Why I Have Become Pessimistic About Indian I.T.

When Wall Street Journal and Forbes published articles, a few years ago, predicting the demise of Indian IT, I responded in BusinessWeek that they were dead wrong. I said that the outsourcing market had a long way to go before it peaked; rising salaries and attrition rates were not a cause for long-term concern; and Indian IT would soon become a $100 billion industry. I was, of course, right.

Now I am ready to declare the end of the line for Indian IT. There are new $100 billion opportunities that could revitalize this industry. But from what I’ve seen, Indian executives seem incapable of steering their ships in the right directions.

It is not that Indian outsourcers have become less capable of servicing Western needs. It is that their customer base—the CIO and IT department—is in decline. With the advent of tablets, apps, and cloud computing, users have direct access to better technology than their IT departments can provide them. They can download cheap, elegant, and powerful apps on their IPads that make their corporate systems look primitive. These modern-day apps don’t require internal teams of people doing software development and maintenance—they are user-customizable and can be built by anyone with basic programming skills.

It takes decades to update legacy computer systems, and corporate IT departments move at the speed of molasses. So, Indian outsourcers have a few more years before they suffer a significant decline. They certainly won’t see the growth and billion-dollar outsourcing deals that have brought them this far.

The same advances that are changing the IT landscape are also creating new opportunities.

For example, advances in robotics, artificial intelligence (AI), and 3D printing are making it cost effective to move manufacturing back from China to the U.S., Europe, …and India.

Take the Baxter robot from Rethink Robotics. It has two arms, a face that displays simulated emotion, and cameras and sensors that detect the motion of human beings that work next to it. It can perform assembly and move boxes—just as humans do. It will work 24 hours a day and not complain. It costs only $22,000. This is one of many such robots.

AI is making it possible to develop self-driving cars, voice-recognition systems such as Apple’s Siri, and computer systems that can make human-like decisions. AI technologies are also finding their way into manufacturing and are powering robots such as Baxter.

A type of manufacturing called “additive manufacturing” is making it possible to cost-effectively “print” products. 3D printers can create physical mechanical devices, medical implants, jewelry, and even clothing. The cheapest 3D printers, which print rudimentary objects, currently sell for between $500 and $1000. Soon we will have printers for this price that can print toys and household goods. By the end of this decade, we will see 3D printers doing the small-scale production of previously labor-intensive crafts and goods. In the next decade we may be 3D-printing buildings and electronics.

These technologies are becoming readily available and cheap, but America’s manufacturing plants aren’t geared up to take advantage of them. Most don’t have the know-how. This is where India’s companies could step in. They could master the new technologies and help American firms design new factory floors and program and install robots. They could provide management consulting on designing new value chains and inventory management. They could manage manufacturing plant operations remotely. This is a higher-margin business than the old IT services. And American’s would cheer India for bringing manufacturing back to their shores—rather than protest its taking their IT jobs away. We are talking about a trillion dollar market opportunity.

India’s technology companies can also develop sensor-based biomedical devices, cures for diseases by analyzing genome and health data, drone-based delivery systems, smart cities, digital tutors, and sensors to improve farming. Software and IT are the key to developing all these.

In my discussions with Indian CEOs, they all acknowledge the reality. They are becoming aware of what lies ahead. I have implored them to start retraining their people in the new technologies and to develop new businesses and consulting practices. They listen, nod their heads from side to side, and go back to trying to close the disappearing software-outsourcing deals. I tell them that they are shuffling deck chairs on the Titanic.

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Photo: R~P~M/Flickr