending gloom, Will chuckled. “AI is here to stay, Bert” he started “and what’s more, it will get better quickly.” Will talked about the arms race between the hyperscalers in the US and China to seize the AI moment, and the amount of dollars and grey matter being thrown at it.
“So in the near term, this is a headwind for Indian IT services. Cost deflation, reduced scopes of work and clients cutting their budgets for plain vanilla work.” Bertie nodded.” So the obituaries aren’t too far off the mark then?” Bertie asked the main question that was bothering him. Will laughed this time, “If I had a dollar for every time…” he trailed off. He adjusted his glasses, which Bertie knew was generally followed by a monologue.
“Whenever a new technology has burst on to the scene, people have written off the tech services sector. There has been a pattern to this thinking. When the new technology is grabbing the headlines, it seems like the tech services companies have been caught asleep while the world around them has changed. There are accusations of under-investing, and of generally burying their heads in the sand. This time is no different.” Bertie cast his mind back to several such episodes in the past twenty-five years and nodded his head in agreement.
“But what has happened each time is that as the new technology adoption becomes widespread, IT services have been called in to help with the transition. To implement the new stuff, to phase out the old stuff, make the old systems and new ones talk to each other and to re-train the workforce. That is when the tech services companies see growth acceleration—when the new technology gets widely adopted.” Bertie was seeing the pattern now and it fit well.
“If I were a betting man, I would say this time is no different,” Will continued, “but there is a small wrinkle this time.” Bertie was curious now. “And what is that?” Will put on a thoughtful look “There are obituaries in the papers but not in the valuations. These companies are not priced for extinction. Maybe because of their good governance and strong balancesheets.” Will paused. “So, I would want to make a bet against these obituaries but I am not being offered good odds. That’s the problem.”
Bertie nodded again as they headed to their customary roadside tea. Some of his questions had been answered. But new ones had cropped up in their place.
