Indian IT services companies will have to pay a heavy price for the global economic slowdown as the demand from North America and Europe will come down drastically.
According to Gartner report, the IT services spending worldwide for the first time is projected to cross $1 trillion (Rs 73.5 trillion) in 2019, registering the slowest growth of 4.7% in 2019 compared with 5.9% in the previous year.
The report also states that overall IT spends, including spending on IT services software, computer hardware, data centre systems and communications technologies, are expected to grow slower at 3.2% in 2019 to $3,816 billion as compared to 4.5% clocked in 2018.
The slow growth happens at a time when the global economy is reeling under slow growth, currency fluctuation and trade war. Also, Indian IT services companies are vying hard to register double-digit growth with a focus on new age technologies and by delivering additional values to their clients.
The National Association of Software and Solutions Companies (Nasscom) has projected a growth rate of 7% to 9% for the IT and BPO industry in FY2019 as against 7.8% in FY2018. Nasscom also states that the exports would be at $137 billion dollars in FY2019 as against $126 billion dollars in 2018.
Gartner research vice president John-David Lovelock said while currency volatility and the potential for trade wars are still playing a part in the outlook for IT spending, it is the shift from ownership to service that is sending ripples through every segment of the forecast.
“What this signals, for example, is more enterprise use of cloud services — instead of buying their own servers, they are turning to the cloud. As enterprises continue their digital transformation efforts, shifting to ‘pay for use’ will continue. This sets enterprises up to deal with the sustained and rapid change that underscores digital business," said Lovelock.
While enterprise software spending is forecast to experience the highest growth with an 8.3% increase in 2019, the Gartner reports says that software as a service (SaaS) is driving growth in almost all software segments, particularly customer relationship management (CRM), due to an increased focus on providing better customer experiences.
The report states that worldwide spending on devices — PCs, tablets and mobile phones — will grow 2.4% in 2019, reaching $706 billion, up from $689 billion in 2018. Demand for PCs in the corporate sector has been strong, driven by Windows 10 PC hardware upgrades that should continue until 2020.
However, the PC market may see some impact from the Intel CPU shortage. While this shortage will have some short-term impacts, Gartner does not expect any lasting impact on overall PC demand. The current expectation is that the shortage will continue into 2019, but Intel will prioritize the high-end CPU as well as the CPUs for business PCs. In the meantime, AMD will pick up the part of the market where Intel cannot supply CPUs.
Aston Business School, UK, Doctoral Research Scholar Sanjoy Sen said it may be overly naive to assume that global IT spending has a direct one-to-one relationship with Indian IT companies’ top line to reduce the latter by exactly the same percentage as any fall in spending.
"Whilst definitely a moderating factor, I feel it is premature to conclude that this will directly slow down growth in Indian IT companies. This is due to the dominance of digital initiatives involving the strategic transformation of businesses which presents a completely new playing field for Indian IT companies," he said.
Sen also added that almost all large global organisations are investing in the future of work that includes cloud-driven agility initiatives, robotics to automate routine tasks, cognitive technologies for interpretive processes, blockchain and IoT.
"This entire domain of opportunity is new. Secondly, the US economy is at is best in the last few years and this is where most of the larger projects come from. And with Indian IT companies rapidly developing competencies in consulting, risk management etc, that revenue stream is new as well," he said.